The sustainable growth rate is equal to:
A. ROE (1 – Payout ratio).
B. ROA (1 – Payout ratio).
C. ROE (1 – Retention ratio).
D. ROA (1 – Retention ratio).
E. ROE ROA.
You open a margin account with a local broker and purchase shares of stock. The house
maintenance margin requirement for your account is set by:
A. your broker.
B. the stock exchange.
C. the SEC.
D. the SIPC.
E. the Federal Reserve.
The financing provided for new ventures that are frequently high-risk investments is
referred to as “venture _______”.
A. capital
B. leverage
C. risk funds
D. funding
E. investing
A financial instrument on which a futures contract is based is called which one of the
following?
A. hedged security
B. short position
C. long position
D. speculative asset
E. underlying asset
A company has a price-earnings ratio of 23 and a price-cash flow ratio of 11.5. If the
earnings per share are $1.75, what is the cash flow per share?
A. $2.16
B. $2.51
C. $3.06
D. $3.14
E. $3.50
You have been researching a company and have estimated that the firm’s stock will sell
for $44 a share one year from now. You also estimate the stock will have a dividend
yield of 2.18 percent.
How much are you willing to pay per share today to purchase this stock if you desire a
total return of 15 percent on your investment?
A. $37.55
B. $38.00
C. $38.24
D. $39.00
E. $40.20
Which of the following has the obligation to sell a stock at the strike price when an
option is exercised?
A. call holder
B. call writer
C. put holder
D. put writer
E. call holder and put writer
Use the following stock quotes to answer this question:
What is the current yield on Buy Rite stock?
A. 1.38 percent
B. 2.60 percent
C. 3.55 percent
D. 4.25 percent
E. 5.20 percent
Use these option quotes to answer this question:
You want the right, but not the obligation, to sell 600 shares of ZZ Industries stock at a
price of $35 a share. How much will it cost you to establish this option position?
A. $422
B. $408
C. $360
D. $378
E. $382
Which one of the following statements related to futures contracts is correct?
A. The buyer of the contract has a short position.
B. The buyer of the contract has the right to either accept delivery or cancel the
contract.
C. Futures contracts can be cancelled by either the buyer or the seller with 10 days
notice to the other party.
D. Both the buyer and the seller of the contract are obligated to fulfill their duties as
outlined in the futures contract.
E. The buyer of the contract must deliver the underlying asset on the settlement date.
A European 3-month call has a strike price of $35. The stock price is currently $34.30.
What is the lower price bound on this call?
A. $0.00
B. $0.30
C. $0.70
D. $1.00
E. $1.30
Slater Mines just called its outstanding bonds at a call price of $1,025. The bonds have
a conversion price of $33.33 and a par value of $1,000. The stock price is currently
$33.10. In response to this call, the bondholders should _____ because _____.
A. accept the call; the call price exceeds the conversion value
B. accept the call; they have no other choice
C. convert their bonds; the conversion price exceeds the par value by $37.90
D. convert their bonds; the conversion price exceeds the call price by $12.90
E. elect to continue holding their bonds; they want to continue receiving the interest
payments
Bonds with relatively high coupons due to their speculative credit ratings are called
which one of the following?
A. investment-grade bonds
B. high-yield bonds
C. prudent risk bonds
D. floating-rate bonds
E. covenant bonds
Wholesale Foods common stock is valued at $11.05 per share. The firm pays annual
dividends which increase at a constant rate. The last dividend paid was $1.20. The
required return is 12 percent. What is the dividend growth rate?
A. 1.03 percent
B. 1.67 percent
C. 3.47 percent
D. 3.59 percent
E. 4.00 percent
Use the following soybean futures quotes to answer this question:
What was the total price fluctuation on one November 08 soybeans contract today?
A. $1,537.50
B. $1,540.00
C. $1,612.50
D. $1,660.00
E. $1,682.50
What is the bond equivalent yield on a 30-day Treasury bill that has a bank discount
yield of 2.01 percent?
A. 1.97 percent
B. 1.99 percent
C. 2.02 percent
D. 2.04 percent
E. 2.07 percent
The Back Room just paid an annual dividend of $1.65 a share. The firm expects to pay
dividends forever and to increase the dividend by 3 percent annually. What is the
expected value of this stock five years from now if the discount rate is 14 percent?
A. $17.39
B. $17.91
C. $18.06
D. $18.52
E. $19.08
U.S. Treasury bill rates were the highest during which one of the following time
periods?
A. 1930-1933
B. 1943-1945
C. 1979-1981
D. 1997-1999
E. 2002-2007
Mental accounting is the process of associating a stock with its:
A. prior day’s market value.
B. expected value.
C. desired value.
D. purchase price.
E. lowest value.
If the nominal GDP was reported at $1,351.90 billion and inflation was 3.8%, what is
the level of real GDP for the period?
A. $1,289.54
B. $1,302.41
C. $1,344.92
D. $1,385.01
E. $1,402.45
Diversification is investing in a variety of assets with which one of the following as the
primary goal?
A. increasing returns
B. minimizing taxes
C. reducing some risks
D. eliminating all risks
E. increasing the variance
What is the amount of the difference between the highest and the lowest value of a
November heating oil contract on this day?
A. $79.10
B. $83.70
C. $106.90
D. $118.00
E. $122.40
You short sold 600 shares of a stock at $48 a share. The initial margin requirement is 60
percent and the maintenance margin is 30 percent. What is the amount of your total
liability for this transaction as initially shown on your account balance sheet?
A. $8,640
B. $17,280
C. $22,210
D. $28,800
E. $37,440
An NYSE Supplemental Liquidity Provider:
I. can trade the same stocks as designated market makers
II. can trade only from offices outside the exchange
III. must quote bid or ask quotes a certain % of the day
IV. are paid 30 cents per 100 shares traded
A. I and II only
B. I, II and III only
C. I and III only
D. I, II, and IV only
E. I, II, III and IV
Which one of the following financing terms will provide the lowest monthly payment
for a fixed-rate $175,000 mortgage? (No calculations are required.)
A. 10-year, 5.5 percent
B. 10-year, 6.0 percent
C. 15-year, 5.5 percent
D. 15-year, 6.0 percent
E. 30-year, 5.5 percent
The retention ratio is the:
A. net income divided by total equity.
B. percentage of net income paid out to shareholders.
C. net income divided by the number of shares outstanding.
D. percentage of net income held by a firm for future growth.
E. inverse of the dividend payout ratio.
Wilson Farms’ stock has a beta of .84 and an expected return of 7.8 percent. The
risk-free rate is 2.6 percent and the market risk premium is 6 percent. This stock is
_____ because the CAPM return for the stock is _____ percent.
A. undervalued; 7.34
B. undervalued; 7.49
C. undervalued; 7.64
D. overvalued; 7.34
E. overvalued; 7.49
Donna recently purchased 500 shares of Deltona stock for $33.00 a share. Her broker
required a cash payment of $10,725, plus trading costs, for the purchase. What is the
initial margin requirement on this particular stock?
A. 60 percent
B. 65 percent
C. 75 percent
D. 80 percent
E. 90 percent
The mean plus or minus one standard deviation defines the _____ percent probability
range of a normal distribution.
A. 50
B. 68
C. 82
D. 90
E. 95
Which one of the following rates is the rate a commercial bank must pay the Federal
Reserve to borrow reserves overnight?
A. discount
B. Fed funds
C. financial overnight
D. daily
E. institutional
Which of the following affect the amount of funds available to a homeowner from a
reverse mortgage?
I. current mortgage balance on the home
II. age of homeowner
III. location of the home
IV. appraised value of the home
A. I and IV only
B. II and III only
C. I, II, and IV only
D. I, III, and IV only
E. I, II, III, and IV