1) What is the effective annual rate of 13.9 percent compounded quarterly?
A.13.23 percent
B.13.82 percent
C.14.37 percent
D.14.64 percent
E.15.01 percent
2) Travis recently purchased a callable bond. However, that bond cannot be currently
redeemed by the issuer. Thus, the bond must currently be:
A.subject to a sinking fund provision
B.a debenture
C.a “fallen angel”
D.call protected
E.unrated
3) Steve owns a store that caters primarily to men and their hobbies. He is
contemplating greatly expanding the hunting and fishing section of the store. If he does
this, he expects his fishing and hunting sales will increase, his camping gear sales will
increase, and his model train sales will decrease. Which of the following should Steve
include in his revenue projection for the expansion project?
I. increase in fishing and hunting sales
II. increase in camping gear sales
III. decrease in model train sales
A.I only
B.II only
C.I and III only
D.II and III only
E.I, II, and III
4) When you were born, your parents opened an investment account in your name and
deposited $500 into the account. The account has earned an average annual rate of
return of 4.8 percent. Today, the account is valued at $36,911.22. How old are you?
A.74.47 years
B.76.67 years
C.81.08 years
D.87.33 years
E.91.75 years
5) Which one of the following is the annuity present value formula?
A.C {{1 – [1/(1 + r)t]}/r}
B.C {1 – [1/(1 + r)t]} – r
C.C {1 – [r/(1 + r)t]}/r
D.C {{1 – [1/(1 r)t]} r}
E.C {1 – [r/(1 r)t]} r
6) Shoreline Foods pays a constant annual dividend of $1.60 a share and currently sells
for $28.50 a share. What is the rate of return?
A.4.56 percent
B.5.39 percent
C.5.61 percent
D.6.63 percent
E.6.91 percent
7) Cash flow to stockholders is defined as:
A.cash flow from assets plus cash flow to creditors
B.operating cash flow minus cash flow to creditors
C.dividends paid plus the change in retained earnings
D.dividends paid minus net new equity raised
E.net income minus the addition to retained earnings
8) The owners’ equity accounts for Speed Boats are shown here:
How many shares will be outstanding if the firm declares a one-for-six reverse stock
split?
A.5,833 shares
B.9,167 shares
C.18,000 shares
D.35,000 shares
E.330,000 shares
9) Given the current tax laws, which one of the following statements is correct?
A.Both stock repurchases and cash dividends are treated equally for tax purposes for
individual shareholders
B.Stock repurchases give individual shareholders more control over their personal taxes
than do cash dividends
C.Cash dividends are preferable to stock repurchases from the individual shareholder
point of view
D.Stock repurchases offer more tax benefits to the issuer than do cash dividends
E.Cash dividends offer more tax benefits than do stock repurchases for the issuer
10) A stock has an expected return of 14.3 percent, the risk-free rate is 3.2 percent, and
the market risk premium is 8.1 percent. What must the beta of this stock be?
A.0.88
B.0.94
C.1.08
D.1.21
E.1.37
11) Last year, when the stock of Alpha Minerals was selling for $55 a share the
dividend yield was 3.2 percent. Today, the stock is selling for $41 a share. What is the
total return on this stock if the company maintains a constant dividend growth rate of
2.5 percent?
A.6.13 percent
B.6.58 percent
C.6.90 percent
D.7.47 percent
E.7.40 percent
12) Joe and Rich are both considering investing in a project with the following cash
flows. Joe is content earning a 9 percent return but Rich desires a return of 16 percent.
Who, if either, should accept this project?
A.Joe, but not Rich
B.Rich, but not Joe
C.neither Joe nor Rich
D.both Joe and Rich
E.Joe, and possibly Rich, who will be neutral on this decision as his net present value
will equal zero
13) Chelsie Enterprises declared a dividend to shareholders of record on Monday,
February 8, that is payable on Friday, February 26. Carla knows that her dividend check
normally arrives three business days after the check is written. On which one of the
following days should she expect to receive her dividend check?
A.Wednesday, February 10
B.Thursday, February 11
C.Monday, March 1
D.Tuesday, March 2
E.Wednesday, March 3
14) The Tool Box needs to purchase a new machine costing $1.46 million. Management
is estimating the machine will generate cash inflows of $223,000 the first year and
$600,000 for the following three years. If management requires a minimum 12 percent
rate of return, should the firm purchase this particular machine? Why or why not?
A.Yes; because the IRR is 10.75 percent
B.Yes; because the IRR is 12.74 percent
C.No; because the IRR is 10.75 percent
D.No; because the IRR is 12.74 percent
E.The answer cannot be determined as there are multiple IRRs
15) Over the past five years, a stock returned 8.3 percent, -32.5 percent, -2.2 percent,
46.9 percent and 11.8 percent. What is the variance of these returns?
A.0.071188
B.0.076290
C.0.081504
D.0.082547
E.0.091306
16) Selected financial data for Link, Inc. follows: ($ in thousands)
Assume a 365-day year for your calculations. The inventory turnover, based on cost of
goods sold, at the end of 2012 is:
A.5.2
B.24.3
C.28.8
D.35.7
E.None of the above
17) The Treasury yield curve plots the yields on Treasury notes and bonds relative to
the ____ of those securities.
A.face value
B.market price
C.maturity
D.coupon rate
E.issue date
18) Healthy Foods has total assets of $129,800, net fixed assets of $71,500, long-term
debt of $52,000, and total debt of $78,700. If inventory is $31,800, what is the current
ratio?
A.0.33
B.0.46
C.0.84
D.1.18
E.2.18
19) The value of a bond is dependent upon the:
A.coupon rate and the current yield
B.coupon rate and the yield to maturity
C.current yield and the yield to maturity
D.coupon rate but neither the current yield nor the yield to maturity
E.yield to maturity but neither the current yield nor the coupon rate
20) Chestnut Tree Farms has identified the following two mutually exclusive projects:
Over what range of discount rates would you choose Project A?
A.8.28 percent or less
B.8.28 percent or more
C.9.33 percent or more
D.9.55 percent or less
E.9.55 percent or more
21) Over the past six years, a stock had annual returns of 14 percent, -3 percent, 8
percent, 21 percent, -16 percent, and 4 percent, respectively. What is the standard
deviation of these returns?
A.11.27 percent
B.13.05 percent
C.13.59 percent
D.15.08 percent
E.14.40 percent
22) You expect the inflation rate to be 2.9 percent and the U.S. Treasury bill yield to be
3.7 percent for the next year. The risk premium on small-company stocks is 12.6
percent. What nominal rate of return do you expect to earn on small-company stocks
next year?
A.15.5 percent
B.16.3 percent
C.16.8 percent
D.9.2 percent
E.9.7 percent
23) Which one of the following statements is correct concerning dividends in the U.S.?
A.The total amount of dividends paid by the S&P 500 companies has increased steadily
every year since 1985
B.Only financial sector firms decreased dividends in 2008
C.Dividend amounts tend to react quickly to changes in the economy
D.Firms tend to quickly adjust their dividends to changes in the firm’s earnings per
share
E.There are less than 75 companies in the U.S. that have consistently increased their
dividends for at least the past 25 years
24) Stock Y has a beta of 1.28 and an expected return of 13.7 percent. Stock Z has a
beta of 1.02 and an expected return of 11.4 percent. What would the risk-free rate have
to be for the two stocks to be correctly priced relative to each other?
A.2.38 percent
B.2.76 percent
C.3.23 percent
D.3.69 percent
E.4.08 percent
25) Which of the following have the potential to increase the net present value of a
proposed investment?
I. ability to immediately shut down a project should the project become unprofitable
II. ability to wait until the economy improves before making the investment
III. option to place the investment on hold until a more favorable discount rate becomes
available
IV. option to increase production beyond that initially projected
A.I only
B.I and IV only
C.II and III only
D.I, II, and IV only
E.I, II, III, and IV
26) Morgantown Movers has net working capital of $11,300, current assets of $31,200,
equity of $53,400, and long-term debt of $11,600. What is the amount of the net fixed
assets?
A.$31,800
B.$32,900
C.$45,500
D.$48,100
E.$53,700
27) How long will it take to double your savings if you earn 3.6 percent interest,
compounded annually?
A.17.78 years
B.18.04 years
C.18.67 years
D.19.42 years
E.19.60 years
28) Which one of the following refers to a customer’s willingness to meet his or her
credit obligations?
A.Capital
B.Conditions
C.Capacity
D.Character
E.Collateral