When the market interest rate rises for a particular quality of bond, the price of the bond
falls, which gives investors a new:
a. coupon rate
b. interest payment amount
c. yield to maturity
d. maturity
The Capital Asset Pricing Model (CAPM) states that the expected return on an asset
depends upon its level of:
a. systematic risk
b. unsystematic risk
c. all of the above
d. none of the above
Which of the following costs must be adjusted to an after-tax cost?
a. cost of debt
b. cost of preferred stock
c. cost of common stock
d. cost of retained earnings
When the market interest rate is below the coupon rate for a particular quality of bond,
the bond will be priced:
a. below its par value
b. at its par value
c. above its par value
d. The bond price cannot be determined
All of the following forms of organization are taxed at the owners’ personal tax rate
EXCEPT:
a. proprietorship
b. LLC
c. subchapter S corporation
d. partnership
e. all of the above assess taxes at the owners’ personal rate
The constant dividend growth model assumes:
a. a constant annual dividend
b. a constant dividend growth rate for no more than the first 10 years
c. that the discount rate must be greater than the dividend growth rate
d. two of above are true assumptions
All of the following statements are correct except:
a. EBIT/EPS analysis allows managers to see how different capital structures affect the
earnings and risk levels of their firms.
b. EBIT/EPS analysis shows the graphical relationship between a firm’s operating
earnings, or earnings before interest and taxes (EBIT), and earnings per share (EPS).
c. EBIT/EPS analysis suggests that at some EBIT level, a firm will be indifferent
between the two capital structures, inasmuch as they result in the same earnings per
share.
d. EBIT/eps analysis shows the ranges of EBIT where a firm may prefer one capital
structure over another so that the firm may decide to increase or decrease its financial
leverage depending on whether its expected EBIT is above or below the indifference
EBIT level.
e. All of the above statements are correct.
A firm may decide to list its shares on another exchange besides the NYSE because
a. costs are lower.
b. listing requirements are easier to satify.
c. investors can get faster trade execution in another exchange.
d. all of the above.
The five components of the Federal Reserve System include:
a. Member banks, Federal Reserve District Banks, Board of Governors, Federal Open
Market Committee, Monetary Committees.
b. Nonmember banks, Federal Reserve District Banks, Board of Governors, Federal
Open Market Committee, Advisory committees.
c. Member banks, Federal Reserve District Banks, Board of Presidents, Federal Open
Market Committee, Advisory committees.
d. Member banks, Federal Reserve District Banks, Board of Governors, Federal Closed
Market Committee, Advisory committees.
e. none of the above
_______________ are cooperative nonprofit organizations that exist primarily to
provide member depositors with consumer credit, including the financing of
automobiles and the purchase of homes, and derive their funds almost entirely from the
savings of their members.
a. Commercial banks
b. Thrift institutions
c. Savings banks
d. Brokerage firms
e. none of the above
If the nominal rate of interest is 10%, the real rate of interest is 3%, the default premium
is 3%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the
inflation premium must be ______.
a. 2.0%
b. 2.5%
c. 3.0%
d. none of the above
Which one of the following alternatives is commonly used to reduce agency problems
as they relate to corporate control?
a. stock options
b. higher salaries
c. larger perquisites (“perks”)
d. less restrictive accountability requirements
If $5,000 is borrowed on a discount basis and the rate is 10 percent, the annual
percentage interest rate on this loan would be:
a. 10%
b. 10.1%
c. 11%
d. 11.1%
e. none of the above
Jill Clinton puts $1,000 in a savings passbook that pays 4% compounded quarterly.
How much will she have in her account after five years?
a. $1,200.50
b. $1,220.20
c. $1,174.80
d. $1,217.50
Which one of the following capital-budgeting evaluation techniques is based on finding
a discount rate which causes the net present value to be zero?
a. net present value
b. internal rate of return
c. profitability index
d. payback
Which of the following statements is false?
a. The Bretton Wood System of fiXed eXchange rates was maintained until 1975.
b. Under the Bretton Wood System, one ounce of gold was set equal to $35.
c. Under the Bretton Wood System, each participating country had it currency pegged to
either gold or the U.S. dollar.
d. All of the above statements are correct.
Net working capital is defined as:
a. current assets plus current liabilities
b. current assets less fixed assets
c. current assets less current liabilities
d. current liabilities plus long-term liabilities
The shorter the maturity of a fixed-rate debt instrument, the greater the reduction in its
value to a given interest rate increase.
International financial markets strongly influence domestic interest rates.
While the Federal Reserve strongly influences the supply of funds, the Treasury€s
major influence is on the demand for funds, as it borrows heavily to finance federal
deficits.
The 1980 Depository Institutions Deregulation and Monetary Control Act applies
different reserve requirements to different banks based on their charters.
A stock that went from $40 per share at the beginning of the year to $45 at the end of
the year and paid a $2 dividend provided an investor with a 14% return.
M1 includes currency and demand deposits but eXcludes travelers’ checks.
Capital budgeting is the process of identifying, evaluating, and implementing a firm’s
investment opportunities.
Commercial banks accept deposits and makes loans to individuals and businesses.