What is the value of HM stock which currently has a dividend of $2 and is growing at
7%? The investor’s required rate of return is 11%.
a. $46
b. $50
c. $52
d. 53.50
If a firm issues 10,000 shares of common stock with a par value of $5 and for a sales
price of $15, what amount would be recorded in the capital paid-in excess of par
account?
a. $10,000
b. $15,000
c. $50,000
d. $100,000
______________ behavior refers to how an individual or organization treats others
legally, fairly, and honestly.
a. Principal-agent
b. Stakeholder
c. Responsible
d. Ethical
e. none of the above
The liquidity preference theory holds that interest rates are determined by the:
a. investor preference for short-term securities
b. investor preference for higher-yielding long-term securities.
c. “flow” of funds over time
d. “flow” of bank credit over time
After controlling for risk, if someone were able to earn greater than the average returns
for the market on a consistent basis using publicly available information, which form of
market efficiency is violated?
a. none of forms would be violated
b. semi-strong
c. strong
d. all of the forms of market efficiency would be violated,
The three main sections of the statement of cash flows include all of the following
EXCEPT:
a. cash from saving
b. cash from investments
c. cash from operations
d. cash from financing
e. all are included
The operating break-even sales level is sensitive to all of the following variables except:
a. fixed operating costs
b. sales price per unit
c. variable operating cost per unit
d. interest expense
e. it is sensitive to all of the above variables
__________________ accept savings from individuals and then lend these pooled
savings to businesses, governments, and individuals.
a. Insurance companies
b. Commercial finance companies
c. Government institutions
d. Investment banks
e. none of the above
The relationship between interest rates or yields and the time to maturity for debt
instruments of comparable quality is called
a. the yield to maturity
b. the term structure of interest rates
c. the maturity risk premium
d. the expectations hypothesis
The capital stock of each Federal Reserve Bank:
a. is owned by the Board of Governors of the Fed
b. can be used in an emergency to provide funds for the Fed
c. is owned by members of the individual Federal Reserve Banks
d. has been reserved for purchase of the U.S. Treasury
Which of the following costs serves to compensate the lender for loss of liquidity?
a. administrative costs of making the loan
b. cost of paying for the risk involved
c. cost to offset the likelihood of inflation
d. cost for use of money during the period of the loan
All of the following statements are correct except:
a. The tax deductibility of debt becomes less important to firms with large nondebt tax
shields such as foreign tax credits granted by the U.S. government to firms that pay
taxes to foreign governments.
b. As the debt/total asset ratio rises, or as earnings become more volatile, the firm will
face higher borrowing costs, driven upward by bond investors requiring higher yields to
compensate for additional risk.
c. The static tradeoff hypothesis states that firms will balance the advantages of debt (its
lower cost and tax-deductibility of interest) with its disadvantages (greater possibility of
bankruptcy and the value of explicit and implicit bankruptcy costs).
d. Agency costs reduce the optimal level of debt financing for a firm below the level
that would be appropriate if agency costs were zero.
e. All of the above statements are correct.
_____________ believe that a change in the money supply first causes a change in
interest rate levels, which, in turn, alters the demand for goods and services.
a. Monetarists
b. Keynesians
c. Neo Classicalists
d. none of the above
The U.S. banking system has the ability to alter the size of the money supply because of
the use of:
a. a 100% reserve system
b. a fractional reserve system
c. the Federal Reserve System€s excess reserves
d. Federal Reserve notes issued by the U.S. Treasury
Benefit payments for individuals amount to over half of total expenditures of the federal
government.
The maturity risk premium is the compensation expected by investors due to interest
rate risk on debt instruments with longer maturity.
Opportunity costs reflect the cost of passing up the next best alternative and are
irrelevant in capital budgeting analysis.
Shareholder wealth may be defined as the price of a company’s stock times the number
of shares outstanding.
A weakness for a proprietorship is that owner’s liability for debts of the firm is
unlimited.