Which of the following are not financial intermediaries?
A.Bank
B.Insurance company
C.Securities broker
D.All are financial intermediaries
Which of the following types of mergers would expand the acquiring firm’s market
share in its own industry?
A.Vertical
B.Horizontal
C.Conglomerate
D.a and b
E.All of the above
A combination of two entities in which only one legally ceases to exist is:
A.a subsidiary.
B.a parent company.
C.a consolidation.
D.a merger.
Although the money paid to investors is both the firm’s cost and the investors return:
A.certain adjustments prevent the effective cost and return from being the same.
B.adjustments must be made to keep the effective cost and return equal.
C.adjustments keep the costs of common and preferred equity equal but debt’s cost is
usually higher.
D.a and c
A(n) ____ is a financial instrument that agrees to pay an equal amount of money per
period into the indefinite future (i.e. forever).
A.imbedded annuity
B.annuity due
C.sinking fund
D.perpetuity
Many IRA funds argue that investors should invest at the beginning of the year rather
than at the end. What is the difference to an investor who invests $2,000 per year at 11
percent over a 30-year period?
A.$43,785
B.$36,189
C.$54,244
D.There is no difference.
In valuing bonds, the most important consideration is:
A.the bond’s past and future cash flows.
B.the bond’s future cash flows.
C.the bond€s past cash flows.
D.whether coupon payments are annual or semiannual.
What would be the interest rate on a 10-year Treasury note, given the following
information?
k = 1%
MR = 0.1% for a 1-year loan, increasing by 0.1% each additional year.
LR = 0.5% for a security with low liquidity and 1.0% for one with very low liquidity.
DR= 0 for a 1-year loan, 0.1% for a 2-year loan, increasing by 0.15 % for each
additional year.
Expected inflation rates:
Year 1 = 3.0%
Year 2 = 4.0%
Year 3 and thereafter: 5.0%
A.6.7%
B.7.0%
C.7.2%
D.8.1%
Capital structure and component costs should be calculated using:
A.book values for structure and market values for costs.
B.market values for structure and book values for costs.
C.book values for both structure and costs.
D.market values for both structure and costs.
Net working capital can be referred to as:
A.total assets minus current liabilities.
B.current assets minus total liabilities.
C.cash minus current liabilities.
D.current assets minus current liabilities.
The term “buying a bond” is misleading because:
A.bonds are not available to the general public.
B.a bond can only be bought with assets other than money.
C.bonds represent a debt relationship so a bond buyer is actually lending money.
D.bonds are not owned, only held in trust for a buyer’s beneficiaries.
Grass Enterprises just closed a good year. It had Sales of $10 million, EBIT of $1
million and Net Income of $500,000. The firm also paid dividends of $150,000 during
the year. If Grass started the year with equity of $900,000, what will its year ending
equity be?
A.$1,900,000
B.$1,400,000
C.$1,250,000
D.$850,000
Which of the following is most correct?
A.When the return on capital employed (ROCE) is less than the before tax cost of debt,
a company can increase its ROE by trading out equity and into debt.
B.When the return on capital employed (ROCE) is more than the before tax cost of
debt, a company can increase its ROE by trading out equity and into debt.
C.When the return on capital employed (ROCE) is less than the after tax cost of debt, a
company can increase its ROE by trading out equity and into debt.
D.When the return on capital employed (ROCE) is more than the after tax cost of debt,
a company can increase its ROE by trading out equity and into debt.