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1) Suppose you could buy 1,320 South Korea won or 78 Pakistan rupees last year for
$1. Today, $1 will buy you 1,318 won or 80 rupees. Which one of the following
occurred over the past year?
A.The dollar appreciated against the won
B.The dollar depreciated against the rupee
C.The dollar appreciated against both the won and the rupee
D.The won depreciated against the dollar
E.The rupee depreciated against the dollar
2) The Auto Shop is buying some new equipment at a cost of $218,900. This equipment
will be depreciated on a straight line basis to a zero book value its 8-year life. The
equipment is expected to generate net income of $36,000 a year for the first four years
and $22,000 a year for the last four years. What is the average accounting rate of
return?
A.15.48 percent
B.17.76 percent
C.18.09 percent
D.23.72 percent
E.26.50 percent
3) The Pancake House pays a constant annual dividend of $1.25 per share. How much
are you willing to pay for one share if you require a 15 percent rate of return?
A.$7.86
B.$8.33
C.$10.87
D.$11.04
E.$11.38
4) Weston Mines has a cost of equity of 19.8 percent, a pre-tax cost of debt of 9.4
percent, and a return on assets of 17.1 percent. Ignore taxes. What is the debt-equity
ratio?
A.0.35
B.0.41
C.0.47
D.0.56
E.0.62
5) Which one of the following dates is the date on which the board of directors votes to
pay a dividend?
A.Record date
B.Declaration date
C.Ex-dividend date
D.Payment date
E.Settlement date
6) The December 31, 2009 balance sheet of Suzette's Market showed long-term debt of
$638,100 and the December 31, 2010 balance sheet showed long-term debt of
$574,600. The 2010 income statement showed an interest expense of $42,300. What
was the firm's cash flow to creditors during 2010?
A.$21,200
B.$26,700
C.$54,900
D.$102,400
E.$105,800
7) Friendly Finance is offering a special on one-year loans. The company will loan you
$5,000 today in exchange for one payment of $5,700 one year from now. What is the
APR on this loan?
A.13.67 percent
B.14.00 percent
C.14.40 percent
D.14.93 percent
E.15.04 percent
8) The next dividend payment by Swenson, Inc., will be $1.80 per share. The dividends
are anticipated to maintain a 5.5 percent growth rate, forever. If the stock currently sells
for $48.50 per share, what is the required return?
A.8.20 percent
B.8.88 percent
C.9.21 percent
D.9.74 percent
E.10.02 percent
9) Which one of the following is the primary determinant of an investment's cost of
capital?
A.Life of investment
B.Initial cash outlay
C.
10) Blackwell Ink is losing significant market share and thus its managers have decided
to decrease the firm's annual dividend. The last annual dividend was $0.90 a share but
all future dividends will be decreased by 5 percent annually. What is a share of this
stock worth today at a required return of 15 percent?
A.$4.07
B.$4.28
C.$4.49
D.$4.72
E.$4.95
11) The call premium is the amount by which the:
A.market price exceeds the par value
B.market price exceeds the call price
C.face value exceeds the market price
D.call price exceeds the par value
E.call price exceeds the market price
12) Last year, Thomas invested $38,000 in Oil Town stock, $11,000 in long-term
government bonds, and $8,000 in U.S. Treasury bills. Over the course of the year, he
earned returns of 12.1 percent, 6.3 percent, and 3.9 percent, respectively. What was the
nominal risk premium on Oil Town's stock for the year?
A.1.9 percent
B.4.7 percent
C.5.8 percent
D.7.6 percent
E.8.2 percent
13) The computation of which one of the following requires assigning every proposed
investment to a particular risk class?
A.Pure play cost of capital
B.Cost of equity
C.Aftertax cost of debt
D.WACC
E.Subjective cost of capital
14) Given the following information, what is the standard deviation of the returns on a
portfolio that is invested 35 percent in both stocks A and C, and 30 percent in stock B?
A.2.77 percent
B.4.13 percent
C.6.67 percent
D.8.91 percent
E.9.36 percent
15) Which one of the following has the narrowest distribution of returns for the period
1926-2008?
A.Long-term corporate bonds
B.Long-term government bonds
C.Intermediate-terms government bonds
D.Large-company stocks
E.Small-company stocks
16) Selected financial data for Link, Inc. follows: ($ in thousands)
Assume a 365-day year for your calculations. The days' sales in cash at the end of 2012
is:
A.24.3
B.28.8
C.35.7
D.219.6
E.None of the above
17) Which one of the following reduces the number of shares outstanding but does not
change a firm's total equity?
A.Stock split
B.Distribution
C.Reverse split
D.Liquidation
E.Redemption
18) Currently, you owe the bank $9,800 for a car loan. The loan has an interest rate of
7.75 percent and monthly payments of $310. Your financial situation recently changed
such that you can no longer afford these payments. After talking with your banker and
explaining the situation, he has agreed to lower the monthly payments to $225 while
keeping the interest rate at 7.75 percent. How much longer will it take you to repay this
loan than you had originally planned?
A.12.29 months
B.14.47 months
C.15.84 months
D.17.19 months
E.19.90 months
19) If shareholders are granted a preemptive right they will:
A.be given the choice of receiving dividends either in cash or in additional shares of
stock
B.be paid dividends prior to the preferred shareholders during the preemptive period
C.be entitled to two votes per share of stock
D.be able to choose the timing and amount of any future dividends
E.have priority in the purchase of any newly issued shares
20) Western States Life Insurance offers a perpetuity that pays annual payments of
$10,000. This contract sells for $275,000 today. What is the interest rate?
A.3.64 percent
B.3.87 percent
C.4.10 percent
D.4.21 percent
E.4.39 percent
21) If you accept a job as a domestic security analyst for a brokerage firm, you are most
likely working in which one of the following financial areas?
A.international finance
B.private placements
C.corporate finance
D.capital management
E.investments
22) Kelsey International declared a dividend on Friday, November 13, that is payable
on Friday, December 4, to holders of record on Monday, November 30. What is the
latest date that you can purchase this stock if you wish to receive this dividend? Assume
there are no banking holidays within this period of time.
A.Tuesday, November 24
B.Wednesday, November 25
C.Thursday, November 26
D.Friday, November 27
E.Monday, November 30
23) Suppose your company needs to raise $28 million and you want to issue 15-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 35 percent. In 15 years, what will your
company's repayment be if you issue the coupon bonds? What if you issue the zeroes?
(Assume annual compounding on the zero coupon bond).
A.$28.00 million; $122.12 million
B.$28.00 million; $88.82 million
C.$30.00 million; $122.12 million
D.$30.24 million; $88.82 million
E.$30.24 million; $122.12 million
24) Which one of the following must be significantly eliminated if interest rate parity is
to exist?
A.Absolute purchasing power parity
B.Short-run exposure to exchange rate risk
C.Covered interest arbitrage opportunities
D.Relative purchasing power parity
E.Translation exposure
25) Which of the following characteristics are most commonly associated with
corporate bonds issued in the U.S.?
I. registered form
II. bearer form
III. quarterly coupon payments
IV. semiannual coupon payments
A.I and III only
B.I and IV only
C.II and III only
D.II and IV only
E.III only
