Which one of the following is the electronic system used by the NYSE for directly
transmitting orders to specialists?
A. OTCDOT
B. SuperDOT
C. Instinet
D. Internet
E. Floornet
Answer:
Which one of the following statements related to corporate dividends is correct?
A. Dividends are nontaxable income to shareholders.
B. Dividends reduce the taxable income of the corporation.
C. The Chief Executive Officer of a corporation is responsible for declaring dividends.
D. The Chief Financial Officer of a corporation determines the amount of dividend to
be paid.
E. Corporate shareholders may receive a tax break on a portion of their dividend
income.
Answer:
Marie owns shares of Deltona Productions preferred stock which she says provides her
with a constant 14.3 percent rate of return. The stock is currently priced at $45.45 a
share. What is the amount of the dividend per share?
A. $6.00
B. $6.25
C. $6.50
D. $6.60
E. $7.00
Answer:
Which of the following statements related to market efficiency tend to be supported by
current evidence?
I. Markets tend to respond quickly to new information.
II. It is difficult for investors to earn abnormal returns.
III. Short-run prices are difficult to predict accurately based on public information.
IV. Markets are most likely weak form efficient.
A. I and III only
B. II and IV only
C. I and IV only
D. I, III, and IV only
E. I, II, and III only
Answer:
Jen owns 30 shares of stock in Delta Fashions and wants to win a seat on the board of
directors. The firm has a total of 100 shares of stock outstanding. Each share receives
one vote. Presently, the company is voting to elect three new directors. Which one of
the following statements must be true given this information?
A. Regardless of the voting procedure, Jen does not own enough shares to gain a seat
on the board.
B. If straight voting applies, Jen is assured a seat on the board.
C. If straight voting applies, Jen can control all of the open seats.
D. If cumulative voting applies, Jen is assured one seat on the board.
E. If cumulative voting applies, Jen can control all of the open seats.
Answer:
Callable bonds generally:
A. grant the bondholder the option to call the bond anytime after the deferment period.
B. are callable at par as soon as the call-protection period ends.
C. are called when market interest rates increase.
D. are called within the first three years after issuance.
E. have a sinking fund provision.
Answer:
Forest Gardens, Inc., has a beginning receivables balance on February 1 of $730. Sales
for February through May are $720, $780, $820, and $850, respectively. The accounts
receivable period is 30 days. What is the amount of the April collections? Assume a
year has 360 days.
A. $720
B. $780
C. $790
D. $820
E. $850
Answer:
Gladsden Refinishers currently has $21,900 in sales and is operating at 45 percent of
the firm’s capacity. What is the full capacity level of sales?
A. $31,755
B. $36,250
C. $48,667
D. $51,333
E. $54,500
Answer:
Saucier & Co. currently sells 2,100 units a month for total monthly sales of $86,500.
The company is considering replacing its current cash only credit policy with a net 30
policy. The variable cost per unit is $18 and the monthly interest rate is 1.2 percent.
What is the switch break-even level of sales? Assume the selling price per unit and the
variable costs per unit remain constant.
A. 1,943 units
B. 2,117 units
C. 2,145 units
D. 2,406 units
E. 2,548 units
Answer:
For a tax-paying firm, an increase in _____ will cause the cash flow from assets to
increase.
A. depreciation
B. net capital spending
C. change in net working capital
D. taxes
E. production costs
Answer:
According to theory, studying historical stock price movements to identify mispriced
stocks:
A. is effective as long as the market is only semistrong form efficient.
B. is effective provided the market is only weak form efficient.
C. is ineffective even when the market is only weak form efficient.
D. becomes ineffective as soon as the market gains semistrong form efficiency.
E. is ineffective only in strong form efficient markets.
Answer:
The sensitivity of an option’s value to a change in the risk-free rate is measured by
which one of the following?
A. theta.
B. vega.
C. rho.
D. delta.
E. gamma.
Answer:
What is the change in net working capital from 2010 to 2011?
A. -$175
B. -$70
C. $125
D. $240
E. $315
Answer:
A $1,000 convertible debenture has a conversion price for common stock of $85 per
share. The common stock is selling at $92 a share. What is the conversion value of this
bond?
A. $920.00
B. $923.91
C. $1,000.00
D. $1,082.35
E. $1,092.00
Answer:
Penn Station is saving money to build a new loading platform. Two years ago, they set
aside $24,000 for this purpose. Today, that account is worth $28,399. What rate of
interest is Penn Station earning on this investment?
A. 6.39 percent
B. 7.47 percent
C. 8.78 percent
D. 9.23 percent
E. 9.67 percent
Answer:
South Shore Limited has 21,000 shares of stock outstanding with a par value of $1 per
share and a market price of $7.50 a share. The firm just announced a 5-for-2 stock split.
What will the par value of the stock be after the split?
A. $0.40
B. $0.80
C. $1.00
D. $1.40
E. $1.60
Answer:
What is the present value of $150,000 to be received 10 years from today if the discount
rate is 11 percent?
A. $52,827.67
B. $61,147.07
C. $64,141.41
D. $69,806.18
E. $73,291.06
Answer:
A) What are the assumptions that underlie the internal growth rate and B) what are the
implications of this rate?
Answer:
Bill feels that he possesses a good dose of ‘street smarts”. Thus, he makes his business
decisions based on how a project feels to him rather than taking the time to financially
analyze a project. This type of behavior is referred to as:
A. overconfidence.
B. endowment effect.
C. money illusion.
D. affect heuristic.
E. sentiment-based risk.
Answer:
In 1895, the winner of a competition was paid $150. In 2006, the winner’s prize was
$70,000. What will the winner’s prize be in 2040 if the prize continues increasing at the
same rate?
A. $289,400
B. $321,122
C. $379,311
D. $459,866
E. $548,121
Answer:
Mary is a retired widow who is financially dependent upon the interest income
produced by her bond portfolio. Which one of the following bonds is the least suitable
for her to own?
A. 6-year, putable, high coupon bond
B. 5-year TIPS
C. 10-year AAA coupon bond
D. 5-year floating rate bond
E. 7- year income bond
Answer:
You would like to combine a risky stock with a beta of 1.68 with U.S. Treasury bills in
such a way that the risk level of the portfolio is equivalent to the risk level of the overall
market. What percentage of the portfolio should be invested in the risky stock?
A. 32 percent
B. 40 percent
C. 54 percent
D. 60 percent
E. 68 percent
Answer:
ABC Co. and XYZ Co. are identical firms in all respects except for their capital
structure. ABC is all equity financed with $480,000 in stock. XYZ uses both stock and
perpetual debt; its stock is worth $240,000 and the interest rate on its debt is 9 percent.
Both firms expect EBIT to be $58,400. Ignore taxes. The cost of equity for ABC is
_____ percent, and for XYZ it is ______ percent.
A. 12.17; 12.68
B. 12.17; 13.33
C. 12.17; 15.33
D. 12.29; 12.68
E. 12.29; 13.33
Answer:
Fixed costs:
A. change as a small quantity of output produced changes.
B. are constant over the short-run regardless of the quantity of output produced.
C. are defined as the change in total costs when one more unit of output is produced.
D. are subtracted from sales to compute the contribution margin.
E. can be ignored in scenario analysis since they are constant over the life of a project.
Answer:
Dividend payments are mailed on which one of the following dates?
A. ex-rights date
B. ex-dividend date
C. date of record
D. date of payment
E. declaration date
Answer:
Mullineaux Corporation has a target capital structure of 41 percent common stock, 4
percent preferred stock, and 55 percent debt. Its cost of equity is 18 percent, the cost of
preferred stock is 6.5 percent, and the pre-tax cost of debt is 8.5 percent. What is the
firm’s WACC given a tax rate of 39 percent?
A. 9.87 percent
B. 10.43 percent
C. 10.49 percent
D. 13.38 percent
E. 15.17 percent
Answer:
Josie’s Craft Shack has a beginning cash balance for the quarter of $1,126. The store has
a policy of maintaining a minimum cash balance of $1,000 and is willing to borrow
funds as needed to maintain that balance. Currently, the firm has a loan balance of
$480. How much will the store borrow or repay if the net cash flow for the quarter is
-$280?
A. $0
B. $28
C. $126
D. $154
E. $280
Answer:
Miller Sisters has an overall beta of 0.79 and a cost of equity of 11.2 percent for the
firm overall. The firm is 100 percent financed with common stock. Division A within
the firm has an estimated beta of 1.08 and is the riskiest of all of the firm’s operations.
What is an appropriate cost of capital for division A if the market risk premium is 9.5
percent?
A. 13.12 percent
B. 13.96 percent
C. 14.63 percent
D. 15.77 percent
E. 16.01 percent
Answer:
Given the (1) exercise price E, (2) time to maturity T, and (3) European put-call parity,
the present value of E plus the value of the call option is equal to the:
A. current market value of the stock.
B. present value of the stock minus the value of the put.
C. value of the put minus the market value of the stock.
D. value of a risk-free asset.
E. stock value plus the put value.
Answer:
Which one of the following is the financial statement that summarizes a firm’s revenue
and expenses over a period of time?
A. income statement
B. balance sheet
C. statement of cash flows
D. tax reconciliation statement
E. market value report
Answer:
Major Manuscripts, Inc. is currently operating at 82 percent of capacity. All costs and
net working capital vary directly with sales. The tax rate, the profit margin, and the
dividend payout ratio will remain constant. How much additional debt is required if no
new equity is raised and sales are projected to increase by 15 percent?
A. -$1,810
B. -$1,014
C. -$642
D. $244
E. $358
Answer:
You have been investing $250 a month for the last 13 years. Today, your investment
account is worth $73,262. What is your average rate of return on your investments?
A. 8.94 percent
B. 9.23 percent
C. 9.36 percent
D. 9.41 percent
E. 9.78 percent
Answer:
You wrote two put options on Xylo stock with an exercise price of $30 per share and an
option price of $1.05 per share. Today, the contracts expire and the stock is selling for
$31.15 a share. What is your net profit or loss on this investment? Ignore trading costs
and taxes.
A. -$115
B. -$105
C. $20
D. $105
E. $210
Answer:
Which one of the following can be used to replicate a protective put strategy?
A. riskless investment and stock purchase
B. stock purchase and call option
C. call option and riskless investment
D. riskless investment
E. call option, stock purchase, and riskless investment
Answer:
A project has an initial cost of $32,000 and a 3-year life. The company uses straight-line
depreciation to a book value of zero over the life of the project. The projected net
income from the project is $1,200, $2,300, and $1,800 a year for the next 3 years,
respectively. What is the average accounting return?
A. 8.72 percent
B. 11.04 percent
C. 11.26 percent
D. 14.69 percent
E. 15.14 percent
Answer: