1. In general, the role of the financial manager is to plan for the acquisition and use of funds so as to maximize the value of the firm.
a. True
b. False |
|
2. The key value of limited liability
is that it lowers the firms risk thereby enhancing its value.
a. True
b. False
|
|
3. Which of the following is one of the
things that causes a corporation to have a significant advantage over
a partnership or a proprietorship?
a. Limited liability.
b. Ease of transfer of ownership interest.
c. Unlimited life.
d. Elimination of double taxation.
e. Ability to retain earnings and thus convert income from personal income to capital gains.
|
|
4. Other things held constant, if a firm
holds cash balances in excess of their optimal level in a non. interest
bearing account, this will tend to lower the firms.
a. Profit margin.
b. Total asset turnover.
c. Return on equity.
d. All of the above.
e. Answers b and c above.
|
|
5. As a corporate investor paying a marginal
tax rate of 34 percent, if 70 percent of dividends are excludable,
what would be your after-tax dividend yield on preferred stock with
a 16 percent before. tax dividend yield?
a. 6.36%
b. 7.36%
c. 12.19%
d. 13.01%
e. 14.37%
|
|
6. A highly risk-averse investor is considering
the addition of an asset to a 10. stock portfolio. The two securities
under consideration both have an expected return, k, equal to 15 percent.
However, the distribution of possible returns associated with Asset
A has a standard deviation of 12 percent, while Asset B. s standard
deviation is 8 percent. Both assets are correlated with the market
with r 0.75. Which asset should the risk-averse investor add to his/her
portfolio?
a. Asset A.
b. Asset B.
c. Both A and B.
d. Neither A nor B.
e. Cannot tell without more information.
|
|
7. Assume that a new law is passed which
restricts investors to holding only one asset. A risk. averse investor
is considering two possible assets as the asset to be held in isolation.
The assets. possible returns and related probabilities (i.e., the
probability distributions) are as follows:
| Asset X | Asset Y |
| 0.10 . 3% | 0.05 . 3% |
| 0.10 2 | 0.10 2 |
| 0.25 5 | 0.30 5 |
| 0.25 8 | 0.30 8 |
| 0.31 10 | 0.25 10 |
Which asset should be preferred?
a. Asset X, since its expected return is higher.
b. Asset Y, since its beta is probably lower.
c. Either one, since the expected returns are the same.
d. Asset x, since its standard deviation is lower.
e. Asset y, since its coefficient of variation is lower and its expected return is higher.
|
|
8. The systematic (market) risk associated
with an individual stock is most closely identified with the
a. Standard deviation of the returns on the stock.
b. Standard deviation of the returns on the market.
c. Beta of the stock.
d. Coefficient of variation of returns on the stock.
e. Coefficient of variation of returns on the market.
|
|
9. Given some amount to be received several
years in the future, if the interest rate increases, the present value
of the future amount will be
a. Higher.
b. Lower.
c. Stay the same.
d. Cannot tell.
e. Variable.
|
|
10. If you buy a factory for $250,000
and the terms are 20 percent down, the balance to be paid of f over
30 years at a 12 percent rate of interest on the unpaid balance, what
are the 30 equal annual payments?
a. $20,593
b. $31,036
c. $24,829
d. $50,212
e. $6,667
|
|
11. One of the basic relationships in
interest rate theory is that, other things held constant, for a given
change in the required rate of return, the ___ the time to maturity,
the ______ the change in price.
a. longer; smaller.
b. shorter; larger.
c. longer; greater.
d. shorter; smaller.
e. Answers c and d are both correct.
|
|
12. You intend to purchase a 10-year,
$1,000 face value bond that pays interest of $60 every 6 months. If
your nominal annual required rate of return is 10 percent with semiannual
compounding, how much should you be willing to pay for this bond?
a. $826.31
b. $1,086.15
c. $957.50
d. $1,431.49
e. $1,124.62
|
|
13. The last dividend on Spirex Corporation.
s common stock was $4.00, and the expected growth rate is 10 percent.
If you require a rate of return of 20 percent, what is the highest
price you should be willing to pay for this stock?
a. $44.00
b. $38.50
c. $40.00
d. $45.69
e. $50.00
|
|
14. You are contemplating the purchase
of a 20-year bond that pays $50 in interest each six months. You plan
to hold this bond for only 10 years, at which time you will sell it
in the marketplace. You require a 12 percent annual return, but you
believe the market will require only an 8 percent return when you
sell the bond 10 years hence. Assuming you are a rational investor,
how much should you be willing to pay for the bond today?
a. $1,126.85
b. $1,081.43
c. $737.50
d. $927.68
e. $856.91
|
|
15. Four years ago you bought a 10 percent,
10-year bond that paid interest annually. However, this bond was callable
at the end of Year 5 at a price of $1,200. If the current price is
$1,050, what is the bond. s yield-to. call at the present time?
a. 14.74%
b. 18.35%
c. 26.19%
d. 23.81%
e. 32.50%
|
|
16. The current price of a 10-year, $1,000
par value bond is $1,158.91. Interest on this bond is paid every six
months, and the nominal annual yield is 14 percent. Given these facts,
what is the annual coupon rate on this bond?
a. 10%
b. 12%
c. 14%
d. 17%
e. 21% |
|
17. The constant ratio forecasting method
produces accurate results unless which of the following condition(s)
is (are) present?
a. Fixed assets are "lumpy"
b. Strong economies of scale are present.
c. Excess capacity exists because of a temporary recession.
d. Answers a, b, and c all make the projected balance sheet method inaccurate.
e. Answers a and c make the projected balance sheet method inaccurate, but, as the text explains, the assumption of increasing
economies of scale is built into the projected balance sheet method.
|
|
18. Multinational managerial finance requires
that
a. The effects of changing currency values be included in financial analyses.
b. Legal and economic differences be considered in financial decisions.
c. Political risk be excluded from multinational corporate financial analyses.
d. All of the above.
e. Only a and b above.
|
|
19. If the inflation rate in the United
States is greater than the inflation rate in Sweden, other things
held constant, the Swedish currency will
a. Appreciate against the U.S. dollar.
b. Depreciate against the U.S. dollar.
c. Remain unchanged against the U.S. dollar.
d. Appreciate against other major currencies.
e. Appreciate against the dollar and other major currencies.
|
|
20. if one U.S. dollar buys 1.64 German
deutsche marks, how many dollars can you purchase for one German mark?
a. 1.64
b. 3.28
c. 0.61
d. 1.00
e. 0.37
|
|
