Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.
1. The rate that a risk-free security would pay if no inflation were expected over its holding period is called the _______ rate.
A. term structure
B. prime
C. nominal
D. real risk-free
2. What's the present value of a $1,800 annuity payment over 7 years and an interest rate of 9 percent?
A. $12,243
B. $10,440
C. $8,246
D. $9,060
3. Which one of these is a common relative measure of the risk-vs-reward relationship?
A. Total risk
B. Standard deviation
C. Correlation
D. Coefficient of variation
4. If the risk-free rate is 5 percent and the risk premium is 7 percent, what's the required return?
A. 2 percent
B. 12 percent
C. –2 percent
D. 15 percent
5. If you own 500 shares of Company A at $19.25, 800 shares of Company B at $42.22, and 300 shares of Company C at $28.44, what are the portfolio weights of each stock?
A. Company A 16.48 percent; Company B 62.15 percent; Company C 21.37 percent
B. Company A 21.42 percent; Company B 58.32 percent; Company C 19.26 percent
C. Company A 22.61 percent; Company B 63.48 percent; Company C 13.91 percent
D. Company A 18.53 percent; Company B 65.04 percent; Company C 16.12 percent
6. The Tall Tree Lumber Corporation's 2015 income statement shows an EBIT of $5,280,000, a tax rate of 35 percent, and a depreciation expense of $980,000. The company's fixed assets increased by $2,100,000 in 2015, its current assets grew $1,800,000, and spontaneous current liabilities increased by $850,000. What was the firm's 2015 free cash flow?
A. $1,624,000
B. $1,244,000
C. $1,584,000
D. $1,362,000
7. The process of earning interest both on the original deposit and on the earlier interest payments is called
A. future value.
B. discounting.
C. compounding.
D. APR.
8. The existing or current one-, two-, and three-year zero coupon Treasury security rates were as follows:
1R1 = 0.80 percent
1R2 = 1.26 percent
1R3 = 1.85 percent
Using the unbiased expectations theory, what would the one-year forward rates on zero coupon Treasury
bonds be for two and three years, respectively?
A. Two years = 2.14 percent; three years = 2.56 percent
B. Two years = 1.72 percent; three years = 3.04 percent
C. Two years = 3.65 percent; three years = 2.12 percent
D. Two years = 2.25 percent; three years = 4.10 percent
9. The applicability of beta depends on a firm's
A. growth rate.
B. historical returns.
C. future plans.
D. standard deviation.
10. What's the present value of a $150 payment made every year forever at an interest rate of 7.3 percent?
A. $2,175
B. $1,984
C. $2,227
D. $2,055
11. Superior Widgets Manufacturing reported a debt-to-equity ratio of 1.9 times at the end of 2015. If the company's total debt at the end of the year was $29 million, how much equity does Superior Widgets have on its balance sheet?
A. $15.3 million
B. $17.2 million
C. $14.9 million
D. $16.8 million
12. What type of values must investors use when dealing with future stock prices and future dividend payments?
A. Premium values
B. Expected values
C. Certain values
D. Discounted values
13. _______ hold(s) that, in general, only a higher positive return can offset any negative return.
A. Compounding
B. The agency problem
C. Return asymmetries
D. The rule of 72
14. One-year Treasury bills currently yield 2.43 percent. You expect that one year from now, one-year Treasury bill rates will increase to 2.83 percent, and two years from now, one-year Treasury bill rates will increase to 3.04 percent. The liquidity premium on two-year securities is 0.08 percent and on three-year securities, 0.14 percent. If the liquidity premium theory is correct, what should the current rate be on three year Treasury securities?
A. 2.68 percent
B. 3.26 percent
C. 2.84 percent
D. 1.94 percent
15. What's the future value in year six of a $3,400 deposit in year one and another $5,000 deposit at the end of year three using a 6 percent interest rate?
A. $8,341
B. $11,226
C. $12,446
D. $10,778
16. You're using DuPont Analysis on Leonardo's Laboratory Services. You've learned that total assets are $49 million, net income available to common shareholders is $5.8 million, and sales are $8.2 million. What's the firm's ROA?
A. 11.84 percent
B. 9.81 percent
C. 10.24 percent
D. 10.76 percent
17. Modern portfolio theory demonstrates how
A. stock price movements are correlated.
B. total risk is measured.
C. to measure risk-vs-reward.
D. risk reduction occurs when securities are combined.
18. The balance sheet of Acme Landscaping and Horticulture shows current assets of $584,000, fixed assets of $862,313, current liabilities of $498,000, and long-term debt of $234,500. Calculate the company's total stockholders' equity.
A. $713,813
B. $627,813
C. $1,446,313
D. $924,813
19. What type of ratios show how efficiently a firm manages its accounts payable?
A. Profitability ratios
B. Asset management ratios
C. Liquidity ratios
D. Market value ratios
20. A treasury bond bought at the beginning of the year for $1,064 pays $48 in interest payments during the year, ending the year valued at $1,095. What was the percent return?
A. 8.44
B. 7.42
C. 6.86
D. 4.88
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