Which one of the following statements is correct?
A. A longer payback period is preferred over a shorter payback period.
B. The payback rule states that you should accept a project if the payback period is less
than one year.
C. The payback period ignores the time value of money.
D. The payback rule is biased in favor of long-term projects.
E. The payback period considers the timing and amount of all of a project’s cash flows.
Which one of the following statements is true?
A. The current yield on a par value bond will exceed the bond’s yield to maturity.
B. The yield to maturity on a premium bond exceeds the bond’s coupon rate.
C. The current yield on a premium bond is equal to the bond’s coupon rate.
D. A premium bond has a current yield that exceeds the bond’s coupon rate.
E. A discount bond has a coupon rate that is less than the bond’s yield to maturity.
Twelve years ago, you deposited $3,400 into an account. Seven years ago, you added an
additional $1,000 to this account. You earned 8 percent, compounded annually, for the
first 5 years and 5.5 percent, compounded annually, for the last 7 years. How much
money do you have in your account today?
A. $5,666.67
B. $6,717.29
C. $7,411.90
D. $8,708.15
E. $8,721.97
You find a certain stock that had returns of 14 percent, -27 percent, 19 percent, and 21
percent for four of the last five years, respectively. The average return of the stock over
this period was 9.5 percent. What is the standard deviation of the stock’s returns?
A. 11.67 percent
B. 12.90 percent
C. 14.14 percent
D. 18.47 percent
E. 20.59 percent
You earned 26.3 percent on your investments for a time period when the risk-free rate
was 3.8 percent and the inflation rate was 4.0 percent. What was your real rate of return
for the period?
A. 19.12 percent
B. 20.06 percent
C. 21.44 percent
D. 21.67 percent
E. 21.08 percent
The After Life has sales of $428,300, total assets of $389,100, and a profit margin of
7.2 percent. What is the return on assets?
A. 6.30 percent
B. 6.54 percent
C. 6.83 percent
D. 7.01 percent
E. 7.93 percent
What is the net present value of the following cash flows if the relevant discount rate is
9.0 percent?
A. $3,374.11
B. $5,006.19
C. $8,215.46
D. $13,058.39
E. $18,519.71
The common stock of The Burger Hut is selling for $16.25 a share. The company has
earnings per share of $0.42 and a book value per share of $9.28. What is the
market-to-book ratio?
A. 1.58
B. 1.69
C. 1.75
D. 1.87
E. 1.92
Deltona Motors just issued 225,000 zero coupon bonds. These bonds mature in 20
years, have a par value of $1,000, and have a yield to maturity of 7.45 percent. What is
the approximate total amount of money the company raised from issuing these bonds?
(Assume semiannual compounding.)
A. $48.20 million
B. $52.10 million
C. $55.14 million
D. $162.08 million
E. $225.00 million
Contingency planning focuses on the:
A. opportunity costs involved with a project.
B. sunk costs related to a project.
C. economic effects on a project’s profitability.
D. managerial options implicit in a project.
E. optional capital requirements of a project.
You are buying a bond at a clean price of $1,140. The bond has a face value of $1,000,
an 8 percent coupon, and pays interest semiannually. The next coupon payment is one
month from now. What is the dirty price of this bond?
A. $1,000.00
B. $1,146.67
C. $1,173.33
D. $1,176.67
E. $1,180.00
Mary owns 100 shares of stock. Each share entitles her to one vote per open seat on the
board of directors. Assume there are three open seats in the current election and Mary
casts all 300 of her votes for a single candidate. What is the term used to describe this
type of voting?
A. Proxy
B. Aggregate
C. Cumulative
D. Straight
E. Condensed
Suppose your company needs to raise $28 million and you want to issue 20-year bonds
for this purpose. Assume the required return on your bond issue will be 8 percent, and
you’re evaluating two issue alternatives: an 8 percent annual coupon and a zero coupon
bond. Your company’s tax rate is 25 percent. In 20 years, what will your company’s
repayment be if you issue the coupon bonds? What if you issue the zeros? (Assume
annual compounding on the zero coupon bond.)
A. $28.00 million; $122.12 million
B. $28.00 million; $130.51 million
C. $30.00 million; $122.12 million
D. $30.24 million; $130.51 million
E. $30.24 million; $122.12 million
Which one of the following represents the amount of compensation an investor should
expect to receive for accepting the unsystematic risk associated with an individual
security?
A. Security beta multiplied by the market rate of return
B. Market risk premium
C. Security beta multiplied by the market risk premium
D. Risk-free rate of return
E. Zero