Stock J has a beta of 1.17 and an expected return of 14.4 percent, while Stock K has a
beta of 0.68 and an expected return of 7.6 percent. You want a portfolio with the same
risk as the market. What is the expected return of your portfolio?
A. 10.67 percent
B. 11.18 percent
C. 11.62 percent
D. 12.04 percent
E. 13.13 percent
Answer:
Donegal’s Industrial Products wishes to maintain a growth rate of 6 percent a year, a
debt-equity ratio of 0.45, and a dividend payout ratio of 30 percent. The ratio of total
assets to sales is constant at 1.25. What profit margin must the firm achieve?
A. 4.68 percent
B. 5.29 percent
C. 6.33 percent
D. 6.97 percent
E. 8.19 percent
Answer:
Which one of the following describes a Green Shoe provision?
A. Determination of underwriters’ fees
B. Guarantee of sale for all offered shares
C. Price auction
D. Overallotment option
E. Description of issue excluding the offer price
Answer:
In New York, you can exchange $1 for €0.7538 or 0.6789. In Berlin, 1 costs
€1.1087. How much profit can you earn on $1,000 using triangle arbitrage?
A. $1.09
B. $1.17
C. $1.47
D. $1.58
E. $1.70
Answer:
A project has the following cash flows. What is the payback period?
A. 2.48 years
B. 2.59 years
C. 2.96 years
D. 3.21 years
E. 3.43 years
Answer:
A $36,000 portfolio is invested in a risk-free security and two stocks. The beta of Stock
A is 1.29 while the beta of Stock B is 0.90. One-half of the portfolio is invested in the
risk-free security. How much is invested in Stock A if the beta of the portfolio is 0.58?
A. $6,000
B. $9,000
C. $12,000
D. $15,000
E. $18,000
Answer:
Centre Bank pays 2.5 percent interest, compounded annually, on its savings accounts.
Country Bank pays 2.5 percent simple interest on its savings accounts. You want to
deposit sufficient funds today so that you will have $1,500 in your account 2 years from
today. The amount you must deposit today:
A. is the same regardless of which bank you choose because they both pay compound
interest.
B. is the same regardless of which bank you choose because they both pay simple
interest.
C. is the same regardless of which bank you choose because the time period is the same
for both banks.
D. will be greater if you invest with Centre Bank.
E. will be greater if you invest with Country Bank.
Answer:
A bond has a par value of $1,000, a current yield of 7.5 percent, and semiannual interest
payments. The bond quote is 98.6. What is the amount of each coupon payment?
A. $32.07
B. $36.98
C. $37.50
D. $72.31
E. $75.00
Answer:
The DuPont identity can be used to help a financial manager determine the:
I. degree of financial leverage used by a firm.
II. operating efficiency of a firm.
III. utilization rate of a firm’s assets.
IV. rate of return on a firm’s assets.
A. II and III only
B. I and III only
C. II, III, and IV only
D. I, II, and III only
E. I, II, III, and IV
Answer:
Joshua’s Antiques has a total asset turnover rate of 1.2, an equity multiplier of 1.4, a
profit margin of 5 percent, a retention ratio of 0.8, and total assets of $120,000. What is
the sustainable growth rate?
A. 6.98 percent
B. 7.20 percent
C. 7.33 percent
D. 7.54 percent
E. 7.91 percent
Answer:
Which one of the following parties can sell shares of ABC stock in the primary market?
A. ABC company
B. Any corporation, other than the ABC company
C. Institutional shareholder
D. Private individual shareholder
E. Any of these
Answer:
Which of the following individuals commonly use finance in the course of their job?
I. Chief financial officers
II. Accountants
III. Security analysts
IV. Strategic managers
A. I and II only
B. III and IV only
C. I and III only
D. I, II, and III only
E. I, II, III, and IV
Answer:
Marcos Enterprises has three separate divisions. The firm allocates each division $1.5
million per year for capital purchases. Which one of the following terms applies to this
allocation process?
A. Soft rationing
B. Hard rationing
C. Opportunity cost
D. Sunk cost
E. Strategic planning
Answer:
Travis is buying a car and will finance it with a loan that requires monthly payments of
$265 for the next four years. His car payments can be described by which one of the
following terms?
A. Perpetuity
B. Annuity
C. Consol
D. Lump sum
E. Factor
Answer:
The Berry Patch has sales of $438,000, cost of goods sold of $369,000, depreciation of
$37,400, and interest expense of $13,800. The tax rate is 35 percent. What is the times
interest earned ratio?
A. 2.29
B. 3.46
C. 3.87
D. 4.38
E. 4.79
Answer:
You would like to create a portfolio that is equally invested in a risk-free asset and two
stocks. One stock has a beta of 1.15. What does the beta of the second stock have to be
if you want the portfolio to be equally as risky as the overall market?
A. 0.78
B. 0.97
C. 1.23
D. 1.55
E. 1.85
Answer:
Black Stone Furnaces wants to build a new facility. The cost of capital for this
investment is primarily dependent on which one of the following?
A. Firm’s overall source of funds
B. Source of the funds used to build the facility
C. Current tax rate
D. The nature of the investment
E. Firm’s historical average rate of return
Answer:
Chinese Importers wants to raise $58 million to expand its operations into South
America. The company will sell new shares of common stock using a general cash
offering. The underwriters charge a 7.8 percent spread, the administrative costs are
$411,000, and the offer price is $35 per share. How many shares of stock must be sold
if the firm is to raise the funds it desires?
A. 1,648,315 shares
B. 1,810,071 shares
C. 1,911,502 shares
D. 1,989,415 shares
E. 2,051,515 shares
Answer:
Original Auto Parts has the following estimated sales.
Purchases are equal to 70 percent of the following quarter’s sales. The accounts payable
period is 60 days. Assume there are 30 days in each month. How much will the firm
owe its suppliers at the end of quarter 3?
A. $3,718
B. $3,967
C. $5,502
D. $7,653
E. $8,933
Answer:
Scott borrowed $2,500 today. The loan agreement requires him to repay $2,685 in one
lump sum payment one year from now. This type of loan is referred to as a(n):
A. interest-only loan.
B. pure discount loan.
C. quoted rate loan.
D. compound interest loan.
E. amortized loan.
Answer:
Inside quotes are defined as the:
A. bid and asked prices presented by NYSE DMMs.
B. last bid and asked price offered prior to the market close.
C. lowest asked and highest bid offers.
D. daily opening bid and asked quotes.
E. last traded bid and asked prices.
Answer:
Stock A comprises 28 percent of Susan’s portfolio. Which one of the following terms
applies to the 28 percent?
A. Portfolio variance
B. Portfolio standard deviation
C. Portfolio weight
D. Portfolio expected return
E. Portfolio beta
Answer:
Accounts receivable financing is the term used to describe which of the following types
of loans that involve either the assignment or the factoring of a firm’s accounts
receivable?
A. Secured short-term loan
B. Unsecured short-term loan
C. Secured long-term loan
D. Unsecured long-term loan
E. Trust receipt loan
Answer:
You just borrowed $3,000 from your bank and agreed to repay the interest on an annual
basis and the principal at the end of three years. What type of loan did you obtain?
A. Interest-only
B. Amortized
C. Perpetual
D. Pure discount
E. Lump sum
Answer: