Which one of the following features distinguishes an ordinary annuity from an annuity
due?
A. Number of equal payments
B. Amount of each payment
C. Frequency of the payments
D. Annuity interest rate
E. Timing of the annuity payments
Answer:
Alderson Metals is compiling a cash balance projection by quarter for next year. Which
one of the following adjustments to this projection will decrease the cumulative
surplus?
A. Reducing payroll costs from its current projection amount
B. Decreasing the accounts receivable period by changing the firm’s credit policy
effective the first of next year
C. Receiving more favorable credit terms from the firm’s suppliers
D. Increasing the dividend per share on the firm’s outstanding common stock
E. Refinancing the firm’s long-term debt at a lower interest rate
Answer:
The price at which an investor can purchase a bond from a dealer is called the _____
price.
A. asked
B. coupon
C. call
D. face
E. bid
Answer:
Which one of the following is a payment of either cash or shares of stock that is paid
out of earnings to a firm’s shareholders?
A. Interest
B. Distribution
C. Retained earnings
D. Dividend
E. Stock repurchase
Answer:
Which one of the following best describes a portfolio?
A. Risky security
B. Security equally as risky as the overall market
C. New issue of stock
D. Group of assets held by an investor
E. Investment in a risk-free security
Answer:
Big Al’s Meat Market has annual sales of $531,000 and cost of goods sold of $358,000.
The profit margin is 4.8 percent and the accounts payable period is 41 days. What is the
average accounts payable balance?
A. $9,421
B. $25,488
C. $40,214
D. $45,211
E. $54,449
Answer:
Given the following partial stock quote, what is the amount of the next annual dividend
if yesterday’s closing price was $23.60?
A. $0.78
B. $0.81
C. $1.15
D. $1.19
E. $1.23
Answer:
The common stock of Sweet Treats is valued at $10.80 a share. The company increases
its dividend by 8 percent annually and expects its next dividend to be $0.40 per share.
What is the total rate of return on this stock?
A. 8.00 percent
B. 11.07 percent
C. 11.17 percent
D. 11.70 percent
E. 12.00 percent
Answer:
The common stock of Hillshire Farms has yielded 16.3 percent, 7.2 percent, 11.8
percent, -3.6 percent, and 9.7 percent over the past five years, respectively. What is the
geometric average return?
A. 7.91 percent
B. 8.03 percent
C. 8.07 percent
D. 8.27 percent
E. 9.64 percent
Answer:
Your grandfather started his own business 52 years ago. He opened a savings account at
the end of his third month of business and contributed $x. Every three months since
then, he faithfully saved another $x. His savings account has earned an average rate of
4.5 percent annually. Today, his account is valued at $364,209.11. How much did your
grandfather save every three months?
A. $425.15
B. $428.67
C. $431.09
D. $443.13
E. $462.25
Answer:
You’ve observed the following returns on Blast It Corporation’s stock over the past five
years: 11 percent, -28 percent, 16 percent, 18 percent, and – 3 percent, respectively.
What was the variance of the returns over this period?
A. 0.03598
B. 0.03637
C. 0.03692
D. 0.03714
E. 0.03781
Answer:
Charlies’s writes 135 checks a day for an average amount of $480 each. These checks
generally clear the bank in 3 days. In addition, the firm generally receives an average of
$159,000 a day in checks that are deposited immediately. Deposited funds are available
in 1.5 days. What is the firm’s net float?
A. Net disbursement float of $94,200
B. Net disbursement float of $44,100
C. Net disbursement float of $34,750
D. Net collection float of $44,100
E. Net collection float of $94,200
Answer:
An auction market:
A. is an electronic means of exchanging securities.
B. has a physical trading floor.
C. handles primary market transactions exclusively.
D. is also referred to as an OTC market.
E. is dealer based.
Answer:
Uptown Construction is comparing two different capital structures. Plan I would result
in 23,000 shares of stock and $320,000 in debt. Plan II would result in 17,000 shares of
stock and $260,000 in debt. The interest rate on the debt is 10 percent. Ignoring taxes,
EPS will be identical for Plans I and II when EBIT equals which one of the following?
A. $8,550
B. $9,000
C. $9,600
D. $10,400
E. $10,750
Answer:
The Greenbriar is an all-equity firm with a total market value of $520,000 and 20,000
shares of stock outstanding. Management is considering issuing $120,000 of debt at an
interest rate of 10 percent and using the proceeds on a stock repurchase. Ignore taxes.
How many shares will the firm repurchase if it issues the debt securities?
A. 2,871 shares
B. 3,516 shares
C. 4,521 shares
D. 4,607 shares
E. 4,615 shares
Answer:
A stock has produced returns of 16.6 percent, 3.4 percent, 11.7 percent, and -9.2 percent
over the past four years, respectively. What is the geometric average return?
A. 5.16 percent
B. 5.47 percent
C. 6.23 percent
D. 6.61 percent
E. 10.12 percent
Answer:
The Fried Green Tomatoes Restaurant increased its operating cycle from 140 days to
148 days while the cash cycle decreased by 3 days. How have these changes affected
the accounts payable period?
A. Decreased by 11 days
B. Decreased by 5 days
C. Decreased by 1 day
D. Increased by 5 day
E. Increased by 11 days
Answer:
A security produced returns of 12 percent, -11 percent, -2 percent, 15 percent, and 9
percent over the past five years, respectively. Based on these five years, what is the
probability that an investor in this stock will lose more than 17.06 percent in any one
given year?
A. 0.50 percent
B. 1.00 percent
C. 1.25 percent
D. 2.50 percent
E. 5.00 percent
Answer:
Which one of the following would tend to favor a low-dividend payout?
A. Higher tax rates on capital gains than on dividend income
B. High flotation cost for equity issues
C. Endowment fund investors who cannot spend principal
D. Investors’ desire for a high-dividend yield
E. Elimination of the tax deferral on capital gains
Answer:
Which one of the following indicates that a firm has generated sufficient internal cash
flow to finance its entire operations for the period?
A. Positive operating cash flow
B. Negative cash flow to creditors
C. Positive cash flow to stockholders
D. Negative net capital spending
E. Positive cash flow from assets
Answer:
Which one of the following industries is most apt to have the shortest operating cycle?
A. Toy store
B. Car manufacturer
C. Local restaurant
D. Furniture store
E. Plastics manufacturer
Answer:
A stock has an expected return of 17.2 percent and a beta of 1.65. The risk-free rate is
5.1 percent. What is the slope of the security market line?
A. 7.25 percent
B. 7.33 percent
C. 7.78 percent
D. 7.92 percent
E. 8.03 percent
Answer: