Unit 10 missed questions

Which of the followings measures should be used to assess the risk-adjusted return of an active portfolio manager? A) Alpha B) Gamma C) Beta D) Theta

Alpha

All of the following statements about the price-earnings (PE) ratio are true EXCEPT A) it is computed by dividing the current market price of the common stock by the earnings per share B) young, fast-growing companies generally have higher P/E ratios than mature, slower-growth companies C) a company's P/E ratio may also be called its multiple D) a company's stock will have a relatively high P/E ratio if investors feel the company's earnings will grow slowly

D) a company's stock will have a relatively high P/E ratio if investors feel the company's earnings will grow slowly Young, fast-growing companies generally have higher P/E ratios than mature companies.

Which of the following statements regarding the time value of money is NOT correct? A) Compound interest is interest earned on interest. B) Future value of an ordinary annuity is the future amount to which a series of deposits of equal size will increase. C) Future value is the future amount to which a sum of money today will increase on the basis of a defined interest rate and period. D) Compound interest is interest earned on the initial investment.

D) compound interest is interest earned on investment compound interest is interest earned on interest that has been added to the original principal

The present value of a dollar A) cannot be calculated without knowing the level of inflation B) is the amount of goods and services it will buy in the future at today's rate price level C) is equal to its future value if the level of interest rates stays the same D) indicates how much must be invested today at a given interest rate, to equal a specific cash value in the future

D) indicates how much must be invested today at a given interest rate, to equal a specific cash value in the future

If a corporation has a dividend payout ratio of 70%, the undistributed earnings will A) increase retained earnings B) increase earnings per share C) decrease book value D) increase capital surplus

A) increase retained earnings

In a rising market, which of the following is least volatile? A) A stock with an alpha of 2.0 B) A stock with a beta of 0.5 C) A stock with a beta of 2.0 D) A stock with an alpha of 0.5

B) a stock with a beta of 0.5

An analyst is viewing a subject company's financial statements. She notices that the company has current assets of $20 million, fixed assets of $50 million, and total liabilities of $45 million (of which $10 million is considered long-term). This company's debt-to-equity ratio is A) 64.3% B) 40% C) 22.2% D) 28.6%

D) 28.6% the debt to equity ratio is total capital/longterm debt total capital is net worth + longterm debt 20 + 50 = 70 70 - 45 = 35 35 / 10 = .286

Which of the following items would be included in a current ratio computation? A) Cash, dividends payable, and shareholders' equity B) Inventory, equipment, and cash C) Accounts receivable, inventory, and long-term debt D) Accounts payable, wages payable, and short-term debt

D) Accounts payable, wages payable, and short-term debt

In general, one would prefer to purchase a bond when its current market price is A) less than its future value B) the same as its present value C) more than its present value D) less than its present value

D) less than its present value

Present value is a computation frequently used to determine the amount of deposit needed now to meet a future need, such as a college education. If an investor uses an expected return of 8%, but the actual return over the period is 6%, A) the yield to maturity will be lower than anticipated B) the future value will not be able to be computed C) the accumulated value will meet the objectives D) the present value was insufficient to meet the objective

D) the present value was insufficient to meet the objective

An investor's required rate of return is 6%. If the internal rate of return of the investment offered is 5.75%, then the NPV is A) zero B) positive C) negative D) between 5.75% and 6%

C) negative Any time an investment's IRR is less than the required rate of return, the NPV is negative (and should probably be avoided).

Which of the following purchases is most suitable for an investor pursuing an aggressive investment strategy? A) DOH stock with a beta coefficient of 0.7 B) AMF stock with a beta coefficient of 1.0 C) GHI stock with a beta coefficient of 1.3 D) LMN stock with a beta of −1.6

C) a stock with 1.3

XYZ Corporation has a beta of 1, and ABC has a beta of 1.4. XYZ has returned 12% and ABC 18.8%. Based on this information ABC had alpha of A) 18.8% B) 4.8% C) 6.8% D) 2%

D) 2% A stock with a beta of 1.4 would be expected to perform 40% better in an up market than one with a beta of 1.0. Because XYZ with a beta of 1.0 gained 12%, ABC should return 140% of that or 16.8% (12% × 1.4). With an actual return of 18.8%, ABC beat the expected by 2% and that is its alpha.

When computing a company's quick ratio, which of the following assets is NOT counted? A) Inventory B) Cash C) Accounts receivables D) Marketable securities

Inventory, because you subtract it from the current assets

Liquidity ratios measure the solvency of a firm or the firm's ability to meet short-term financial obligations. Which of the following is a liquidity ratio? A) Dividend divided by earnings per share B) Net income divided by average total equity C) Current assets divided by current liabilities D) Gross profit divided by net sales

C) current assets divided by current liabilities