February 26, 2019

Recently, you discovered a putable income bond that is convertible. If you purchase this

bond, you will have the right to do which of the following?

I. force the issuer to repurchase the bond prior to maturity

II. choose when you wish to receive interest payments

III. convert the bond into a TIPS

IV. convert the bond into equity shares

A. I and III only

B. I and IV only

C. II and III only

D. III and IV only

E. I, II, and IV only

Miller Mfg. is analyzing a proposed project. The company expects to sell 8,000 units,

plus or minus 2 percent. The expected variable cost per unit is $11 and the expected

fixed costs are $287,000. The fixed and variable cost estimates are considered accurate

within a plus or minus 5 percent range. The depreciation expense is $68,000. The tax

rate is 32 percent. The sales price is estimated at $64 a unit, give or take 3 percent.

What is the net income under the worst case scenario?

A. $8,578

B. $18,228

C. $15,846

D. $20,704

E. $24,696

Your grandmother has promised to give you $5,000 when you graduate from college.

She is expecting you to graduate two years from now. What happens to the present

value of this gift if you delay your graduation by one year and graduate three years

from now?

A. remains constant

B. increases

C. decreases

D. becomes negative

E. cannot be determined from the information provided

You believe the price of a stock is going to decline within the next three months. Which

one of the following option payoff profiles will reflect a profit if your belief is correct?

A. buying a call

B. selling a call

C. buying a put

D. selling a put

E. none of the above

Which one of the following managers determines which customers must pay cash and

which can charge their purchases?

A. purchasing manager

B. credit manager

C. controller

D. production manager

E. payables manager

Bonner Metals wants to issue new 18-year bonds for some much-needed expansion

projects. The company currently has 11 percent bonds on the market that sell for

$1,459.51, make semiannual payments, and mature in 18 years. What should the

coupon rate be on the new bonds if the firm wants to sell them at par?

A. 5.75 percent

B. 6.23 percent

C. 6.41 percent

D. 6.60 percent

E. 6.79 percent

Which of the following statements are correct concerning convertible bonds?

I. New shares of stock are issued when a convertible bond is converted.

II. A convertible bond is similar to a bond with a call option.

III. A convertible bond should always be worth less than a comparable straight bond.

IV. A convertible bond can be described as having upside potential with downside

protection.

A. I and III only

B. I, II, and IV only

C. I, II, and III only

D. I, III, and IV only

E. II, III, and IV only

You are buying a previously owned car today at a price of $3,500. You are paying $300

down in cash and financing the balance for 36 months at 8.5 percent. What is the

amount of each loan payment?

A. $101.02

B. $112.23

C. $118.47

D. $121.60

E. $124.40

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.7

percent and the market risk premium is 8.8 percent?

A. A

B. B

C. C

D. D

E. E

Farmer Jones raises several hundred acres of corn and would suffer a significant loss

should the price of corn decline at harvest time. Which one of the following would he

be doing if he purchased financial securities to offset this price risk?

A. abating

B. deriving

C. hedging

D. forwarding

E. manipulating

The delta of a call option on a firm's assets is 0.727. This means that a $195,000 project

will increase the value of equity by:

A. $141,765.

B. $180,219.

C. $211,481.

D. $264,909.

E. $268,226.

What is the expected return on this portfolio?

A. 11.48 percent

B. 11.92 percent

C. 13.03 percent

D. 13.42 percent

E. 13.97 percent

Which one of the following types of stock is defined by the fact that it receives no

preferential treatment in respect to either dividends or bankruptcy proceedings?

A. dual class

B. cumulative

C. non-cumulative

D. preferred

E. common

The Huff Co. has just gone public. Under a firm commitment agreement, Huff received

$21.50 for each of the 6 million shares sold. The initial offering price was $23.65 per

share, and the stock rose to $30.51 per share in the first few minutes of trading. Huff

paid $1,260,000 in direct legal and other costs, and $390,000 in indirect costs. The

flotation costs were what percentage of the funds raised?

A. 38.56 percent

B. 40.32 percent

C. 41.68 percent

D. 43.75 percent

E. 44.09 percent

A money market preferred stock:

A. has a floating dividend.

B. is sold only under a repurchase agreement.

C. is a special form of commercial paper.

D. has more price volatility than an ordinary preferred.

E. has its interest rate reset daily.

Systematic risk is measured by:

A. the mean.

B. beta.

C. the geometric average.

D. the standard deviation.

E. the arithmetic average.

Which one of the following is a direct bankruptcy cost?

A. company CEO's time spent in bankruptcy court

B. maintaining cash reserves

C. maintaining a debt-equity ratio that is lower than the optimal ratio

D. losing a key company employee

E. paying an outside accountant fees to prepare bankruptcy reports

The Dog House expects sales of $560, $650, $670, and $610 for the months of May

through August, respectively. The firm collects 20 percent of sales in the month of sale,

70 percent in the month following the month of sale, and 8 percent in the second month

following the month of sale. The remaining 2 percent of sales is never collected. How

much money does the firm expect to collect in the month of August?

A. $621

B. $628

C. $633

D. $639

E. $643

Roy's Welding Supplies common stock sells for $38 a share and pays an annual

dividend that increases by 3 percent annually. The market rate of return on this stock is

8.20 percent. What is the amount of the last dividend paid?

A. $1.80

B. $1.86

C. $1.92

D. $1.98

E. $2.10

G & L Plastic Molders spent $1,200 last week repairing a machine. This week the

company is trying to decide if the machine could be better utilized if they assigned it a

proposed project. When analyzing the proposed project, the $1,200 should be treated as

which type of cost?

A. opportunity

B. fixed

C. incremental

D. erosion

E. sunk

Over the past fifteen years, the common stock of The Flower Shoppe, Inc. has produced

an arithmetic average return of 12.2 percent and a geometric average return of 11.5

percent. What is the projected return on this stock for the next five years according to

Blume's formula?

A. 11.70 percent

B. 11.89 percent

C. 12.00 percent

D. 12.03 percent

E. 12.12 percent

Your friend is the owner of a stock which had returns of 25 percent, -36 percent, 1

percent, and 16 percent for the past three years. Your friend thinks the stock may be

able to achieve a return of 50 percent or more in a single year. Based on these returns,

what is the probability that your friend is correct?

A. less than 0.5 percent

B. greater than 0.5 percent but less than 1.0 percent

C. greater than 1.0 percent but less than 2.5 percent

D. greater than 2.5 percent but less than 16 percent

E. greater than 16.0 percent

The expected return on a portfolio considers which of the following factors?

I. percentage of the portfolio invested in each individual security

II. projected states of the economy

III. the performance of each security given various economic states

IV. probability of occurrence for each state of the economy

A. I and III only

B. II and IV only

C. I, III, and IV only

D. II, III, and IV only

E. I, II, III, and IV

If a firm sells its crown jewels when threatened with a takeover attempt, the firm is

employing a strategy commonly referred to as a _____ strategy.

A. scorched earth

B. shark repellent

C. bear hug

D. white knight

E. lockup

HG Livery Supply had a beginning accounts payable balance of $57,300 and an ending

accounts payable balance of $55,100. Sales for the period were $610,000 and costs of

goods sold were $442,000. What is the payables turnover rate?

A. 7.86 times

B. 8.39 times

C. 9.02 times

D. 9.86 times

E. 10.85 times

You are considering switching from an all cash credit policy to a net 30 credit policy.

You do not expect the switch to affect either your sales quantity or your sales price.

Ignoring interest and assuming that every month has 30 days, your net present value of

the switch will be equal to:

A. zero.

B. your selling price per unit.

C. your selling price per unit multiplied by -1.

D. your selling price per unit multiplied by -30.

E. your total monthly sales multiplied by -1.

The Wake-Up Coffee Company has projected the following quarterly sales amounts for

the coming year:

Accounts receivable at the beginning of the year are $200. Wake-Up has a 60-day

collection period. What is the amount of the accounts receivable balance at the end of

Quarter 3?

A. $375

B. $450

C. $500

D. $600

E. $700

HJ Corporation has excess cash and has opted to buy some of its shares of outstanding

common stock. What is this process of buying called?

A. stock dividend

B. stock split

C. stock repurchase

D. stock recap

E. stock repeal

You own a portfolio that has $2,000 invested in Stock A and $1,400 invested in Stock

B. The expected returns on these stocks are 14 percent and 9 percent, respectively. What

is the expected return on the portfolio?

A. 11.06 percent

B. 11.50 percent

C. 11.94 percent

D. 12.13 percent

E. 12.41 percent

At a minimum, which of the following would you need to know to estimate the amount

of additional reward you will receive for purchasing a risky asset instead of a risk-free

asset?

I. asset's standard deviation

II. asset's beta

III. risk-free rate of return

IV. market risk premium

A. I and III only

B. II and IV only

C. III and IV only

D. I, III, and IV only

E. I, II, III, and IV