Who determines the offer price in a Dutch auction?
A. Lead underwriter
B. Chief financial officer of the issuing firm
C. SEC
D. Bidders
E. Board of directors of the issuing firm
Grannys Home Remedy has a $30 million bond issue outstanding with a coupon rate of
7.75 percent and a current yield of 7.67 percent. What is the present value of the tax
shield if the tax rate is 34 percent?
A. $632,400
B. $625,872
C. $1.20 million
D. $8.16 million
E. $10.2 million
Assume large-company stocks returned 12.8 percent on average over the past 75 years.
The risk premium on these stocks was 7.9 percent and the inflation rate was 3.6 percent.
What was the average nominal risk-free rate of return for those 75 years?
A. 4.90 percent
B. 9.20 percent
C. 4.26 percent
D. 8.33 percent
E. 8.60 percent
The stream of customer instructions to buy and sell securities is called the:
A. order flow.
B. market maker.
C. execution stream.
D. operations flow.
E. buyers stream.
What is the price of a $1,000 face value bond if the quoted price is 102.1?
A. $102.10
B. $1,002.10
C. $1,020.01
D. $1,020.10
E. $1,021.00
Which one of the following is the most apt to have the largest risk premium in the
future based on the historical record for 1926-2011?
A. U.S. Treasury bills
B. Large-company stocks
C. Long-term government debt
D. Small-company stocks
E. Long-term corporate debt
The Chip Dip Co. has 15,500 shares of stock outstanding, grants one vote per share, and
uses straight voting. How many shares must you control to guarantee that you will be
elected to the firms board of directors if there are three open seats?
A. 5,167 shares
B. 5,134 shares
C. 3,876 shares
D. 7,751 shares
E. 7,134 shares
Tressler Industries opted to repurchase 5,000 shares of stock last year in lieu of paying a
dividend. The cash flow statement for last year must have which one of the following
assuming that no new shares were issued?
A. Positive operating cash flow
B. Negative cash flow from assets
C. Negative cash flow to stockholders
D. Negative operating cash flow
E. Positive cash flow to stockholders
Which one of the following statements is correct?
A. Shareholders equity is the residual value of a firm.
B. Net working capital must be a positive value.
C. An increase in cash reduces the liquidity of a firm.
D. Equipment is generally considered a highly liquid asset.
E. Depreciation increases total assets.
Suppose that a small, rural city in the countryside of North Dakota plans to issue
$150,000 worth of 10-year bonds. Which one of the following components of the bonds
yield will be affected by the fact that no active secondary market is expected for these
bonds?
A. Real rate
B. Liquidity premium
C. Interest rate risk premium
D. Inflation premium
E. Taxability premium
Hercules Movers pays a constant annual dividend of $1.75 per share on its stock. Last
year at this time, the market rate of return on this stock was 14.8 percent. Today, the
market rate has fallen to 11.2 percent. What would your capital gains yield have been if
you had purchased this stock one year ago and then sold the stock today?
A. 18.78 percent
B. 22.03 percent
C. 28.16 percent
D. 30.00 percent
E. 32.14 percent
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
Which one of the following might be included in a bonds list of negative covenants?
A. Maintaining a current ratio of 1.2 or more
B. Maintaining a minimum cash balance of $1.2 million
C. Limiting cash dividends to $1 per share or less
D. Maintaining a times interest earned ratio of 2 or more
E. Providing audited financial statements in a timely manner
Travis recently purchased a callable bond. However, that bond cannot be currently
redeemed by the issuer. Thus, the bond must currently be:
A. subject to a sinking fund provision.
B. a debenture.
C. a “fallen angel.”
D. call protected.
E. unrated.
An upward-sloping term structure of interest rates indicates:
A. the real rate of return is lower for short-term bonds than for long-term bonds.
B. there is an indirect relationship between real interest rates and time to maturity.
C. there is an indirect relationship between nominal interest rates and time to maturity.
D. the nominal rate is declining as the real rate rises as the time to maturity increases.
E. the nominal rate is increasing even though the real rate is constant as the time to
maturity increases.
Black Water Mills is operating at its optimal point. Which one of the following
conditions exists given this firms operating status?
A. Carrying costs exceed shortage costs
B. Carrying costs are equal to zero
C. Both carrying costs and shortage costs are at their minimum levels
D. Shortage costs are equal to zero
E. Shortage costs equal carrying costs
AB Builders, Inc. has 12-year bonds outstanding with a face value of $1,000 and a
market price of $974. The bonds pay interest annually and have a yield to maturity of
4.03 percent. What is the coupon rate?
A. 3.75 percent
B. 4.20 percent
C. 4.25 percent
D. 7.50 percent
E. 8.40 percent
Which one of the following statements related to a cash budget is correct?
A. Capital expenditures are treated as a cash inflow on a cash budget.
B. The cumulative surplus is computed prior to adjusting for the minimum cash
balance.
C. A positive net cash inflow for a period indicates the cash disbursements exceed the
cash collections for the period.
D. Financially healthy firms can have a negative quarterly net cash inflow.
E. Firms generally set the minimum cash balance at zero for planning purposes.