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On January 2, Michigan Mining declared a $25-per-share quarterly dividend payable on
March 9th to stockholders of record on February 9. What is the latest date by which you
could purchase the stock and still get the recently declared dividend?
A. February 5
B. February 6
C. February 7
D. February 8
The following are auction markets except:
A. New York Stock Exchange
B. London Stock Exchange
C. Tokyo Stock Exchange
D. Nasdaq
A firm's return on assets is estimated to be 12% and the cost of the firm's debt is 7%.
Given a .7 debt to equity ratio, what is the levered cost of equity?
A. 7%
B. 12%
C. 13.6%
D. 15.5%
Among the models followed to develop a financial plan, the following is the simplest:
A. Percentage of sales model
B. Regression model
C. Computer simulation model
D. None of the above
Macro Corporation has had the following returns for the past three years, -10%, 10%,
and 30%. Calculate the standard deviation of the returns.
A. 10%
B. 20%
C. 30%
D. None of the above
A perpetuity is defined as:
A. Equal cash flows at equal intervals of time for a specific number of periods
B. Equal cash flows at equal intervals of time forever
C. Unequal cash flows at equal intervals of time forever
D. None of the above
Given the following data: Expiration = 6 months; Stock price = $80; exercise price =
$75; call option price = $12; risk-free rate = 5% per year. Calculate the price of an
equivalent put option using put-call parity:
A. $3.07
B. $5.19
C. $11.43
D. none of the above
The indifference proposition regarding dividend policy:
A. Assumes that tax rates increase at the same rate as inflation
B. Assumes that investors are indifferent about the timing of dividend payments
C. States that investors are indifferent between stock dividends and cash dividends
D. States that investors are indifferent between stock repurchase and cash dividends
The Black-Scholes OPM is dependent on which five parameters?
A. Stock price, exercise price, risk free rate, beta, and time to maturity
B. Stock price, risk free rate, beta, time to maturity, and variance
C. Stock price, risk free rate, probability, variance and exercise price
D. Stock price, exercise price, risk free rate, variance and time to maturity
MM Proposition II states that:
A. The expected return on equity is positively related to leverage
B. The required return on equity is a linear function of the firm's debt to equity ratio
C. The risk to equity increases with leverage
D. All of the above
E. None of the above
A 3-year bond with 10% coupon rate and $1000 face value yields 8% APR. Assuming
annual coupon payment, calculate the price of the bond.
A. $857.96
B. $951.96
C. $1000.00
D. $1051.54
In the case of large international investments, the project might include:
I) custom-tailored project financing
II) special contracts with suppliers
III) special contracts with customers
IV) special arrangements with governments
A. I and II only
B. I, II and III only
C. I, II, III and IV
D. IV only
The following stocks are examples of growth stocks except:
A. Scottish Power
B. e2v Technologies
C. Microsoft
D. Starbucks
For $10,000 you can purchase a 5-year annuity that will pay $2504.57 per year for five
years. The payments are made at the end of each year. Calculate the effective annual
interest rate implied by this arrangement: (approximately)
A. 8%
B. 9%
C. 10%
D. None of the above
The Position diagram for a put with the same exercise price and premium as the call on
the same underlying asset with the same maturity is (like):
A. the inverse of the call diagram along the put price
B. unrelated to the call diagram no matter what the exercise price
C. the mirror image of the call diagram around the exercise price
D. exactly the same as the call diagram for the given exercise price
Given the following cash flows for project A: C0 = -1000, C1 = +600 ,C2 = +400, and
C3 = +1500, calculate the payback period.
A. One year
B. Two years
C. Three years
D. None of the above
The company cost of capital when debt as well as equity is used for financing is:
A. cost of debt
B. cost of equity
C. the weighted average cost of capital (WACC)
D. none of the above
The semi-strong form of has been tested by measuring how rapidly security prices react
various news items like:
I) earnings announcements
II) dividend announcements
III) news of takeovers
IV) macroeconomic information
A. I and II only
B. I, II and III only
C. IV only
D. I, II, III and IV
Simulation models are useful:
I) To understand the project better
II) To forecast expected cash flows
III) To assess the project risk
A. I only
B. II only
C. III only
D. I, II and III
Under what conditions would a policy of maximizing the value of the firm not the same
as a policy of maximizing shareholders' wealth?
A. If the issue of debt increases the probability of bankruptcy
B. If the firm issues debt for the first time
C. If the beta of equity is positive
D. If an issue of debt affects the market value of existing debt
Mass Company is investing in a giant crane. It is expected to cost 6.6 million in initial
investment and it is expected to generate an end of year cash flow of 3.0 million each
year for three years. Calculate the MIRR for the project if the cost of capital is 12%
APR.
A. 17.3%
B. 15.3%
C. 23.8%
D. 22.1%
If a firm permanently borrows $50 million at an interest rate of 10%, what is the present
value of the interest tax shield? Assume a 30% tax rate.
A. $50.0 million
B. $25.0 million
C. $15.0 million
D. $1.5 million
According to Rajan and Zingales study, debt ratios of individual companies depend on:
I) Size: Large firms have higher debt ratios.
II) Tangible assets: Firms with high ratios of fixed assets to total assets have higher debt
ratios.
III) Profitability: More profitable firms have lower debt ratios.
IV) Market to book: Firms with higher ratios of market-to-book value have lower debt
ratios.
V) Market structure: Firms with monopoly power have higher debt ratios.
A. I and II only
B. I, II and III only
C. I, II, III and IV only
D. I, II, III, IV and V
The higher the underlying stock price: (everything else remaining the same)
A. higher the call price
B. lower the call price
C. has no effect on call price
D. none of the above
A firm has a debt-to-equity ratio of 0.50. Its cost of debt is 10%. Its overall cost of
capital is 14%. What is its cost of equity if there are no taxes?
A. 13%
B. 16%
C. 15%
D. 18%
Which of the following types of projects have the highest risk?
A. Speculation ventures
B. New products
C. Expansion of existing business
D. Cost improvement, (known technology)
A firm has a debt-to-equity ratio of 1. Its (levered) cost of equity is 16%, and its cost of
debt is 8%. If there were no taxes, what would be its cost of equity if the debt-to-equity
ratio were zero?
A. 8%
B. 10%
C. 12%
D. 14%
A policy of maximizing the value of the firm is the same as a policy of maximizing the
shareholders' wealth rests on two important assumptions. They are:
I) the firm can ignore dividend policy
II) the debt equity ratio of the firm does not change
III) an issue of new debt does not affect the market value of existing debt
A. I only
B. II only
C. III only
D. I and III only
If the value of d2 is -0.5, then the value of N(d2) is:
A. -0.1915
B. 0.6915
C. 0.3085
D. 0.8085
Discounted cash flow approach to valuation does not work in the case of options
because:
A. it is possible to but difficult to estimate the expected cash flows.
B. the estimated cash flows have to be discounted at the opportunity cost of capital.
C. finding the opportunity cost of capital is impossible as the risk of options change
every time the stock price moves.
D. (B) and (C) above
The Chief Financial Officer (CFO) of a corporation oversees:
A. Treasurer's functions
B. Controller's functions
C. Both A and B
D. None of the above
