Dexter Companies has a conventional factoring arrangement with its local bank. Which
one of the following would be a common characteristic of that type of financing
arrangement?
A. Dexter Companies will receive the full amount of the accounts receivable included
in this arrangement on an agreed upon date sometime in the future.
B. The responsibility for collecting the covered receivables lies with Dexter Companies.
C. Any bad debt that results from an account receivable included in this arrangement
will be a cost to the bank.
D. Dexter Companies will pay a monthly fee to the bank and in turn will receive
payment for the full amount of its accounts receivable.
E. The arrangement keeps the receivables as an asset of Dexter Companies but places a
lien on those accounts in favor of the lending bank.
Answer:
You have been told that you need $25,600 today in order to have $100,000 when you
retire 35 years from now. What rate of interest was used in the present value
computation? Assume interest is compounded annually.
A. 3.97 percent
B. 4.15 percent
C. 4.29 percent
D. 4.53 percent
E. 4.58 percent
Answer:
Which one of the following is the primary advantage of payback analysis?
A. Incorporation of the time value of money concept
B. Ease of use
C. Research and development bias
D. Arbitrary cutoff point
E. Long-term bias
Answer:
Forbidden Fruit Extracts expects its earnings before interest and taxes to be $325,000 a
year forever. Currently, the firm has no debt. The cost of equity is 16.3 percent and the
tax rate is 35 percent. The company is in the process of issuing $2 million of bonds at
par that carry a 6.5 percent annual coupon. What is the unlevered value of the firm?
A. $371,429
B. $431,971
C. $747,485
D. $969,325
E. $1,296,012
Answer:
Southern Wear stock has an expected return of 14.6 percent. Given the information
below, what is the expected return on this stock if the economy is normal? Round your
answer to the nearest whole percentage.
A. 13 percent
B. 17 percent
C. 18 percent
D. 21 percent
E. 23 percent
Answer:
Which one of the following could cause the total return on an investment to be a
negative rate?
A. Constant annual dividend amount
B. Increase in the annual dividend amount
C. Stock price that remains constant over the investment period
D. Stock price that declines over the investment period
E. Stock price that increases over the investment period
Answer:
You purchased an item costing $5,900 on April 15. The terms of sale were 1/5, net 20.
What is the last day you can pay the discounted price?
A. April 20
B. April 22
C. April 28
D. May 2
E. May 5
Answer:
Which one of the following bonds is most apt to have the smallest liquidity premium?
A. Treasury bill
B. Corporate bond issued by a new firm
C. Municipal bond issued by the State of New York
D. Municipal bond issued by a rural city in Alaska
E. Corporate bond issued by General Motors (GM)
Answer:
Which one of the following is the best example of unsystematic risk?
A. Inflation exceeding market expectations
B. A warehouse fire
C. Decrease in corporate tax rates
D. Decrease in the value of the dollar
E. Increase in consumer spending
Answer:
Relative purchasing power parity is based on the principle that the expected percentage
change in the exchange rate between two countries is equal to which one of the
following?
A. Difference in the risk-free interest rates in the two countries
B. Average interest rate in the two countries
C. Average inflation rate of the two countries
D. Difference in the inflation rates of the two countries
E. Difference between the two countries’ average inflation and interest rates
Answer:
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 DMM.
Answer:
Which one of the following statements related to IPO underpricing is correct?
A. The IPOs of larger-sized firms tend to be more underpriced than the IPOs of
smaller-sized firms.
B. IPO underpricing is limited to the U.S. markets.
C. The percentage of underpricing remains stable over time in the U.S.
D. The only period in the U.S. when underpricing produced first day returns of 50
percent or more was during the tech bubble of 1999-2000.
E. Some of the greatest IPO underpricing has occurred in China.
Answer:
The security market line is a linear function that is graphed by plotting data points
based on the relationship between which two of the following variables?
A. Risk-free rate and beta
B. Market rate of return and beta
C. Market rate of return and the risk-free rate
D. Risk-free rate and the market rate of return
E. Expected return and beta
Answer:
What is the effective annual rate of 14.9 percent compounded quarterly?
A. 14.48 percent
B. 14.67 percent
C. 15.23 percent
D. 15.54 percent
E. 15.75 percent
Answer:
Doris’s Fashions has just signed a $2.2 million contract. The contract calls for a
payment of $0.6 million today, $0.8 million one year from today, and $0.8 million two
years from today. What is this contract worth today if the firm can earn 8.2 percent on
its money?
A. $2,038,616.67
B. $2,022,709.37
C. $2,108,001.32
D. $2,124,339.07
E. $2,202,840.91
Answer: