1) The common stock of Western Hill Farms has yielded 16.3 percent, 7.2 percent, 11.8
percent, -3.6 percent, and 9.9 percent over the past five years, respectively. What is the
geometric average return?
A.7.91 percent
B.8.03 percent
C.8.11 percent
D.8.27 percent
E.8.32 percent
2) Jeff deposits $3,000 into an account which pays 2.5 percent interest, compounded
annually. At the same time, Kurt deposits $3,000 into an account paying 5 percent
interest, compounded annually. At the end of three years:
A.Both Jeff and Kurt will have accounts of equal value
B.Kurt will have twice the money saved that Jeff does
C.Kurt will earn exactly twice the amount of interest that Jeff earns
D.Kurt will have a larger account value than Jeff will
E.Jeff will have more money saved than Kurt
3) A stock has a market price of $46.10 and pays a $2.40 annual dividend. What is the
dividend yield?
A.4.13 percent
B.4.84 percent
C.5.21 percent
D.5.52 percent
E.5.78 percent
4) The owner of a trading license who trades on the floor of the NYSE for his or her
personal account is called a(n):
A.specialist
B.independent broker
C.floor trader
D.stand-alone agent
E.dealer
5) The standard deviation measures the _____ of a security’s returns over time.
A.average value
B.frequency
C.volatility
D.mean
E.arithmetic average
6) A stock has returns for five years of 23 percent, -17 percent, 8 percent, 22 percent,
and 3 percent. The stock has an average return of ______ percent and a standard
deviation of _____ percent.
A.7.80; 13.54
B.7.80; 14.63
C.7.80; 16.36
D.14.60; 14.63
E.14.60; 16.36
7) Which of the following are inversely related to increases in a firm’s current assets?
I. re-order costs
II. shortage costs
III. restocking costs
IV. carrying costs
A.I and III only
B.II and IV only
C.I, II, and III only
D.II, III, and IV only
E.I, III, and IV only
8) A project has the following cash flows. What is the internal rate of return?
A.9.75 percent
B.10.28 percent
C.10.60 percent
D.10.67 percent
E.11.23 percent
9) You would like to create a portfolio that is equally invested in a risk-free asset and
two stocks. One stock has a beta of 1.14. What does the beta of the second stock have to
be if you want the portfolio to be equally as risky as the overall market?
A.0.62
B.0.97
C.1.23
D.1.55
E.1.86
10) Keyser Materials has 8 percent coupon bonds on the market with 19 years to
maturity. The bonds make semiannual payments and currently sell for 102 percent of
par. What is the current yield on Keyser Materials bonds? The YTM? The effective
annual yield?
A.7.84 percent; 7.80 percent; 7.95 percent
B.7.84 percent; 7.92 percent; 7.95 percent
C.7.84 percent; 7.92 percent; 7.97 percent
D.7.80 percent; 7.84 percent; 7.92 percent
E.7.80 percent; 7.92 percent; 7.95 percent
11) Miller’s Hardware has 185,000 shares of stock outstanding with a current market
value of $27 a share. You own 38,000 of those shares. Next month, the election will be
held to select four new members to the board of directors. The firm uses a cumulative
voting system. How much additional money do you need to spend to guarantee that you
will be elected to the board assuming that everyone else votes for one of the other
candidates?
A.$0
B.$28,512
C.$34,047
D.$222,777
E.$311,027
12) The capital asset pricing model:
A.assumes the market has a beta of zero
B.rewards investors based on total risk
C.considers the time value of money
D.applies to portfolios but not to individual securities
E.assumes the market risk premium is constant over time
13) To be a member of the NYSE, you must:
A.be a primary dealer
B.buy a seat
C.own a trading license
D.be registered as a floor trader
E.be a specialist
14) Which one of the following best describes an initial public offering?
A.Shares held by a firm’s founder
B.Any newly issued shares offered to the general public
C.Shares issued to the public on a cash basis
D.The first sale of equity shares to the general public
E.Any shares initially offered to a firm’s existing shareholders
15) What is the name given to the model that computes the present value of a stock by
dividing next year’s annual dividend amount by the difference between the discount rate
and the rate of change in the annual dividend amount?
A.Stock pricing model
B.Equity pricing model
C.Capital gain model
D.Dividend growth model
E.Present value model
16) The Toy Box pays an annual dividend of $2.40 per share and sells for $46.60 a
share based on a market rate of return of 15 percent. What is the capital gains yield?
A.7.35 percent
B.7.78 percent
C.9.23 percent
D.9.85 percent
E.10.11 percent
17) On a common-size balance sheet, all accounts are expressed as a percentage of:
A.sales for the period
B.the base year sales
C.total equity for the base year
D.total assets for the current year
E.total assets for the base year
18) FM is contemplating an average-risk investment costing $100 million and
promising an annual after-tax cash flow of $15 million in perpetuity. Which of the
following statements is/are correct?
I. FM should reject the project because the IRR is greater than the firm’s WACC.
II. FM should accept the project because the IRR is greater than the firm’s WACC.
III. FM should accept the project because the NPV is greater than zero.
IV. FM should reject the project because the NPV is less than zero.
A.I only
B.II only
C.IV only
D.I and IV only
E.II and III only
19) Changes in interest rates affect bond prices. Which one of the following
compensates bond investors for this risk?
A.Taxability risk premium
B.Default risk premium
C.Interest rate risk premium
D.Real rate of return
E.Bond premium
20) The Embroidery Shoppe had beginning retained earnings of $18,670. During the
year, the company reported sales of $83,490, costs of $68,407, depreciation of $8,200,
dividends of $950, and interest paid of $478. The tax rate is 35 percent. What is the
retained earnings balance at the end of the year?
A.$21,883.25
B.$22,193.95
C.$22,833.24
D.$23,783.24
E.$30,393.95
21) Elaine has just received an insurance settlement of $25,000. She wants to save this
money until her daughter goes to college. If she can earn an average of 6.5 percent,
compounded annually, how much will she have saved when her daughter enters college
8 years from now?
A.$38,000.00
B.$40,929.02
C.$41,374.89
D.$41,899.60
E.$42,000.00
22) Which one of the following statements related to the static theory of capital
structure is correct?
A.A firm begins to lose value as soon as the first dollar of debt is incurred
B.The actual value of a firm continually rises in direct proportion to the increased use
of debt
C.The linear function of a firm’s value has a constant positive slope
D.A firm’s value is maximized when a firm operates at its optimal debt level
E.The value of a firm will automatically decrease whenever the debt-equity ratio is
decreased
23) What was the average annual risk premium on small-company stocks for the period
1926-2008?
A.5.3 percent
B.6.2 percent
C.8.5 percent
D.12.6 percent
E.15.3 percent
24) Lunar Excursions wants to do an IPO but is very uncertain that underwriters will set
the most optimal offer price for the securities. Which one of the following might the
firm consider to address this uncertainty?
A.Extended quiet period
B.Extended lockup period
C.Best efforts underwriting
D.Dutch auction underwriting
E.Standby underwriting
25) You want to have $25,000 for a down payment on a house 6 years from now. If you
can earn 6.5 percent, compounded annually, on your savings, how much do you need to
deposit today to reach your goal?
A.$17,133.35
B.$17,420.73
C.$17,880.69
D.$18,211.17
E.$18,886.40
26) Which one of the following is a system for managing demand-dependent
inventories that minimizes the amount of inventory on hand?
A.Inventory flow log
B.Materials requirements planning
C.Just-in-time inventory system
D.Kanban
E.Keiretsu
27) Investors receive a total return of 13.7 percent on the common stock of Dexter
International. The stock is selling for $41.68 a share. What is the dividend growth rate if
the company plans to pay an annual dividend of $2.10 a share next year?
A.7.42 percent
B.8.66 percent
C.10.75 percent
D.11.60 percent
E.13.70 percent
28) Which one of the following methods of analysis is most similar to computing the
return on assets (ROA)?
A.Internal rate of return
B.Profitability index
C.Average accounting return
D.Net present value
E.Payback
29) Travel Coaches currently sells 14,000 motor homes per year at $94,000 each, and
1,500 luxury motor coaches per year at $159,000 each. The company wants to introduce
a low-range camper to fill out its product line; it hopes to sell 6,000 of these campers
per year at $14,500 each. An independent consultant has determined that if Travel
Coaches introduces the new campers, it should boost the sales of its existing motor
homes by 1,100 units per year, and reduce the sales of its luxury motor coaches by 450
units per year. What amount should be used as the annual sales figure when evaluating
this project?
A.$87,000,000
B.$97,400,000
C.$118,850,000
D.$186,750,000
E.$261,950,000
30) Miller Farm Products is issuing a 15-year, unsecured bond. Based on this
information, you know that this debt can be described as a:
A.note
B.bearer form bond
C.debenture
D.registered form bond
E.call protected bond
31) Your portfolio is 240 shares of Rising Sun Co. The stock currently sells for $62 a
share. The company has announced a dividend of $1.10 per share with an ex-dividend
date of May 6. Assume there are no taxes. What will your portfolio value be on May 7?
A.$14,616
B.$14,880
C.$15,026
D.$15,144
E.$15,210
32) Jensen Shipping has four open seats on its board of directors. How many shares will
a shareholder need to control to ensure that his or her candidate is elected to the board
given the fact that the firm uses straight voting? Assume one share equals one vote.
A.20 percent of the shares plus one vote
B.25 percent of the shares plus one vote
C.1/3 of the shares plus one vote
D.50 percent of the shares plus one vote
E.51 percent of the shares plus one vote
33) Which one of the following is the financial statement that shows a financial
snapshot, taken at a point in time, of all the assets the company owns and all the claims
against those assets?
A.income statement
B.creditor’s statement
C.balance sheet
D.cash flow statement
E.sources and uses statement
34) Which one of the following indicates that a project is definitely acceptable?
A.Profitability index greater than 1.0
B.Negative net present value
C.Modified internal rate return that is lower than the requirement
D.Zero internal rate of return
E.Positive average accounting return