Today, you are borrowing $13,800 to purchase a car. What will be your monthly
payment amount if the loan is for four years at 7.5 percent interest?
A. $298.40
B. $321.150
C. $333.67
D. $380.24
E. $400.10
Answer:
The standard deviation measures the _____ of a security’s returns over time.
A. average value
B. frequency
C. volatility
D. mean
E. arithmetic average
Answer:
Which one of the following terms refers to the termination of a firm as a going
concern?
A. Insolvency
B. Reorganization
C. Chapter 11 bankruptcy
D. Prepack
E. Liquidation
Answer:
Mountaintop Market is offering 60,000 shares of stock to the public in a general cash
offer. The offer price is $30 a share and the underwriter’s spread is 9 percent. The
administrative costs are estimated at $310,000. How much will Hilltop Market receive
from this stock offering assuming the issue is completely sold?
A. $1,370,800
B. $1,328,000
C. $1,490,000
D. $1,638,000
E. $1,800,000
Answer:
Flemington Farms is evaluating an extra dividend versus a share repurchase. In either
case, $15,000 would be spent. Current earnings are $2.80 per share, and the stock
currently sells for $75 per share. There are 2,800 shares outstanding. Ignore taxes and
other imperfections. The PE ratio will be ____ if the firm issues the dividend as
compared to ____ if the firm does the share repurchase.
A. 24.87; 24.87
B. 24.87; 26.79
C. 26.79; 24.87
D. 26.79; 26.79
E. 26.79; 27.13
Answer:
Today, Courtney wants to invest less than $5,000 with the goal of receiving $5,000 back
some time in the future. Which one of the following statements is correct?
A. The period of time she has to wait until she reaches her goal is unaffected by the
compounding of interest.
B. The lower the rate of interest she earns, the shorter the time she will have to wait to
reach her goal.
C. She will have to wait longer if she earns 6 percent compound interest instead of 6
percent simple interest.
D. The length of time she has to wait to reach her goal is directly related to the interest
rate she earns.
E. The period of time she has to wait decreases as the amount she invests today
increases.
Answer:
Which one of the following statements is correct?
A. Generally speaking, the size of a firm has no effect on its tendency to pay dividends.
B. The market crash and the accounting scandals in the early 2000s tended to cause
financially stable firms to cease paying cash dividends.
C. The majority of firms either started paying or increased their dividends per share in
response to the May 2003 change in dividend taxation.
D. Firms tend to prefer cash dividends over share repurchases for their flexibility and
tax benefits.
E. A non-dividend-paying firm is more apt to do a stock repurchase than to commence
paying dividends.
Answer:
Aaron’s Rentals has 58,000 shares of common stock outstanding at a market price of
$36 a share. The common stock just paid a $1.64 annual dividend and has a dividend
growth rate of 2.8 percent. There are 12,000 shares of 6 percent preferred stock
outstanding at a market price of $51 a share. The preferred stock has a par value of
$100. The outstanding bonds mature in 17 years, have a total face value of $750,000, a
face value per bond of $1,000, and a market price of $1,011 each. The bonds pay 8
percent interest, semiannually. The tax rate is 34 percent. What is the firm’s weighted
average cost of capital?
A. 7.74 percent
B. 8.68 percent
C. 9.29 percent
D. 9.97 percent
E. 10.30 percent
Answer:
The next dividend payment by Swenson, Inc. will be $1.80 per share. The dividends are
anticipated to maintain a 5.5 percent growth rate, forever. If the stock currently sells for
$48.50 per share, what is the required return?
A. 8.20 percent
B. 8.88 percent
C. 9.21 percent
D. 9.74 percent
E. 10.02 percent
Answer:
What is the primary purpose of bond covenants?
A. Meet regulatory requirements
B. Describe repayment terms
C. Protect the lender
D. Define a bond’s rating
E. Increase a bond’s seniority position
Answer:
Which one of the following terms is defined as the total tax paid divided by the total
taxable income?
A. Average tax rate
B. Variable tax rate
C. Marginal tax rate
D. Absolute tax rate
E. Contingent tax rate
Answer:
Lacey’s has an average collection period of 32 days and factors all of its receivables
immediately at a 1.1 percent discount. Assume all accounts are collected in full. What is
the firm’s effective cost of borrowing?
A. 13.38 percent
B. 13.45 percent
C. 13.57 percent
D. 13.63 percent
E. 13.88 percent
Answer:
An all-equity firm has net income of $28,300, depreciation of $7,500, and taxes of
$2,050. What is the firm’s operating cash flow?
A. $17,850
B. $21,950
C. $26,250
D. $35,800
E. $36,750
Answer:
Which one of the following is defined as a bell-shaped frequency distribution that is
defined by its average and its standard deviation?
A. Arithmetic average return
B. Variance
C. Standard deviation
D. Probability curve
E. Normal distribution
Answer:
A DMM is a(n):
A. employee who executes orders to buy and sell for clients of his or her brokerage
firm.
B. individual who trades on the floor of an exchange for his or her personal account.
C. NYSE member who functions as a dealer for a limited number of securities.
D. broker who buys and sells securities from a market maker.
E. trader who deals only with primary offerings.
Answer:
Which one of the following terms is inclusive of both direct and indirect bankruptcy
costs?
A. Financial distress costs
B. Capital structure costs
C. Financial leverage
D. Homemade leverage
E. Cost of capital
Answer:
Scott placed an order with his broker to purchase 1,000 shares of each of three IPOs
that are being released this month. Each IPO has an offer price of $24 a share. The
number of shares allocated to Scott along with the closing stock price at the end of the
first day of trading for each stock, are as follows:
What is Scott’s total profit or loss on these three stocks as of the end of the first day of
trading for each stock?
A. -$380
B. -$240
C. -$10
D. $220
E. $450
Answer:
On any given day, Athens Florist receives numerous checks worth an average combined
total of $6,300. The funds from the deposited checks are generally available in 1.5 days.
Every day the firm mails out checks totaling $4,600 that generally take 2 days to clear
the bank. What is the amount of the disbursement float?
A. $150
B. $6,900
C. $9,150
D. $9,200
E. $9,850
Answer:
Aardvark, Inc. pays a constant annual dividend. At the end of trading on Wednesday,
the price of its stock was $ At the end of trading on the following day, the stock price
was $27. As a result of the decline in the stock’s price, the dividend yield _____ while
the capital gains yield ____.
A. remained constant; remained constant
B. increased; remained constant
C. increased; increased
D. decreased; remained constant
E. decreased; decreased
Answer:
Through which of the following can a firm can reduce its number of outstanding
shares?
I. Open market purchase
II. Rights offer
III. Tender offer
IV. Targeted repurchase
A. IV only
B. I and IV only
C. II, III, and IV only
D. I, III and IV only
E. I, II, III, and IV
Answer:
Kate could not attend the last shareholders’ meeting and thus she granted the authority
to vote on her behalf to the managers of the firm. Which one of the following terms is
used to describe the method by which Kate’s shares were voted?
A. Straight
B. Cumulative
C. Consent-form
D. Proxy
E. In absentia
Answer: