FIN 343
Which of the following corporate characteristics would favor debt financing versus equity financing? A. A high tax rate. B. A high debt-to-equity ratio. C. Low aversion to risk. D. Below average stock issuing costs.
A. A high tax rate
Each of the following business functions is considered part of a company's value chain except A. Accounting. B. Customer service. C. Marketing. D. Research and development.
A. Accounting.
Global companies that deal with the political and financial risks of conducting business in a particular foreign location face which of the following types of risk? A. Country risk. B. Principal risk. C. Interest rate risk. D. Commodity price risk.
A. Country risk.
A company purchased $10,000 of merchandise inventory on May 1. The terms of the purchase were 2/10, net 30. The company would pay what amount on May 9? A. $7,000 B. $9,800 C. $9,980 D. $10,000
B. $9,800
The risk of a single stock is A. Interest rate risk. B. Unsystematic risk. C. Portfolio risk. D. Market risk.
B. Unsystematic risk.
You are currently holding a call option on a stock with an exercise price of $100. If the current stock price is $90, your net proceeds by exercising this option will be A. $(10) B. $10 C. $0 D. $90
A. $(10)
Beginning January 2, Year 1, a company deposited $50,000 in a savings account for 2 years. The account earns 10% interest, compounded annually. What amount of interest did the company earn during the 2-year period? A. $10,500 B. $10,000 C. $5,500 D. $5,000
A. $10,500
A vendor offered Wyatt Co. $25,000 in compensation for losses resulting from faulty raw materials. Alternatively, a lawyer offered to represent Wyatt in a lawsuit against the vendor for a $12,000 retainer and 50% of any award over $35,000. Possible court awards with their associated probabilities are as follows: Award, Probability $75,000, 0.6 $0, 0.4 Compared with accepting the vendor's offer, the expected value for Wyatt to litigate the matter to a verdict provides a A. $4,000 loss. B. $8,000 gain. C. $21,000 gain. D. $38,000 gain.
A. $4,000 loss.
Selected information from the accounting records of Bolingbroke Company follows: Net sales: $1,800,000 Cost of goods sold:1,200,000 Inventories at January 1: 336,000 Inventories at December 31: 288,000 Assuming there are 300 working days per year, what is the number of days' sales in average inventories for the year? A. 78 B. 72 C. 52 D. 48
A. 78
Each of the following financial instruments is a derivative except A. A fixed interest, 5-year note payable. B. Interest rate futures. C. An agreement to buy a piece of equipment in 6 months at a price determined today. D. A contract to purchase a commodity in 6 months at a price determined today.
A. A fixed interest, 5-year note payable.
Net working capital is the difference between A. Current assets and current liabilities. B. Fixed assets and fixed liabilities. C. Total assets and total liabilities. D. Shareholders' investment and cash.
A. Current assets and current liabilities.
If a firm is considering the use of learning curve analysis in the determination of labor cost standards for a new product, it should be advised that this technique ordinarily is most relevant to situations in which the production time per unit decreases as additional units are produced and the unit cost A. Decreases. B. Does not change. C. Increases or decreases in an unpredictable manner. D. Increases slightly.
A. Decreases.
An analysis of a company's planned equity financing using the Capital Asset Pricing Model (or Security Market Line) incorporates only the A. Expected market earnings, the risk-free rate, and the beta coefficient. B. Expected market earnings and the price-earnings ratio. C. Risk-free rate, the price-earnings ratio, and the beta coefficient. D. Risk-free rate and the dividend payout ratio.
A. Expected market earnings, the risk-free rate, and the beta coefficient.
Given demand in excess of capacity, no spoilage or waste, and full use of a constant number of assembly hours, the number of components needed for an assembly operation with an 80% learning curve should I. Increase for successive periods. II. Decrease per unit of output. A. I only. B. II only. C. Both I and II. D. Neither I nor II.
A. I only.
A financial institution looking to assess its investment portfolio's exposure to price changes most likely would use which of the following techniques? A. Market value at risk analysis. B. Cash flow at risk analysis. C. Earnings at risk analysis. D. Backtesting analysis.
A. Market value at risk analysis.
Because of the large number of factors that could affect the demand for its new product, interactions among these factors, and the probabilities associated with different values of these factors, the marketing department would like to develop a computerized model for projecting demand for this product. By using a random-number procedure to generate values for the different factors, it will be able to estimate the distribution of demand for this new product. This method of estimating the distribution of demand for the new product is called A. Monte Carlo simulation. B. Linear programming. C. Correlation analysis. D. Differential analysis.
A. Monte Carlo simulation.
If a CPA's client expected a high inflation rate in the future, the CPA would suggest to the client which of the following types of investments? A. Precious metals. B. Treasury bonds. C. Corporate bonds. D. Common stock.
A. Precious metals.
The difference between the required rate of return on a given risky investment and that on a riskless investment with the same expected return is the A. Risk premium. B. Coefficient of variation. C. Standard deviation. D. Beta coefficient.
A. Risk premium.
A put is an option that gives its owner the right to do which of the following? A. Sell a specific security at fixed conditions of price and time. B. Sell a specific security at a fixed price for an indefinite time period. C. Buy a specific security at fixed conditions of price and time. D. Buy a specific security at a fixed price for an indefinite time period.
A. Sell a specific security at fixed conditions of price and time.
Which security is most often held as a substitute for cash? A. Treasury bills. B. Common stock. C. Gold. D. AAA corporate bonds.
A. Treasury bills.
Which of the following classes of securities are listed in order from lowest risk/opportunity for return to highest risk/opportunity for return? A. U.S. Treasury bonds; corporate first mortgage bonds; corporate income bonds; preferred stock. B. Corporate income bonds; corporate mortgage bonds; convertible preferred stock; subordinated debentures. C. Common stock; corporate first mortgage bonds; corporate second mortgage bonds; corporate income bonds. D. Preferred stock; common stock; corporate mortgage bonds; corporate debentures.
A. U.S. Treasury bonds; corporate first mortgage bonds; corporate income bonds; preferred stock.
Short-term interest rates are A. Usually lower than long-term rates. B. Usually higher than long-term rates. C. Lower than long-term rates during periods of high inflation only. D. Not significantly related to long-term rates.
A. Usually lower than long-term rates.
A corporation has $50,000 in equity and a debt-to-total-assets ratio of 0.5. The firm wants to reduce this ratio to 0.2 by selling new common stock and using the proceeds to repay principal on outstanding long-term debt. What amount of additional equity financing must the corporation obtain to accomplish this objective? A. $20,000 B. $30,000 C. $80,000 D. $100,000
B. $30,000
Sharif Co. has total debt of $420,000 and equity of $700,000. Sharif is seeking capital to fund an expansion. Sharif is planning to issue an additional $300,000 in common stock and is negotiating with a bank to borrow additional funds. The bank requires a debt-to-equity ratio of .75. What is the maximum additional amount Sharif will be able to borrow? A. $225,000 B. $330,000 C. $525,000 D. $750,000
B. $330,000
Bates Corp. has $100,000 in bonds payable with a fair market value of $120,000. It also has 1,000 shares of common stock issued at $50 per share with a fair market value of $80 per share. What amount represents the corporation's market capitalization? A. $50,000 B. $80,000 C. $170,000 D. $180,000
B. $80,000
The coefficient of correlation that indicates the weakest linear association between two variables is A. -0.73 B. -0.11 C. 0.12 D. 0.35
B. -0.11
A company has cash of $100 million, accounts receivable of $600 million, current assets of $1.2 billion, accounts payable of $400 million, and current liabilities of $900 million. What is its acid-test (quick) ratio? A. 0.11 B. 0.78 C. 1.75 D. 2.11
B. 0.78
If the return on the market portfolio is 10% and the risk-free rate is 5%, what is the effect on a company's required rate of return on its stock of an increase in the beta coefficient from 1.2 to 1.5? A. 3% increase. B. 1.5% increase. C. No change. D. 1.5% decrease.
B. 1.5% increase.
Konstans Corp. is considering purchasing an investment security with the following information: Likelihood, Return on Investment 50%, 2% 40%, 4% 10%, 14% The expected return on this investment is: A. 2% B. 4% C. 25% D. 50%
B. 4%
During the current year, Rand Co. purchased $960,000 of inventory. The cost of goods sold for the year was $900,000, and the ending inventory at December 31 was $180,000. What was the inventory turnover for the year? A. 6.4 B. 6.0 C. 7.2 D. 5.0
B. 6.0
City Development, Inc., is considering a new investment project that will involve building a large office block in Frankfurt-am-Main. The firm's financial analysis department has estimated that the proposed investment has the following estimated rate of return distributions: Rate of Return, Probability (5%), 30% 10%, 50% 20%, 20% Calculate the expected rate of return. A. 5.5% B. 7.5% C. 10.5% D. 11.7%
B. 7.5%
A measure that describes the risk of an investment project relative to other investments in general is the A. Coefficient of variation. B. Beta coefficient. C. Standard deviation. D. Expected return.
B. Beta coefficient.
The main reason that a firm would strive to reduce the number of days sales outstanding is to increase A. Accounts receivable. B. Cash. C. Cost of goods sold. D. Contribution margin.
B. Cash.
Bander Co. is determining how to finance some long-term projects. Bander has decided it prefers the benefits of no fixed charges, no fixed maturity date, and an increase in the credit-worthiness of the company. Which of the following would best meet Bander's financing requirements? A. Bonds. B. Common stock. C. Long-term debt. D. Short-term debt.
B. Common stock.
In general, it is more expensive for a company to finance with equity capital than with debt capital because A. Long-term bonds have a maturity date and must therefore be repaid in the future. B. Investors are exposed to greater risk with equity capital. C. Equity capital is in greater demand than debt capital. D. Dividends fluctuate to a greater extent than interest rates.
B. Investors are exposed to greater risk with equity capital.
The expected monetary value of an event A. Is equal to the conditional value or profit of the event. B. Is equal to the payoff of the event times the probability the event will occur. C. Is the profit forgone by not choosing the best alternative. D. Is the absolute profit from a particular event.
B. Is equal to the payoff of the event times the probability the event will occur.
In decision theory, those uncontrollable future events that can affect the outcome of a decision are A. Payoffs. B. States of nature. C. Probabilities. D. Nodes.
B. States of nature.
The expected monetary value of an act is the A. Sum of the conditional profit (loss) for each event. B. Sum of the conditional profit (loss) for each event times the probability of each event's occurrence. C. Conditional profit (loss) for the best event times the probability of each event's occurrence. D. Revenue minus the costs for the act.
B. Sum of the conditional profit (loss) for each event times the probability of each event's occurrence.
A market analyst has estimated the equity beta of Modern Homes, Inc., to be 1.4. This beta implies that the company's A. Systematic risk is lower than that of the market portfolio. B. Systematic risk is higher than that of the market portfolio. C. Unsystematic risk is higher than that of the market portfolio. D. Total risk is higher than that of the market portfolio.
B. Systematic risk is higher than that of the market portfolio.
What does Beta measure in the capital asset pricing model? A. The volatility of a stock relative to its competitors. B. The volatility of a stock relative to the market. C. The additional return required over the risk-free rate. D. Unsystematic risk.
B. The volatility of a stock relative to the market.
If the ratio of total liabilities to equity increases, a ratio that must also increase is A. Times interest earned. B. Total liabilities to total assets. C. Return on equity. D. The current ratio.
B. Total liabilities to total assets.
At the beginning of Year 1, $100,000 is invested at 5% interest, compounded annually. What amount of interest is earned in Year 2? A. $5,000.00 B. $5,512.50 C. $5,250.00 D. $10,000.00
C. $5,250.00
A company has equity of $9,000. Long-term debt is $1,900. Net working capital, other than cash, is $2,500. Fixed assets are $2,200. What amount of cash does the company have? A. $7,400 B. $6,800 C. $6,200 D. $2,400
C. $6,200
If two projects are completely and positively linearly dependent (or positively related), the measure of correlation between them is A. 0 B. +.5 C. +1 D. -1
C. +1
At the end of the current year, B Co. had total assets of $2,500,000, current liabilities of $500,000, and long-term liabilities of $750,000. What is B Co.'s debt-to-equity ratio? A. 0.5 B. 2.0 C. 1.0 D. 5.0
C. 1.0
What is the weighted-average cost of capital for a firm using 65% common equity with a return of 15%, 25% debt with a return of 6%, 10% preferred stock with a return of 10%, and a tax rate of 35%? A. 10.333% B. 11.275% C. 11.725% D. 12.250%
C. 11.725%
An analyst covering Guilderland Mining Co. common stock estimates the following information for next year: Expected return on the market portfolio: 12% Expected return on Treasury securities: 5% Expected beta of Guilderland: 2.2 Using the CAPM, the analyst's estimate of next year's risk premium for Guilderland's stock is closest to A. 7.0% B. 10.4% C. 15.4% D. 21.4%
C. 15.4%
This year, Nelson Industries increased earnings before interest and taxes (EBIT) by 17%. During the same period, earnings per share increased by 42%. The degree of financial leverage that existed during the year is A. 1.70 B. 4.20 C. 2.47 D. 5.90
C. 2.47
The following information was taken from Culver Co.'s financial statements for the current year ending December 31: Current assets: $11,000,000 Noncurrent assets: 14,000,000 Total stockholders' equity: 10,000,000 Total operating expenses: 20,000,000 What was Culver's debt ratio as of December 31? A. 40% B. 50% C. 60% D. 250%
C. 60%
Scrunchy-Tech, Inc., has determined that it can minimize its weighted-average cost of capital (WACC) by using a debt-equity ratio of 2/3. If the firm's cost of debt is 9% before taxes, the cost of equity is estimated to be 12% before taxes, and the tax rate is 40%, what is the firm's WACC? A. 6.48% B. 7.92% C. 9.36% D. 10.80%
C. 9.36%
The relationship of the total debt to the total equity of a corporation is a measure of A. Liquidity. B. Profitability. C. Creditor risk. D. Break even.
C. Creditor risk.
The risk of loss because of fluctuations in the relative value of foreign currencies is called A. Expropriation risk. B. Multinational beta. C. Exchange rate risk. D. Undiversifiable risk.
C. Exchange rate risk.
Prior to the introduction of the euro, O&B Company, a U.S. corporation, is in possession of accounts receivable denominated in Deutsche marks. To what type of risk are they exposed? A. Liquidity risk. B. Political risk. C. Exchange-rate risk. D. Price risk.
C. Exchange-rate risk.
If Dexter Industries has a beta value of 1.0, then its A. Return should equal the risk-free rate. B. Price is relatively stable. C. Expected return should approximate the overall market. D. Volatility is low.
C. Expected return should approximate the overall market.
Which of the following is most useful when risk is being prioritized? A. Low- and high-probability exposures. B. Low- and high-degree loss exposures. C. Expected value. D. Uncontrollable risks.
C. Expected value.
Which one of the following is not a determinant in valuing a call option? A. Exercise price. B. Expiration date. C. Forward contract price. D. Underlying asset price.
C. Forward contract price.
Serial bonds are attractive to investors because A. All bonds in the issue mature on the same date. B. The yield to maturity is the same for all bonds in the issue. C. Investors can choose the maturity that suits their financial needs. D. The coupon rate on these bonds is adjusted to the maturity date.
C. Investors can choose the maturity that suits their financial needs.
The yield curve shown implies that the A. Credit risk premium of corporate bonds has increased. B. Credit risk premium of municipal bonds has increased. C. Long-term interest rates have a higher annualized yield than short-term rates. D. Short-term interest rates have a higher annualized yield than long-term rates.
C. Long-term interest rates have a higher annualized yield than short-term rates.
Osgood Products has announced that it plans to finance future investments so that the firm will achieve an optimum capital structure. Which one of the following corporate objectives is consistent with this announcement? A. Maximize earnings per share. B. Minimize the cost of debt. C. Maximize the net worth of the firm. D. Minimize the cost of equity.
C. Maximize the net worth of the firm.
The use of derivatives to either hedge or speculate results in A. Increased risk regardless of motive. B. Decreased risk regardless of motive. C. Offsetting risk when hedging and increased risk when speculating. D. Offsetting risk when speculating and increased risk when hedging.
C. Offsetting risk when hedging and increased risk when speculating.
A forward contract involves a commitment today to purchase a product A. On a specific future date at a price to be determined some time in the future. B. At some time during the current day at its present price. C. On a specific future date at a price determined today. D. Only when its price increases above its current exercise price.
C. On a specific future date at a price determined today.
Which one of the following statements is correct regarding the effect preferred stock has on a company? A. The firm's after-tax profits are shared equally by common and preferred shareholders. B. Control of the firm is now shared by the common and preferred shareholders, with preferred shareholders having greater control. C. Preferred shareholders' claims take precedence over the claims of common shareholders in the event of liquidation. D. Nonpayment of preferred dividends places the firm in default, as does nonpayment of interest on debt.
C. Preferred shareholders' claims take precedence over the claims of common shareholders in the event of liquidation.
Preferred and common stock differ in that A. Failure to pay dividends on common stock will not force the firm into bankruptcy, while failure to pay dividends on preferred stock will force the firm into bankruptcy. B. Common stock dividends are a fixed amount, while preferred stock dividends are not. C. Preferred stock has a higher priority than common stock with regard to earnings and assets in the event of bankruptcy. D. Preferred stock dividends are deductible as an expense for tax purposes, while common stock dividends are not.
C. Preferred stock has a higher priority than common stock with regard to earnings and assets in the event of bankruptcy.
A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the consequences of possible prediction errors is A. Expected value analysis. B. Learning curve analysis. C. Sensitivity analysis. D. Regression analysis.
C. Sensitivity analysis.
To assist in an investment decision, Gift Co. selected the most likely sales volume from several possible outcomes. Which of the following attributes would that selected sales volume reflect? A. The midpoint of the range. B. The median. C. The greatest probability. D. The expected value.
C. The greatest probability.
What is the price of a 10-year, 10% coupon bond with a $1,000 face value if investors require a 12% return? Assume annual coupon payments.Present Value of an Ordinary Annuity %, 10 Periods 10, 6.14 12, 5.65 Present Value of $1 %, 10 Periods 10, .386 12, .322 A. $565.00 B. $322.00 C. $604.50 D. $887.00
D. $887.00
Listed below are four numbers. Which of these numbers represents the coefficient of correlation of a stock portfolio with the least unsystematic risk? A. 100.0 B. 1.0 C. 0.0 D. -1.0
D. -1.0
The following information pertains to a company's potential investment in security X: Maturity risk premium: 1% Liquidity risk premium: 3% Default risk premium: 2% Risk-free rate: 4% What is the company's required rate of return for the investment in this security? A. 4% B. 6% C. 9% D. 10%
D. 10%
Using the capital asset pricing model (CAPM), the required rate of return for a firm with a beta of 1.5 when the market return is 10% and the risk-free rate is 8% is A. 5% B. 8% C. 10% D. 11%
D. 11%
Dividends are equal to $5, and the current share price is $50. Dividends are expected to grow at 2% forever. According to the dividend growth model, what is the investor's required rate of return? A. 8.2% B. 10.0% C. 12.0% D. 12.2%
D. 12.2%
What is the after-tax cost of preferred stock that sells for $5 per share and offers a $0.75 dividend when the tax rate is 35%? A. 5.25% B. 9.75% C. 10.50% D. 15%
D. 15%
Using the capital asset pricing model (CAPM), the required rate of return for a firm with a beta of 1.25 when the market return is 14% and the risk-free rate is 6% is A. 6.0% B. 7.5% C. 17.5% D. 16.0%
D. 16.0%
A stock priced at $50 per share is expected to pay $5 in dividends and trade for $60 per share in one year. What is the expected return on this stock? A. 10% B. 20% C. 25% D. 30%
D. 30%
Aaron Co's vendor will be offering discounts next year. Which of the following credit terms offered by the vendor is most beneficial to Aaron? A. 2/10, net 60. B. 3/15, net 30. C. 5/20, net 45. D. 5/20, net 60.
D. 5/20, net 60
Which of the following is considered a corporate equity security? A. A shareholder's preemptive right. B. A shareholder's appraisal right. C. A callable bond. D. A share of callable preferred stock.
D. A share of callable preferred stock.
One type of risk to which investment securities are subject can be offset through portfolio diversification. This type of risk is referred to as A. Market risk. B. Undiversifiable risk. C. Liquidity risk. D. Company unique risk.
D. Company unique risk.
All of the following are alternative marketable securities suitable for short-term investment except A. U.S. Treasury bills. B. Eurodollars. C. Commercial paper. D. Convertible bonds.
D. Convertible bonds.
An investment security with high risk will have a(n) A. Low expected return. B. Lower price than an asset with low risk. C. Lower coefficient of variation. D. High standard deviation of returns.
D. High standard deviation of returns.
Many assumptions and factors may be considered to determine the fair value except A. Net realizable value. B. Expected costs. C. Market value. D. Historical cost.
D. Historical cost.
As a company becomes more conservative with respect to working capital financing policy, it would tend to have a(n) A. Increase in the ratio of current liabilities to noncurrent liabilities. B. Decrease in the operating cycle. C. Decrease in the quick ratio. D. Increase in the ratio of current assets to noncurrent assets.
D. Increase in the ratio of current assets to noncurrent assets.
During the year, Mason Company's current assets increased by $120,000, current liabilities decreased by $50,000, and net working capital A. Increased by $70,000. B. Did not change. C. Decreased by $170,000. D. Increased by $170,000.
D. Increased by $170,000.
If Brewer Corporation's bonds are currently yielding 8% in the marketplace, why is the firm's cost of debt lower? A. Market interest rates have increased. B. Additional debt can be issued more cheaply than the original debt. C. There should be no difference; cost of debt is the same as the bonds' market yield. D. Interest is deductible for tax purposes.
D. Interest is deductible for tax purposes.
Management's financial estimates are based on all of the following except: A. Knowledge. B. Experience. C. Expectations. D. Irrelevance.
D. Irrelevance.
If a call option is "out-of-the-money," A. It is worth exercising. B. The value of the underlying asset is more than the exercise price. C. The option no longer exists. D. It is not worth exercising because the value of the underlying asset is less than the exercise price.
D. It is not worth exercising because the value of the underlying asset is less than the exercise price.
Management's financial estimates are based on all of the following except A. Knowledge. B. Experience. C. Assumptions. D. Known outcomes.
D. Known outcomes.
When managing cash and short-term investments, a corporate CFO is primarily concerned with A. Maximizing rate of return. B. Minimizing taxes. C. Investing in Treasury bonds since they have no default risk. D. Liquidity and safety.
D. Liquidity and safety.
When purchasing temporary investments, which one of the following best describes the risk associated with the ability to sell the investment in a short period of time without significant price concessions? A. Interest-rate risk. B. Purchasing-power risk. C. Financial risk. D. Liquidity risk.
D. Liquidity risk.
From an investor's viewpoint, the least risky type of bond in which to invest is a(n) A. Debenture bond. B. Deep discount bond. C. Income bond. D. Mortgage bond.
D. Mortgage bond.
An organization would usually offer credit terms of 2/10, net 30 when A. The organization can borrow funds at a rate exceeding the annual interest cost. B. The organization can borrow funds at a rate less than the annual interest cost. C. The cost of capital approaches the prime rate. D. Most competitors are offering the same terms, and the organization has a shortage of cash.
D. Most competitors are offering the same terms, and the organization has a shortage of cash.
Which of the following may be used to estimate how inventory warehouse costs are affected by both the number of shipments and the weight of materials handled? A. Economic order quantity analysis. B. Probability analysis. C. Correlation analysis. D. Multiple regression analysis.
D. Multiple regression analysis.
Which of the following statements is (are) correct regarding corporate debt and equity securities?I.Both debt and equity security holders have an ownership interest in the corporation.II.Both debt and equity securities have an obligation to pay income. A. I only. B. II only. C. Both I and II. D. Neither I nor II.
D. Neither I nor II.
The following excerpt was taken from a company's financial statements: " . . . 10% convertible participating . . . $10,000,000." What is most likely being referred to? A. Bonds. B. Common stock. C. Stock options. D. Preferred stock.
D. Preferred stock.
Management's financial estimates are based on all of the following except A. Knowledge. B. Experience. C. Assumptions. D. Prespecifications.
D. Prespecifications.
Through the use of decision models, managers thoroughly analyze many alternatives and decide on the best alternative for the company. Often the actual results achieved from a particular decision are not what was expected when the decision was made. In addition, an alternative that was not selected would have actually been the best decision for the company. The appropriate technique to analyze the alternatives by using expected inputs and altering them before a decision is made is A. Expected value analysis. B. Linear programming. C. Program evaluation review technique (PERT). D. Sensitivity analysis.
D. Sensitivity analysis.
When the U.S. dollar is expected to rise in value against foreign currencies, a U.S. company with foreign currency denominated receivables and payables should A. Slow down collections and speed up payments. B. Slow down collections and slow down payments. C. Speed up collections and speed up payments. D. Speed up collections and slow down payments.
D. Speed up collections and slow down payments.
If a bond sells at a premium, the A. Stated coupon rate must be less than the required market rate. B. Nominal rate must be less than the yield rate. C. Bond purchase price must be lower than the face amount of the bond. D. Stated coupon rate must be more than the required market rate.
D. Stated coupon rate must be more than the required market rate.
According to the capital asset pricing model (CAPM), which of the following statements is true regarding the required rate of return for a security with a beta of 1? A. The required rate of return is lower than the risk-free rate. B. The required rate of return is equal to the risk-free rate. C. The required rate of return is higher than the market return. D. The required rate of return is equal to the market return.
D. The required rate of return is equal to the market return.
A Chinese conglomerate owns a construction subsidiary that is building a port in Mozambique. The firm pays its workers in the Mozambican metical but keeps its books for the project in the South African rand. At the end of the fiscal year, the conglomerate must report consolidated financial statements denominated in the yuan. The exchange rate risk encountered by the conglomerate in the currency conversions leading up to its consolidated financial statements is known as A. Transition exposure. B. Economic exposure. C. Transaction exposure. D. Translation exposure.
D. Translation exposure.
An investor is currently holding income bonds, preferred stocks, subordinated debentures, and U.S. Treasury bonds. Which of these securities traditionally is considered to have the least risk? A. Income bonds. B. Preferred stocks. C. Subordinated debentures. D. U.S. Treasury bonds.
D. U.S. Treasury bonds.
In decision making under conditions of uncertainty, expected value refers to the A. Likely outcome of a proposed action. B. Present value of alternative actions. C. Probability of a given outcome from a proposed action. D. Weighted average of probable outcomes of an action.
D. Weighted average of probable outcomes of an action.
