A 12-year, semiannual coupon bond is priced at $1,102.60. The bond has a $1,000 face
value and a yield to maturity of 5.33 percent. What is the coupon rate?
A. 5.00 percent
B. 5.25 percent
C. 5.50 percent
D. 6.00 percent
E. 6.50 percent
Amish Bakery needs $210,000 today to fund a new project. The project will not
produce any cash flows for two years and thus the firm agreed to a two-year, pure
discount loan at 7.5 percent interest. How much will the firm owe on this loan at the
time it must be repaid?
A. $228,060.00
B. $237,540.21
C. $240,860.00
D. $241,159.39
E. $242,681.25
What is the net present value of the following cash flows if the relevant discount rate is
8 percent?
A. $1,587.61
B. $2,311.92
C. $2,900.15
D. $3,248.87
E. $3,545.60
Given the following information, what is the standard deviation of the returns on a
portfolio that is invested 40 percent in Stock A, 35 percent in Stock B, and the
remainder in Stock C?
A. 11.86 percent
B. 12.72 percent
C. 13.16 percent
D. 13.43 percent
E. 13.57 percent
All else held constant, which one of the following statements is correct concerning the
accounts payable period?
A. The accounts payable period is equal to 365/(Sales/Average accounts payable).
B. A decrease in the accounts payable period will increase the operating cycle.
C. An increase in the accounts payable period will decrease the cash cycle.
D. A decrease in the accounts payable period will decrease the operating cycle.
E. An increase in the accounts payable turnover rate decreases the cash cycle.
Systematic risk is:
A. totally eliminated when a portfolio is fully diversified.
B. defined as the total risk associated with surprise events.
C. risk that affects a limited number of securities.
D. measured by beta.
E. measured by standard deviation.
A firm that uses its weighted average cost of capital as the required return for all of its
investments will:
A. maintain a constant value for its shareholders.
B. increase the risk level of the firm over time.
C. make the best possible accept and reject decisions related to those investments.
D. find that its cost of capital declines over time.
E. accept only the projects that add value to the firms shareholders.
An efficient capital market is best defined as a market in which security prices reflect
which one of the following?
A. Current inflation
B. A risk premium
C. Available information
D. The historical arithmetic rate of return
E. The historical geometric rate of return
Gently Used Goods has cash of $2,950, inventory of $28,470, fixed assets of $9,860,
accounts payable of $11,900, and accounts receivable of $4,660. What is the cash ratio?
A. 0.08
B. 0.25
C. 0.30
D. 0.46
E. 0.51
Valley Forge and Metal purchased a truck five years ago for local deliveries. Which one
of the following costs related to this truck is the best example of a sunk cost? Assume
the truck has a usable life of eight years.
A. New tires that will be purchased this winter
B. Costs of repairs needed so the truck can pass inspection next month
C. Money spent last month repairing a damaged front fender
D. Engine tune-up that is scheduled for this afternoon
E. Cost for a truck driver for the remainder of the trucks useful life
A trader in Switzerland just agreed to trade Swiss francs for British pounds based on
todays exchange rate. The trade is expected to settle tomorrow. What term best
describes this exchange?
A. Arbitrage transaction
B. Forward trade
C. Spot trade
D. Purchasing power parity
E. Interest rate parity
Last year, Teresas Fashions earned net income of $68,400 and had 12,000 shares of
stock outstanding. The dividends per share were $1.20. What is the dividend payout
ratio?
A. 21.05 percent
B. 24.07 percent
C. 38.60 percent
D. 40.21 percent
E. 44.14 percent
A stock is expected to return 13 percent in an economic boom, 10 percent in a normal
economy, and 3 percent in a recessionary economy. Which one of the following will
lower the overall expected rate of return on this stock?
A. An increase in the rate of return in a recessionary economy
B. An increase in the probability of an economic boom
C. A decrease in the probability of a recession occurring
D. A decrease in the probability of an economic boom
E. An increase in the rate of return for a normal economy