Need A Tutor?    |   Need Homework Help?                                                                             Help and Support     | Join or Cancel

What is the principal amount of a bond that is repaid at the end of the loan term called?

A. Coupon
B. Market price
C. Accrued price
D. Dirty price
E. Face value
   
A bond's annual interest divided by its face value is referred to as the:

A. market rate.
B. call rate.
C. coupon rate.
D. current yield.
E. yield-to-maturity.
   
Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt
can be described as a:

A. note.
B. bearer form bond.
C. debenture.
D. registered form bond.
E. call protected bond.
   
What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming bonds early?

A. Registered account
B. Bearer account
C. Call account
D. Sinking fund
E. Premium fund
   
A call provision grants the bond issuer the:

A. right to contact each bondholder to determine if he or she would like to extend the term of his or her bonds.
B. option to exchange the bonds for equity securities.
C. right to automatically extend the bond's maturity date.
D. right to repurchase the bonds on the open market prior to maturity.
E. option of repurchasing the bonds prior to maturity at a prespecified price.
   
Russell's has a bond issue outstanding. The issue's indenture provision prohibits the firm from redeeming the bonds
during the first five years following issuance. This provision is referred to as the _____ provision.

A. safeguard
B. market
C. liquidity
D. deferred call
E. sinking fund
   
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.
   
A company originally issued bonds that were rated investment grade. These bonds have now been downgraded to junk status.
These bonds are referred to as:

A. called bonds.
B. converted bonds.
C. unprotected bonds.
D. fallen angels.
E. floaters.
   
Which one of the following terms applies to a bond that initially sells at a deep discount and only makes one
payment to bondholders?

A. Callable
B. Income
C. Zero coupon
D. Convertible
E. Tax-free
   
The relationship between nominal returns, real returns, and inflation is referred to as the:

A. call premium.
B. Fisher effect.
C. conversion ratio.
D. spread.
E. current yield.
   
The term structure of interest rates represents the relationship between which of the following?

A. Nominal rates on risk-free and risky bonds
B. Real rates on risk-free and risky bonds
C. Nominal and real rates on default-free, pure discount bonds
D. Market and coupon rates on default-free, pure discount bonds
E. Nominal rates on default-free, pure discount bonds and time to maturity
   
The inflation premium:

A. increases the real return.
B. is inversely related to the time to maturity.
C. remains constant over time.
D. rewards investors for accepting interest rate risk.
E. compensates investors for expected price increases.
   
Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk?

A. Taxability risk premium
B. Default risk premium
C. Interest rate risk premium
D. Real rate of return
E. Bond premium
   
Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis.

A. annual
B. semiannual
C. quarterly
D. monthly
E. daily
   
Which statement is true?

A. Bonds are generally called at par value.
B. A current list of all bondholders is maintained whenever a firm issues bearer bonds.
C. An indenture is a contract between a bond's issuer and its holders.
D. Collateralized bonds are called debentures.
E. A bondholder has the right to determine when his or her bond is called.
   
A debenture is:

A. an unsecured bond.
B. a bearer form bond.
C. a bond with a call provision.
D. a bond with a sinking fund provision.
E. a bond secured by a blanket mortgage.
   
The purpose of a bond sinking fund is to:

A. accumulate funds needed to pay the tax liability on the bond proceeds.
B. accumulate funds to pay the regular interest payments.
C. hold the bond proceeds until the funds need disbursed.
D. repay bonds early either through purchases or calls.
E. repay bondholders from a trust fund if the issuer defaults.
   
Which one of the following statements concerning sinking funds is correct?

A. Bond issuers must fund a sinking fund at the time the bonds are issued.
B. Sinking funds must include at least one "balloon payment."
C. Sinking funds must be funded annually, starting on the issue date.
D. Sinking funds may be used to purchase bonds in the open market.
E. Sinking funds can be used only to call bonds.
   
A callable bond:

A. is generally call protected during the entire term of the bond issue.
B. generally will have a call protection period during the final three years prior to maturity.
C. may be structured to pay bondholders the current value of the bond on the date of call.
D. is prohibited from having a sinking fund also.
E. is frequently called at a price that is less than par value.
   
A bond has a make-whole call provision. Given this, you know that the:

A. bond will always sell at par.
B. call premium must equal the annual coupon payment.
C. call price is directly related to the market rate of interest.
D. call price is inversely related to the market rate of interest.
E. bond must be a zero coupon bond.
d
   
The price at which a dealer will purchase a bond is referred to as the _____ price.

A. asked
B. face
C. call
D. put
E. bid
   
The price at which an investor can purchase in the bond market is called the _____ price.

A. asked
B. coupon
C. call
D. face
E. bid
   
A bond trader just purchased and resold a bond. The amount of profit earned by the trader from this
purchase and resale is referred to as the:

A. market yield.
B. yield-to-call.
C. bid-ask spread.
D. current yield.
E. bond premium.
   
Inventory turnover may increase if

a. the firm increases its accounts payable
b. the firm uses less debt financing
c. the firm increases its inventory
d. the firm lowers the prices of its goods
   
Days sales outstanding (the average collection period) measures

a. the speed with which accounts payable are paid
b. the speed with which accounts receivable are collected
c. the safety of accounts receivable
d. the safety of accounts payable
   
Coverage ratios measure a firm's

a. ability to use debt financing
b. use of plant and equipment
c. ability to cover (i.e., sell) its inventory
d. ability to meet fixed payments such as interest
   
As the debt ratio increases,
1. fewer assets are debt financed
2. more assets are debt financed
3. the ratio of debt to equity increases
4. the ratio of debt to equity decreases

a. 1 and 3
b. 1 and 4
c. 2 and 3
d. 2 and 4
   
The return on equity

a. is the ratio of sales to equity
b. measures what the firm earns on assets
c. is the ratio of net income to total average equity
d. measures what the firm earns on sales
   
The debt ratio is a measure
1. of financial leverage
2. of the use of debt financing
3. of asset utilization

a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above
   
Owners of bonds would prefer
1. a debt ratio of 60 percent to a debt ratio of 40 percent
2. a debt ratio of 40 percent to a debt ratio of 60 percent
3. a times‑interest‑earned of 5.1 to a times-interest-earned of 3.9
4. a times‑interest‑earned of 3.9 to a times-interest-earned of 5.1

a. 1 and 3
b. 1 and 4
c. 2 and 3
d. 2 and 4
   
Creditors would prefer
1. a quick ratio of 1.2 to a quick ratio of 0.8
2. a quick ratio of 0.8 to a quick ratio of 1.2
3. days sales outstanding of 46 to a
days sales outstanding of 35
4. days sales outstanding of 35 to a
days sales outstanding of 46

a. 1 and 3
b. 1 and 4
c. 2 and 3
d. 2 and 4
   
Operating income is not affected by

a. depreciation
b. cost of goods sold
c. rent payments
d. interest earned
   
Which of the following has no impact on cash flow?

a. the firm's equity
b. depreciation expense
c. taxes paid
d. net income
   
Which one of the following is the quoted price of a bond?

A. Par value
B. Discount price
C. Face value
D. Dirty price
E. Clean price
   
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
   
If a firm has substantial excess cash, it may
1. repurchase some of its shares
2. increase its cash dividends
3. increase its liabilities

a. 1 and 2
b. 1 and 3
c. 2 and 3
d. only 2
   
Dividend reinvestment plans offer which advantages?
1. deferment of federal income taxes
2. a convenient means to accumulate shares
3. dollar cost averaging

a. 1 and 2
b. 1 and 3
c. 2 and 3
d. only 2
   
Preferred stock generally pays

a. a variable dividend
b. a fixed dividend
c. a stock dividend
d. no dividend
   
Preferred stock and long‑term bonds are similar because

a. they both have voting power
b. interest and dividend payments are fixed
c. interest and dividend payments are legal obligations
d. interest and dividend payments are tax‑deductible
expenses
   
Preferred stock dividends are
1. a legal obligation
2. not a legal obligation
3. exempt from federal income taxation
4. not exempt from federal income taxation

a. 1 and 3
b. 1 and 4
c. 2 and 3
d. 2 and 4
   
Analysis of preferred stock uses

a. operating income (EBIT)
b. earnings after dividends to common stock
c. earnings after taxes
d. earnings after interest but before taxes
   
Earnings per preferred share are

a. earnings before interest and taxes
b. the ratio of earnings to number of preferred shares
c. the ratio of EBIT to number of preferred shares
d. the ratio of preferred shares to common shares
   
The current ratio is unaffected by

a. using cash to retire an account payable
b. the collection of an account receivable
c. selling inventory for a profit
d. selling bonds and using the funds to
finance inventory
   
The quick ratio

a. excludes accounts payable
b. excludes accounts receivable
c. includes inventory
d. includes cash and cash equivalents
   
Activity ratios measure

a. how rapidly assets flow through the firm
b. how frequently the firm's stock is traded
c. how rapidly employees turn over
d. the profitableness of accounts receivable
a
   
Which one of the following represents additional compensation provided to bondholders to offset the
possibility that the bond issuer might not pay the interest and/or principal payments as expected?

A. Interest rate risk premium
B. Inflation premium
C. Liquidity premium
D. Taxability premium
E. Default risk premium
   
Which one of the following premiums is paid on a corporate bond due to its tax status?

A. Interest rate risk premium
B. Inflation premium
C. Liquidity premium
D. Taxability premium
E. Default risk premium
   
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
   
When a bond's yield to maturity is less than the bond's coupon rate, the bond:

A. had to be recently issued.
B. is selling at a premium.
C. has reached its maturity date.
D. is priced at par.
E. is selling at a discount.
   
All else held constant, the present value of a bond increases when the:

A. coupon rate decreases.
B. yield to maturity decreases.
C. current yield increases.
D. time to maturity of a premium bond decreases.
E. time to maturity of a zero-coupon bond increases.
   
Which one of the following terms applies to a bond that initially sells at a deep discount and only makes one
payment to bondholders?

A. Callable
B. Income
C. Zero coupon
D. Convertible
E. Tax-free
   
The price at which a dealer will purchase a bond is referred to as the _____ price.

A. asked
B. face
C. call
D. put
E. bid
   
Virtually all bonds have each of the following except

a. interest payments
b. maturity date
c. voting rights
d. an indenture
   
As the length of time to maturity (i.e., the term) of a bond increases, generally

a. the coupon rate rises
b. the coupon rate falls
c. the riskiness of the bond falls
d. the price of the bond rises
   
The price at which an investor can purchase in the bond market is called the _____ price.

A. asked
B. coupon
C. call
D. face
E. bid
   
A bond trader just purchased and resold a bond. The amount of profit earned by the trader from this
purchase and resale is referred to as the:

A. market yield.
B. yield-to-call.
C. bid-ask spread.
D. current yield.
E. bond premium.
   
Which one of the following is the quoted price of a bond?

A. Par value
B. Discount price
C. Face value
D. Dirty price
E. Clean price
   
Which of the following is a cash inflow?

a. distributing a stock dividend.
b. retiring an account payable
c. collecting an account receivable
d. paying property taxes
   
Which of the following is a cash outflow?

a. splitting the stock two for one
b. acquiring inventory
c. retaining earnings
d. switching from straight-line depreciation
to accelerated depreciation
   
A high yield bond

a. pays no interest
b. pays interest only at maturity
c. is a high‑risk debt instrument
d. is a bond in default
   
A fallen angel is

a. a quality bond whose credit rating has declined
b. a firm in financial difficulty
c. a junk bond in default
d. a firm being liquidated  
A split coupon bond

a. distributes interest in cash and additional debt
b. combines features of zero-coupon bonds and secured bonds
c. has a period of no coupon and a period with a high coupon
d. conserves the investor's cash
   
The call premium is the amount by which the:

A. market price exceeds the par value.
B. market price exceeds the call price.
C. face value exceeds the market price.
D. call price exceeds the par value.
E. call price exceeds the market price.
   
A negatively sloped yield curve suggests
1. short‑term rates exceed long‑term rates
2. long‑term rates exceed short‑term rates
3. the Federal Reserve is following a tight monetary policy
4. the Federal Reserve is following an easy monetary policy

a. 1 and 3
b. 1 and 4
c. 2 and 3
d. 2 and 4
   
In a typical bond classification

a. "A" are investment grade bonds
b. "B" stands for a "bearer" bond
c. "C" stands for a convertible bond
d. "D" represents a debenture
   
Risk to bondholders comes from
1. possibility of default
2. higher interest rates
3. higher inflation

a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above
   
Cumulative voting permits a stockholder to

a. collect extra dividends
b. vote all the shares for one individual
c. cast the total number of votes for one individual
d. vote by proxy
   
Earnings are
a. retained
b. distributed
c. invested
d. retained and/or distributed
   
Pre‑emptive rights permit stockholders to

a. collect dividends before they are reinvested
b. participate in dividend reinvestment plans
c. maintain the proportionate share of ownership
d. vote their shares
   
Cash dividends
1. are paid from earnings
2. increase the capacity of the firm to grow
3. reduce the firm's assets

a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above
   
The procedure for the distribution of dividends does not include

a. the ex‑dividend date
b. the date of record
c. the settlement date
d. the date of announcement
   
Dividend policy depends on
1. the firm's earnings
2. investment opportunities available to the firm
3. corporate income taxes

a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above
   
Stock dividends increase

a. the number of shares outstanding
b. the firm's assets
c. the firm's equity
d. the stock's price
   
Stock dividends cause

a. the price of a share of stock to rise
b. the price of a share of stock to fall
c. the value of the firm to rise
d. the value of the firm to fall
   
Which of the following occurs when a stock is split
two‑for‑one?

a. the price of the stock doubles
b. the firm's assets increase
c. the firm's liabilities decrease
d. the par value of the stock is reduced
   
Which of the following occurs when a 10 percent stock dividend is paid?

a. the firm's retained earnings decrease
b. the firm's equity is increased
c. the stock's par value is decreased
d. the stock's price is increased
   
When an investor purchases a bond, he or she

a. pays accrued interest
b. receives accrued interest
c. pays accrued dividends
d. receives accrued dividends
   
Zero coupon and split coupon bonds

a. experience stable prices
b. conserve the firm's cash
c. reduce the firm's use of financial leverage
d. pay interest only at maturity
   
Serial bonds
a. have a sinking fund
b. are issued and retired in a series
c. are a type of income bond
d. are primarily issued by the federal government
 
Bonds may be retired by
1. being called
2. a sinking fund
3. being repurchased
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above
   
Zero coupon bonds

a. are sold at a discount
b. are sold for a premium
c. accrue interest at maturity
d. cannot be called
   
A call penalty (i.e., call premium) protects the

a. investor against premature retirement of the bond
b. investor from default
c. issuer from rising interest rates
d. issuer from the bondholder requesting payment
   
The accrued interest on a bond

a. avoids personal income taxation
b. is paid by the buyer of the bond to the seller of the bond
c. is the result of the possibility of the bond defaulting
d. applies only to zero coupon bonds
   
Equipment trust certificates are

a. riskier than convertible bonds
b. secured debt obligations
c. a type of debenture
d. bonds with low credit ratings
   
In general, income bonds are less risky than

a. mortgage bonds
b. secured debt
c. preferred stock
d. short‑term debt obligations
   
Variable interest rate bonds

a. do not mature
b. are an example of a discount bond
c. have fluctuating coupons
d. are nonmarketable securities
   
On which one of the following dates is the principal amount of a semiannual coupon bond repaid?

A. A portion of the principal is repaid on each coupon date.
B. The entire bond is repaid on the issue date.
C. Half of the principal is repaid evenly over each coupon period with the remainder paid on the issue date.
D. The entire bond is repaid on the maturity date.
E. Half of the principal is repaid evenly over each coupon period with the remainder paid on the maturity date.
   
What condition must exist if a bond's coupon rate is to equal both the bond's current yield and its yield to maturity?
Assume the market rate of interest for this bond is positive.

A. The clean price of the bond must equal the bond's dirty price.
B. The bond must be a zero-coupon bond and mature in exactly one year.
C. The market price must exceed the par value by the value of one year's interest.
D. The bond must be priced at par.
E. There is no condition under which this can occur.
   
The market-required rate of return on a bond that is held for its entire life is called the:

A. coupon rate.
B. yield to maturity.
C. dirty yield.
D. call premium.
E. current yield.
   
The current yield on a bond is equal to the annual interest divided by the:

A. issue price.
B. maturity value.
C. face amount.
D. current market price.
E. current par value.
   
The written agreement that contains the specific details related to a bond issue is called the bond:

A. indenture.
B. debenture.
C. document.
D. registration statement.
E. issue paper.
   
A registered-form bond is defined as a bond that:

A. is a bearer bond.
B. is held in street name.
C. pays coupon payments directly to the owner of record.
D. is listed with the Securities and Exchange Commission (SEC).
E. is unsecured.
   
Advantages of the corporate form of business include

a. limited liability for stockholders
b. avoidance of state taxation
c. limited life
d. deductibility of dividends
   
Stockholders generally have which of the following rights?


1. right to vote
2. right to share in the firm's earnings
3. right to sell the stock

a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above
   
The annual annuity stream of payments with the same present value as a project's
costs is called the project's ___________ _________ cost.
 
Equivalent; annual
   
Newly issued securities are sold to investors in which one of the following markets?
 
Primary
   
What is the market called that allows shareholders to resell their shares to other investors?
 
Secondary
   
An agent who buys and sells securities from inventory is called a:
 
dealer
   
A broker is an agent who:
 
brings buyers and sellers together
   
Any person who owns a license to trade on the NYSE is called a:
 
member
   
NYSE member who functions as a dealer for a limited number of securities.
 
DMM
   
An individual who executes buy and sell orders on the floor of an exchange for a fee is called a:
 
floor broker
   
The owner of a trading license who trades on the floor of the NYSE for his or her personal account is called a(n):
 
floor trader
   
The stream of customer instructions to buy and sell securities is called the:
 
order flow
   
Inside quotes are defined as the:
 
lowest asked and highest bid offers.
   
Jamestown Ltd. currently produces boat sails and is considering expanding its operations
to include awnings. The expansion would require the use of land the firm purchased three
years ago, at a cost of $142,000 that is currently valued at $137,500.
The expansion could use some equipment that is currently sitting idle if $6,700 of modifications
were made to it. The equipment originally cost $139,500 six years ago, has a current book value
of $24,700 and a current market value of $39,000. Other capital purchases costing $780,000 will
also be required. What is the amount of the initial cash outflow for this expansion project?
 
$963,200
   
Walks Softly currently sells 14,800 pairs of shoes annually at an average price of $60
a pair. It is considering adding a lower-priced line of shoes that will be priced at $40 a
pair. The company estimates it can sell 6,000 pairs of the lower-priced shoes annually
but will sell 3,500 less pairs of the higher-priced shoes each year by doing so.
What annual sales revenue should be used when evaluating the addition of the lower-priced shoes?
 
$30,000
   
Which one of the following will increase the current value of a stock?
 
increase in the capital gains yield
   
Jensen Shipping has four open seats on its board of directors. How many shares will a shareholder need to control
to ensure that his or her candidate is elected to the board given the fact that the firm uses straight voting?
Assume one share equals one vote.
 
50 percent of the shares plus one vote
   
You have agreed to pay a 5 percent commission to your best friend if he can locate a buyer for your car.  This arrangement
is most similar to the compensation arrangement for which one of these individuals is involved with the stock market?
 
Commission Broker
   
To be a member of the NYSE, you must:
 
own a trading license
   
A supplier, who requires payment within ten days, should be most
concerned with which one of the following ratios when granting credit?
 
Cash
   
The sustainable rate of growth for a firm can be increased by:
 
increasing the total asset turnover
   
DL Motors has sales of $22,400, net income of $3,600, net fixed assets of $18,700,
inventory of $3,200, and total current assets of $6,300.
What is the common-size statement value of inventory?
 
12.8%
   
Leo's Markets has sales of $684,000, costs of $437,000, interest paid of $13,800,
total assets of $712,000, and depreciation of $109,400.
The tax rate is 21 percent, and the equity multiplier is 1.55. What is the return on equity?
 
21.29%
   
Sue purchased a house for $89,000, spent $56,000 upgrading it, and currently had
it appraised at $213,000. The house is being rented to a family for $1,200 a month, the
maintenance expenses average $200 a month, and the property taxes are $4,800 a year.
If she sells the house she will incur $21,200 in expenses. She is considering converting
the house into professional office space. What opportunity cost, if any, should she assign
to this property if she has been renting it for the past two years?
 
$191,800
   
One year ago, you purchased 300 shares of IXC stock at a price of $22.05 per share, received
$460 in dividends over the year, and today sold all your shares for $29.32 per share.
What was your dividend yield?
 
6.95 percent
   
Which one of the following parties on the NYSE floor posts bid and asked prices?
 
DMMs
   
If a trade is made "in the crowd," the trade has occurred:
 
between two brokers
   
Swan Lake Marina is expected to pay an annual dividend of $1.58 next year. The stock is selling for
$18.53 a share and has a total return of 12 percent. What is the dividend growth rate?
 
3.47 percent
   
Lamey Headstones increases its annual dividend by 1.5 percent annually. The stock sells for $28.40 a
share at a required return of 14 percent. What is the amount of the last dividend this company paid?
 
$3.50
   
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?
 
11.70 percent
   
Suppose you know that a company's stock currently sells for $75 per share and the required return on the stock is 14 percent.
You also know that the total return on the stock is evenly divided between capital gains yield and a dividend yield.
If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?
 
$4.91
   
Venus, Inc. has an issue of preferred stock outstanding that pays a $9.00 dividend every year, in perpetuity.
If this issue currently sells for $164.60 per share, what is the required return?
 
5.47 percent
   
The stock price of Russell, Inc. is $81. Investors require a 14 percent rate of return on similar stocks.
If the company plans to pay a dividend of $4.20 next year, what growth rate is expected for the company's stock price?
 
8.81 percent
   
Classic Pickles is a mature manufacturing firm. The company just paid a $4 annual dividend, but management expects to
reduce the payout by 4 percent per year, indefinitely.
If you require a 12 percent return on this stock, what will you pay for a share today?
 
$24.00
   
Granger Corp. stock currently sells for $48.29 per share. The market requires a 13 percent return on the firm's stock.
If the company maintains a constant 5.5 percent growth rate in dividends, what was the most recent annual
dividend per share paid on the stock?
 
$3.43
   
Which one of the following statements is correct?
 
If the internal rate of return equals the required return, the net present value will equal zero.
   
The internal rate of return is unreliable as an indicator of whether or not an investment should be accepted given
which one of the following?
 
The investment is mutually exclusive with another investment under consideration.
   
A stock had annual returns of 7.61%, 9.17%, -3.12% and 15.07% for the past four years, respectively.
What is the real arithmetic average rate of return for this period if inflation averaged 2.31% over the time period?
 
4.76%
   
A stock had annual returns of 2.75%, 17.75% and -23.50% over a three year period.
Based on this information, what is the 68% probability range for any one given year?
 
-21.88% to 19.88%
   
Assume a stock had an historical equity risk premium of 5.52% and a standard deviation of 11.40% over
the past two decades (past 20 years). What is the 95.4% range for the equity risk premium in the future?
 
0.42% to 10.62%
   
A portfolio consists of three stocks. There are 500 shares of Stock A valued at $23.20 share, 330 shares
of Stock B valued at $49.10 a share, and 220 shares of Stock C priced at $26.50 a share. Stocks A, B, and C
are expected to return 7.3 percent, 15.4 percent, and 12.7 percent, respectively. What is the expected return on this portfolio?
 
12.14%
   
Stock A has a variance of .1432 while Stock B's variance is .0930. The covariance of the returns for these two stocks is −.0306.
What is the correlation coefficient?
 
-0.2652
   
Albert's recently paid its annual dividend of $1.95 per share. At that time, the firm announced that all future dividends
will be increased by 2.3 percent annually. What is the firm's cost of equity if the stock is currently selling for $28.50 a share?
 
9.30%
   
What is the cost of equity for a firm that has a beta of 1.3 if the risk-free rate of return is 2.75 percent and the
expected market risk premium is 5.55 percent?
 
9.97%
   
Otto Enterprises has a bond issue outstanding with a coupon of 6.25 percent that matures in 20 years.
The bond is currently priced at 90.36 and has a par value of $1,000. Interest is paid semiannually.
What is the pre-tax cost of debt?
 
7.16%
   
Deacon Nation currently has a debt-equity ratio of 0.55 and an equity beta of 0.88. The credit spread on the firm's bonds is
percent and the expected market risk premium is 5.50 percent. If the firm switches to a debt-equity ratio of 0.45, and
 the credit spread on the firm's debt remains at 1.20 percent, what is the firm's new equity beta?
 
0.8361
   
Which one of the following statements is correct?
 
When the internal rate of return is greater than the required return, the net present value is positive.
   
Which one of the following is specifically designed to compute the rate of return on a project that has
unconventional cash flows?
 
Modified internal rate of return
   
Which one of the following methods of analysis is most appropriate to use when two investments are
mutually exclusive?
 
Net present value
   
An investment has conventional cash flows and a profitability index of 1.0. Given this, which one of the
following must be true?
 
The net present value is equal to zero
   
Which one of the following statements is correct?
 
The payback method is biased toward short-term projects.
   
What is the net present value of a project with the following cash flows if the discount rate is 15 percent?
 
Year Cash Flow
0             $59,200
1             21,600
2             28,300
3             14,400
4             7,200
 
-$5,433.67
   
A proposed project requires an initial cash outlay of $849,000 for equipment and an additional cash outlay
of $48,500 in year 1 to cover operating costs. During years 2 through 4, the project will generate cash inflows
of $354,000 a year. What is the net present value of this project at a discount rate of 13 percent?
Round your answer to the nearest whole dollar.
 
-$152,232
   
A project has the following cash flows. What is the payback period?
 
Year Cash Flow
0             $92,000
1             27,000
2             45,800
3             16,800
4             11,200
 
3.21 years
   
Delta Mu Delta is considering purchasing some new equipment costing $400,000.
The equipment will be depreciated on a straight-line basis to a zero-book value over the four-year life of the project.
 
Projected net income for the four years is;
$18,900
$21,300
$26,700
$25,000.
 
What is the average accounting rate of return?
 
11.49 percent
   
Auto Detailers is buying some new equipment at a cost of $228,900. This equipment will be depreciated
on a straight-line basis to a zero book value its eight-year life. The equipment is expected to generate net
income of $36,000 a year for the first four years and $22,000 a year for the last four years.
What is the average accounting rate of return?
 
25.34 percent
   
Stock M has a beta of 1.3. The market risk premium is 5.6 percent and the risk-free  rate is 3.7 percent.
Assume you compile a portfolio equally invested in Stock M, Stock N,  and a risk-free security;
the portfolio has a beta equal to the overall market.  What is the expected return on the portfolio?
 
9.30%
   
If a firm increases its use of both operating and financial leverage, then you should expect the firm's:
 
equity beta to increase.
   
A portfolio has 48 percent of its funds invested in Security One and 52 percent invested in Security Two.
Security One has a standard deviation of 6.4 percent. Security Two has a standard deviation of 11.8
percent. The securities have a coefficient of correlation of .58. What is the portfolio variance?
 
0.006895
   
A portfolio consists of Stocks A and B and has an expected return of 11.7 percent.
Stock A has an expected return of 16.8 percent
Stock B is expected to return 8.2 percent.
What is the portfolio weight of Stock A?
 
40.70%
   
You would like to combine a risky stock with a beta of 1.97 with U.S. Treasury bills in such a way that the
risk level of the portfolio is equivalent to the risk level of the overall market. What percentage of the
portfolio should be invested in the risky stock?
 
50.76%
   
Stock A has an expected return of 12.75 percent and a variance of .0213. The market has an expected return
of 11.50 percent and a variance of 0.0089. What is the beta of Stock A if the covariance of Stock A with the
market is .0157?
 
1.76
   
Stock A has a beta of .66 and an expected return of 6.62%.
Stock B has a beta of 1.40 and an expected return of 11.07%.
Stock C has beta of 1.24 and an expected return of 9.94%.
Stock D has a beta of 1.28 and an expected return of 10.20%.
Stock E has a beta of .94 and an expected return of 7.8%.
 
Which one of these stocks is the most accurately priced if the risk-free rate of return is 2.5% and the
market risk premium is 6%?
 
Stock D
   
A project has the following cash flows. What is the internal rate of return?
 
Year Cash Flow
0             $92,000
1             36,100
2             59,900
3             21,300
 
14.09 percent
   
A project has the following cash flows. What is the internal rate of return?
 
Year Cash Flow
0             $73,000
1             8,400
2             21,900
3             28,300
4             33,300
 
8.26 percent
   
The Black Horse is currently considering a project that will produce cash inflows of $12,000 a year for
three years followed by $6,500 in year 4. The cost of the project is $38,000.
What is the profitability index if the discount rate is 7 percent?
 
0.96
   
A firm is reviewing a project that has an initial cost of $71,000. The project will produce annual cash inflows,
starting with year 1, of $8,000, $13,400, $18,600, $33,100, and finally in year 5, $37,900.
What is the profitability index if the discount rate is 11 percent?
 
1.07
   
The net present value of a project's cash inflows is $8,216 at a 14 percent discount rate.
The profitability index is 1.03 and the firm's tax rate is 34 percent. What is the initial cost of the project?
 
$7,976.70