Archives: Quiz

Suppose that the average P/E multiple in the oil industry is 16. Shell Oil is expected to have an EPS of $4.50 in the coming year. The intrinsic value of Shell Oil stock should be A. $28.12. B. $35.55. C. […]

Consider the multifactor APT with two factors. The risk premiums on the factor 1 and factor 2 portfolios are 5% and 6%, respectively. Stock A has a beta of 1.2 on factor-1, and a beta of 0.7 on factor-2. The […]

Music Doctors has a beta of 2.25. The annualized market return yesterday was 12%, and the risk-free rate is currently 4%. You observe that Music Doctors had an annualized return yesterday of 15%. Assuming that markets are efficient, this suggests […]

Subordination clauses in bond indentures A. may restrict the amount of additional borrowing the firm can undertake. B. are always bad for investors. C. provide higher priority to senior creditors in the event of bankruptcy. D. may restrict the amount […]

According to the expectations theory, what is the expected forward rate in the third year? The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. A. 7.23% B. 9.37% C. 9.00% D. […]

Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May 105 call contract at $2. The maximum potential profit of your strategy is ________, if both options are exercised. A. $600 B. $500 C.$200 […]

A trader who has a __________ position in oil futures believes the price of oil will __________ in the future. A. short; increase B. long; increase C. short; stay the same D. long; stay the same Dividend discount models and […]

Alpha forecasts must be ____________ to account for less-than-perfect forecasting quality. When alphaforecasts are ____________ to account for forecast imprecision, the resulting portfolio position becomes ____________. A. shrunk; shrunk; far less moderate B.shrunk; shrunk; far more moderate C. grossed up; […]

Barber and Odean (2001) report that men __________ women. A. earn higher returns than B. earn lower returns than C. earn about the same returns as D. generate lower trading costs than If a firm has a positive tax rate, […]

Active portfolio management consists of A. market timing. B. security analysis. C. indexing. D.market timing and security analysis. E. None of the options are correct. You purchased one AT&T March 50 call and sold one AT&T March 55 call. Your […]

Holding other factors constant, the interest-rate risk of a coupon bond is higher when the bond’s A. term to maturity is lower. B. coupon rate is higher. C. yield to maturity is lower. D. current yield is higher. E. None […]

If covered interest arbitrage opportunities exist, A. interest rate parity does not hold. B. interest rate parity holds. C. arbitragers will be able to make risk-free profits. D. interest rate parity does not hold, and arbitragers will be able to […]

Collateralized bonds A. rely on the general earning power of the firm for the bond’s safety. B. are backed by specific assets of the issuing firm. C. are considered the safest variety of bonds. D. are backed by specific assets […]

The price that the writer of a call option receives to sell the option is called the A. strike price. B. exercise price. C. execution price. D. acquisition price. E. premium. The following data are available relating to the performance […]

Suppose the risk-free return is 3%. The beta of a managed portfolio is 1.75, the alpha is 0%, and the average return is 16%. Based on Jensen’s measure of portfolio performance, you would calculate the return on the market portfolio […]

A hedge ratio of 0.70 implies that a hedged portfolio should consist of A. long 0.70 calls for each short stock. B. short 0.70 calls for each long stock. C. long 0.70 shares for each short call. D. long 0.70 […]

Security X has expected return of 14% and standard deviation of 22%. Security Y has expected return of 16% and standard deviation of 28%. If the two securities have a correlation coefficient of 0.8, what is their covariance? A. 0.038 […]

Suppose the 1-year risk-free rate of return in the U.S. is 4% and the 1-year risk-free rate of return in Britain is 6%. The current exchange rate is 1 pound = U.S. $1.67. A 1-year future exchange rate of __________ […]

Freddie Mac and Ginnie Mae were organized to provide A. a primary market for mortgage transactions. B. liquidity for the mortgage market. C. a primary market for farm loan transactions. D. liquidity for the farm loan market. E. a source […]

Fiscal policy is difficult to implement quickly because A. it requires political negotiations. B. much of government spending is nondiscretionary and cannot be changed. C. increases in tax rates affect consumer spending gradually. D.-it requires political negotiations, and much of […]

If the expected ROE on reinvested earnings is equal to k, the multistage DDM reduces to A. V0 = (Expected dividend yield in year 1)/k. B. V0 = (Expected EPS in year 1)/k. C. V0 = (Treasury bond yield in […]

Psychologists have found that people who make decisions that turn out badly blame themselves more when that decision was unconventional. The name for this phenomenon is A. regret avoidance. B. framing. C. mental accounting. D. overconfidence. E. obnoxicity. You are […]

The growth in per share FCFE of CBS, Inc. is expected to be 10% per year for the next two years, followed by a growth rate of 5% per year for three years. After this five-year period, the growth in […]

Which of the following costs are included in the “for cost accounting purposes” classification? A. Variable cost and fixed cost. B. Direct cost and indirect cost. C. Product cost and period cost. D. Committed cost and discretionary cost. If the […]

If an asset costs $16,000, has an expected useful life of 8 years, is expected to have a $2,000 salvage value and generates net annual cash inflows of $2,000 a year, the cash payback period is A. 8 years. B. […]

The balance sheet caption for common stock is: Common stock, no par value, 15,000,000 shares authorized, 9,200,000 shares issued, 8,900,000 shares outstanding $1,104,000,000 (a.) Calculate the average price at which the shares were issued. (b.) If these shares had been […]

At the beginning of the fiscal year, the balance sheet showed assets of $2,728 and stockholders’ equity of $1,672. During the year, assets increased $148 and liabilities decreased $76. Stockholders’ equity at the end of the year totaled: A. $1,672 […]

Depreciation, in accounting, is a process that results in: A. depreciable assets being reported in the balance sheet at their fair value. B. accumulating cash for the replacement of the asset. C. an accurate measurement of the economic usefulness of […]

Which of the following is true about an unfavorable variance appearing in a performance report? A. actual revenue exceeded budgeted revenue. B. budgeted expense exceeded actual expense. C. budgeted variable costs exceeded actual variable costs. D. budgeted revenue exceeded actual […]

If an organization has an obligation to pay $25,000 to a supplier two years from now, the present value of the obligation: A. is less than $25,000. B. is $25,000. C. is more than $25,000. D. could be calculated using […]

The return on investment measure of performance: A. is never as important a measure of management effectiveness as the amount of net income. B. relates dividends paid to the entity’s assets. C. is calculated using net income as the amount […]

Depreciation expense is not a cash flow item but it will affect the calculation of which cash flow item? A. initial investment. B. income taxes. C. salvage value. D. working capital. One of the most important reasons for having a […]

______________ standards allow inefficiencies from prior years to be incorporated into the budget, thus providing little incentive for improvement. A. Ideal B. Engineered C. Attainable D. Past experience When a firm buys land on which there is a building, and […]

Eberlin Boats estimates the following for 2016: During 2016 Eberlin incurs the following costs and activity: Eberlin uses direct labor hours to calculate the predetermined overhead rate for the year. (a.) Calculate the predetermined overhead rate for 2016. (b.) Calculate […]

A firm has used LIFO for several years during which costs have trended higher. If this firm achieves a substantial reduction in inventory quantities in 2017 by selling more merchandise than it purchases, the effect on 2017 net income of […]

Month Total Maintenance Cost Production Volume (units) January $1,880 1,750 units February $1,800 1,500 units March $2,200 2,500 units April $2,120 2,250 units May $2,300 2,750 units Using the high-low method, the variable rate for maintenance is: A. $0.40. B. […]

Which of the following is(are) a category for securities? A. Trading. B. Held-to-maturity. C. Available-for-sale. D. All of the above. As the total volume of activity changes: A. the total of variable costs changes. B. the total of fixed costs […]

When borrowing money, the most important objective of the borrower should be to: A. minimize monthly payments. B. minimize the APR. C. avoid borrowing on a discount basis. D. make the maturity date as far in the future as possible. […]

The adjusting entry to accrue Interest Expense results in: A. an increase in Interest Expense. B. a decrease in Interest Expense. C. a decrease in Cash. D. a decrease in Interest Payable. Income from operations is: A. sometimes called the […]

Which of the following is one of the two generally practiced methods for electing corporate directors? A. Democratic voting. B. Representative voting. C. Cumulative voting. D. Census voting. A higher P/E ratio means that: A. the stock is more reasonably […]

The balance of the Estimated Warranty Liability account was $12,000 on January 1, 2016, and $13,600 on December 31, 2016. Based on an analysis of warranty claims during the past several years, this year’s warranty provision was established at 3% […]

Which of the following is not usually associated with bonds? A. Coupon rate. B. Maturity value. C. Face amount. D. Maturity rate. _____________ allows managers to focus their attention on maximizing an amount of earnings above a minimum required ROI. […]

Once the budgeted income statement is prepared, the __________ budget must be prepared prior to the preparation of the budgeted balance sheet. A. sales B. purchases C. operating expense D. cash ABC, Inc., is segmented into three divisions and the […]

Standard costs are comprised of two elements: A. the quantity of input and the cost per unit of input. B. the quality of input and the cost per unit of input. C. the quantity of input and the cost per […]

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value? A. Interest rate risk premium B. Inflation premium C. Liquidity premium D. Taxability premium E. Default risk premium Which […]

The primary goal of financial management is most associated with increasing the: A. dollar amount of each sale. B. traffic flow within the firm’s stores. C. the fixed costs while lowering the variable costs. D. firm’s liquidity. E. market value […]

Which one of the following methods of analysis has the greatest bias toward short-term projects? A. Net present value B. Internal rate of return C. Average accounting return D. Profitability index E. Payback Today, you are borrowing $7,800 to purchase […]

The dividend yield on a stock will increase if the: A. dividend growth rate decreases. B. stock price decreases. C. capital gains rate decreases. D. stock price increases. E. tax rate on dividends increases. Leisure Products has sales of $738,800, […]

S&S stock is expected to return 17.5 percent in a booming economy, 12.4 percent in a normal economy, and 1.2 percent in a recession. The probabilities of an economic boom, normal state, or recession are 2 percent, 90 percent, and […]

Municipal bonds are: A. generally purchased by tax-exempt investors. B. risk-free. C. issued by federal, state, and local governmental bodies. D. zero coupon bonds. E. generally callable. China Importers would like to spend $215,000 to expand its warehouse. However, the […]