Finance final

Assume large-company stocks returned 12.8 percent on average over the past 75 years. The risk premium on these stocks was 7.9 percent and the inflation rate was 3.6 percent. What was the average nominal risk-free rate of return for those 75 years? 4.90 percent 9.20 percent 4.26 percent 8.33 percent 8.60 percent

4.90

Jake owes $3,400 on his credit card. He is not charging any additional purchases because he wants to get this debt paid in full. The card has an APR of 13.9 percent. How much longer will it take him to pay off this balance if he makes monthly payments of $50 rather than $60?

41.79 months

jake owes $3,400 on his credit card. He is not charging any additional purchases because he wants to get this debt paid in full. The card has an APR of 13.9 percent. How much longer will it take him to pay off this balance if he makes monthly payments of $50 rather than $60?

41.79 months

Heidi owns 400 shares of Boyd Enterprises stock, which is valued at $17 a share. Boyd Enterprises just declared a 10 percent stock dividend. How many shares will Heidi own and what will the price per share be after the dividend? 360; $15.45 360; $18.70 440; $15.45 440; $17.00 440; $18.70

440; $15.45

If you put up $46,000 today in exchange for a 6.75 percent 15-year annuity, what will the annual cash flow be?

4971.1

A stock has produced returns of 16.6 percent, 3.4 percent, 11.7 percent, and -9.2 percent over the past four years, respectively. What is the geometric average return? 5.16 percent 5.47 percent 6.23 percent 6.61 percent 10.12 percent

5.16 percent

Rockingham Motors issued a 20-year, 8 percent semiannual bond 3 years ago. The bond currently sells for 98.6 percent of its face value. The company's tax rate is 35 percent. What is the aftertax cost of debt? 2.72 percent 5.43 percent 5.69 percent 5.72 percent 5.99 percent

5.43 percent Aftertax cost of debt = 0.0836 × (1 - 0.35) = 5.43 percent

USA Manufacturing issued 30-year, 8.5 percent semiannual bonds 6 years ago. The bonds currently sell at 101 percent of face value. What is the firm's aftertax cost of debt if the tax rate is 30 percent? 5.88 percent 5.62 percent 5.76 percent 6.59 percent 8.40 percent

5.88 percent Aftertax cost of debt = 8.402444 percent × (1 - 0.30) = 5.88 percent

John's has common stock outstanding at a price of $27 a share. The total market value of the equity is $435,000. How many shares of stock will be outstanding if the firm does a 2-for-5 reverse stock split? 40,278 shares 36,000 shares 6,444 shares 7,500 shares 16,500 shares

6,444 shares

What is the effective annual rate of 6.5 percent compounded quarterly?

6.66

Judy's Boutique just paid an annual dividend of $1.65 on its common stock. The firm increases its dividend by 2.5 percent annually. What is the rate of return on this stock if the current stock price is $38.20 a share? 6.93 percent 7.37 percent 7.54 percent 8.19 percent 8.33 percent

6.93 percent

Last year, Isaac earned 10.6 percent on her investments while U.S. Treasury bills yielded 3.8 percent and the inflation rate was 3.1 percent. What real rate of return did she earn on her investments last year? 6.63 percent 7.27 percent 8.56 percent 9.24 percent 10.39 percent

7.27

Last year, Isaac earned 10.6 percent on her investments while U.S. Treasury bills yielded 3.8 percent and the inflation rate was 3.1 percent. What real rate of return did she earn on her investments last year? 6.63 percent 7.27 percent 8.56 percent 9.24 percent 10.39 percent

7.27 percent

Smiley Industrial Goods has bonds on the market making annual payments, with 13 years to maturity, and selling for $1,095. At this price, the bonds yield 6.4 percent. What must the coupon rate be on these bonds?

7.50

Lisa has $1,000 in cash today. Which one of the following investment options is most apt to double her money? 6 percent interest for 3 years 12 percent interest for 5 years 7 percent interest for 9 years 8 percent interest for 9 years 6 percent interest for 10 years

8 percent interest for 9 years

The $1,000 face value bonds of Shonesy International have a 7.5 percent coupon and pay interest annually. Currently, the bonds are quoted at 95.27 and mature in 3.5 years. What is the yield to maturity?

9.14

The Toy Chest pays an annual dividend of $4.80 per share and sells for $93.20 a share based on a market rate of return of 15 percent. What is the capital gains yield?

9.85 percent Capital gains yield = 0.15 - ($4.80/$93.20) = 9.85 percent

Hughes Motors will sell you a $15,000 car for $380 a month for 48 months. What is the interest rate?

9.94 percent

How long will it take to double your savings if you earn 7.2 percent interest, compounded annually? 8.89 years 9.02 years 9.34 years 9.97 years 11 years

9.97 years

A risky security has less risk than the overall market. What must the beta of this security be? 0 > 0 but < 1 1 > 1 The beta cannot be determined based on the information provided.

> 0 but < 1

Assume the total cost of a college education will be $285,000 when your child enters college in 22 years. You presently have $35,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child's college education? 8.65 percent 9.40 percent 10.00 percent 10.60 percent 11.00 percent

10.00 percent

Skyline Industries will need $1.8 million 5 years from now to replace some equipment. Currently, the firm has some extra cash and would like to establish a savings account for this purpose. The account pays 5.25 percent interest, compounded annually. How much money must the company deposit today to fully fund the equipment purchase? $1,279,947.20 $1,298,407.21 $1,350,868.47 $1,393,676.52 $1,412,308.18

$1,393,676.52

Julie is borrowing $12,800 to purchase a car. The loan terms are 36 months at 7.5 percent interest. How much interest will she pay on this loan if she pays the loan as agreed? Round your answer to the nearest whole dollar.

$1,534

Delfino's expects to pay an annual dividend of $1.50 per share next year. What is the anticipated dividend for year 5 if the firm increases its dividend by 2 percent annually?

$1.50 × (1.02)4

Cookies and Cream has 9,000 shares of stock outstanding at a market price of $14.65 per share. What will the price per share be after the firm declares a 12 percent stock dividend? Ignore taxes and market imperfections. $12.24 $13.08 $14.65 $14.96 $15.00

$13.08

Doris' Boutique has 4,000 shares of stock outstanding at a price per share of $15. What will the price per share be if the firm pays a $1.30 per share dividend? Ignore taxes and market imperfections. $13.70 $15.40 $15.80 $16.00 $18.20

$13.70

Travis invests $10,000 today into a retirement account. He expects to earn 8 percent, compounded annually, on his money for the next 26 years. After that, he wants to be more conservative, so only expects to earn 5 percent, compounded annually. How much money will he have in his account when he retires 38 years from now, assuming this is the only deposit he makes into the account? $129,411.20 $132,827.88 $134,616.56 $141,919.67 $142,003.12

$132,827.88

What is the future value of $20 a week for 10 years at 6 percent interest? Assume the first payment occurs at the end of this week.

$14,239.14

Given an interest rate of 5.85 percent per year, what is the value at year t = 8 of a perpetual stream of $2,500 payments that begin at year t = 25?

$17,208.00

Janice plans to save $75 a month, starting today, for 20 years. Kate plans to save $80 a month for 20 years, starting one month from today. Both Janice and Kate expect to earn an average return of 5.5 percent on their savings. At the end of the 20 years, Kate will have approximately _____ more than Janice.

$2,028.39

Precision Engineering invested $110,000 at 6.5 percent interest, compounded annually for 4 years. How much interest on interest did the company earn over this period of time? $2,481.25 $2,911.30 $3,014.14 $3,250.00 $3,333.33

$2,911.30

Braxton's Cleaning Company stock is selling for $32.60 a share based on a 14 percent rate of return. What is the amount of the next annual dividend if the dividends are increasing by 5 percent annually?

$2.93

Cox Footwear pays a constant annual dividend. Last year, the dividend yield was 2.5 percent when the stock was selling for $26 a share. What is the current price of the stock if the current dividend yield is 3.1 percent? $18.92 $20.97 $25.20 $26.87 $27.40

$20.97

Eric is considering an investment that will pay $5,000 a year for seven years, starting one year from today. How much should she pay for this investment if she wishes to earn a 13 percent rate of return?

$22,113.05

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

River Rock, Inc. just paid an annual dividend of $2.80. The company has increased its dividend by 2.5 percent a year for the past 10 years and expects to continue doing so. What will a share of this stock be worth 6 years from now if the required return is 16 percent?

$24.65

Wesson Metals has an outstanding loan that calls for equal annual payments of $9,768.46 over the life of the loan. The original loan amount was $50,000 at an APR of 8.5 percent. How much of the second loan payment is interest?

$3,780.93

Miller Brothers is considering a project that will produce cash inflows of $61,500, $72,800, $84,600, and $68,000 a year for the next four years, respectively. What is the internal rate of return if the initial cost of the project is $225,000? 9.39 percent 10.22 percent 11.47 percent 11.62 percent 12.24 percent

10.22 percent

What is the effective annual rate of 10 percent compounded semiannually?

10.25 percent

Cromwell's Interiors is considering a project that is equally as risky as the firm's current operations. The firm has a cost of equity of 13.7 percent and a pretax cost of debt of 8.4 percent. The debt-equity ratio is .65 and the tax rate is 40 percent. What is the cost of capital for this project? 9.97 percent 10.29 percent 11.38 percent 11.62 percent 12.30 percent

10.29 percent Project cost of capital = (1/1.65)(0.137) + (0.65/1.65)(0.084)(1 - 0.40) = 10.29 percent

Healthy Snacks, Inc. has a target capital structure of 55 percent common stock, 5 percent preferred stock, and 40 percent debt. Its cost of equity is 14.3 percent, the cost of preferred stock is 8.9 percent, and the pretax cost of debt is 8.1 percent. What is the company's WACC if the applicable tax rate is 35 percent? 9.29 percent 9.61 percent 10.34 percent 10.43 percent 10.83 percent

10.43 WACC = 0.55(0.143) + 0.05(0.089) + 0.40(0.081)(1 - 0.35) = 10.43 percent

Which one of the following is basically equivalent to a 2-for-1 stock split? 20 percent stock dividend 25 percent stock dividend 50 percent stock dividend 100 percent stock dividend 200 percent stock dividend

100 percent stock dividend

he stock of Wiley United has a beta of 0.92. The market risk premium is 8.4 percent and the risk-free rate is 3.2 percent. What is the expected return on this stock? 8.87 percent 10.69 percent 11.11 percent 11.52 percent 12.01 percent

11.11 percent

A stock has had returns of 11 percent, -8 percent, 6 percent, 21 percent, 24 percent, and 16 percent over the last six years, respectively. What is the geometric return for this stock? 10.82 percent 11.13 percent 11.31 percent 11.42 percent 11.47 percent

11.13 percent

A stock has had returns of 11 percent, -8 percent, 6 percent, 21 percent, 24 percent, and 16 percent over the last six years, respectively. What is the geometric return for this stock? 10.82 percent 11.13 percent 11.31 percent 11.42 percent 11.47 percent

11.13 percent

A bond has an average return of 6.3 percent and a standard deviation of 3.8 percent. What range of returns would you expect to see 68 percent of the time on this security? -1.30 percent to 13.9 percent -1.30 percent to 10.1 percent 2.5 percent to 7.8 percent 2.5 percent to 10.1 percent 2.5 percent t0 13.9 percent

2.5 percent to 10.1 percent

Services United is considering a new project that requires an initial cash investment of $78,000. The project will generate cash inflows of $29,500, $32,700, $18,500, and $10,000 over each of the next four years, respectively. How long will it take to recover the initial investment? 2.74 years 2.85 years 2.99 years 3.27 years 3.68 years

2.85 years

Pluto United has 18,000 shares of stock outstanding at a price per share of $38. How many shares will be outstanding if the firm does a 5-for-4 stock split? 13,600 shares 15,800 shares 18,000 shares 19,600 shares 22,500 shares

22,500 shares

A new financial services company just opened in your town. To attract customers, it is offering a "9-11" loan special. The company will lend $9 today in exchange for a payment of $11 one year from today. What is the APR on this loan?

22.22 percent

A stock has a beta of 1.86, the expected return on the market is 14.72, and the risk-free rate is 4.65. What must the expected return on this stock be? 15.67 percent 16.75 percent 17.10 percent 20.46 percent 23.38 percent

23.38 percent E( R) = 0.0465 + 1.86(0.1472 - 0.0465) = 23.38 percent

LOG, Inc. currently has 300,000 shares of stock outstanding that sell for $73 per share. Assuming no market imperfections or tax effects exist, what will the share price be after LOG has a 5-for-3 stock split? $43.80 $45.60 $73.00 $109.18 $121.67

$43.80

Today, you deposit $2,400 in a bank account that pays 4 percent simple interest. How much interest will you earn over the next 5 years? $96.00 $101.15 $480.00 $492.16 $519.97

$480.00

Kurt wants to have $25,000 in an investment account four years from now. The account will pay 0.2 percent interest per month. If he saves money every month, starting one month from now, how much will he have to save each month to reach his goal?

$496.75

The Greasy Spoon Restaurant is considering a project with an initial cost of $525,000. The project will not produce any cash flows for the first three years. Starting in year 4, the project will produce cash inflows of $721,000 a year for three years. This project is risky, so the firm has assigned it a discount rate of 16 percent. What is the project's net present value? $417,294.85 $424,591.11 $451,786.86 $492,255.56 $512,408.23

$512,408.23

Based on the period 1926-2011, what rate of return should you expect to earn over the long-term if you are unwilling to bear risk? Between 0 and 1 percent Between 1 and 2 percent Between 2 and 3 percent Between 3 and 4 percent Between 4 and 5 percent

3 and 4

For the past six years, the price of Slippery Rock stock has been increasing at a rate of 9.6 percent a year. Currently, the stock is priced at $67 a share and has a required return of 14 percent. What is the dividend yield?

4.4

Best Western has $1,000 face value bonds outstanding. These bonds pay interest semiannually, mature in six years, and have a 5 percent coupon. The current price is quoted at 101. What is the yield to maturity?

4.64 percent

Which one of the following parties can sell shares of ABC stock in the primary market? ABC company Any corporation, other than the ABC company Institutional shareholder Private individual shareholder Any of these

ABC company

Which one of the following statements is correct? A portfolio that contains at least 30 diverse individual securities will have a beta of 1.0. Any portfolio that is correctly valued will have a beta of 1.0. A portfolio that has a beta of 1.12 will lie to the left of the market portfolio on a security market line graph. A risk-free security plots at the origin on a security market line graph. An underpriced security will plot above the security market line.

An underpriced security will plot above the security market line.

Capstone Investments is considering a project that will produce cash inflows of $11,000 in year 1, $24,000 in year 2, and $36,000 in year 3. What is the present value of these cash inflows if the company assigns the project a discount rate of 12 percent?

$54,578.17

Planters Bank pays 5 percent simple interest on its savings account balances, whereas Centura Bank pays 5 percent compounded annually. If you made a $12,000 deposit in each bank, how much more money would you earn from your Centura Bank account at the end of 20 years? $7,155.84 $7,839.57 $7,960.47 $8,400.09 $8,784.14

$7,839.57

Beginning in 2011, the Dodd-Frank Wall Street Reform and Consumer Protection Act requires corporations with a market value over ________ to allow a nonbinding shareholder vote on executive pay. $25,000,000 $50,000,000 $75,000,000 $100,000 $750,000

$75,000,000

Twelve years ago, you deposited $3,400 into an account. Seven years ago, you added an additional $1,000 to this account. You earned 8 percent, compounded annually, for the first 5 years and 5.5 percent, compounded annually, for the last 7 years. How much money do you have in your account today? $5,666.67 $6,717.29 $7,411.90 $8,708.15 $8,721.97

$8,721.97

Jeffries, Inc. has 6 percent coupon bonds on the market that have 11 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 7.4 percent, what is the current bond price?

$897.08

Karl can afford car payments of $235 a month for 48 months. The bank will lend him money to buy a car at 7.75 percent interest. How much money can he afford to borrow?

$9,672.48

A recent alumnus of your university gifted money to the school to fund annual scholarships for students in need. The school expects to earn an average rate of return of 5.5 percent and distribute $50,000 annually in scholarships. What was the amount of the gift?

$909,090.91

Charles Berkeley, Inc. just paid an annual dividend of $3.60 per share on its stock. The dividends are expected to grow at a constant rate of 4.5 percent per year, indefinitely. If investors require an 11 percent return on this stock, what will the price be in 12 years?

$98.15

A stock has an average return of 19.2 percent and a standard deviation of 10.7 percent. In any one given year, you have a 95 percent chance that you will not lose more than _____ percent nor earn more than ____ percent if you invest in this security. -2.2; 38.2 -2.2; 40.6 -13.9; 28.9 -13.9; 39.6 -13.9; 50.3

-2.2; 40.6

What is the net present value of a project with the following cash flows if the discount rate is 15 percent?

-2687.98

Assume that large-company stocks had an average return of 11.4 percent and a standard deviation of 19.7 percent for a 40-year period. What range of returns would you expect to see on these stocks 95 percent of the time? -50.3 percent to 53.2 percent -50.3 percent to 73.9 percent -50.3 percent to 64.1 percent 28.0 percent to 50.8 percent -28.0 percent to 50.8 percent

-28.0 percent to 50.8 percent

Assume that long-term corporate bonds had an average return of 5.3 percent and a standard deviation of 9.3 percent for a 30-year period. What range of returns would you expect to see on these bonds 68 percent of the time? -4.0 percent to 14.6 percent -4.0 percent to 22.9 percent -11.3 percent to 14.6 percent -11.3 percent to 17.4 percent -11.3 percent to 22.9 percent

-4.0 percent to 14.6 percent

Five years ago, you purchased 600 shares of stock. The annual returns have been 7.2 percent, -19.4 percent, 3.8 percent, 14.2 percent, and 27.9 percent, respectively. What is the variance of these returns? 0.029889 0.030021 0.030068 0.030133 0.030284

0.029889

Which one of the following is most apt to align management's priorities with shareholders' interests? A. Increasing employee retirement benefits B. Compensating managers with shares of stock that must be held for three years before the shares can be sold C. Allowing a manager to decorate his or her own office once he or she has been in that office for a period of three years or more D. Increasing the number of paid holidays that long-term employees are entitled to receive E. Allowing employees to retire early with full retirement benefits

B. Compensating managers with shares of stock that must be held for three years before the shares can be sold

Which one of the following measures the amount of systematic risk present in a particular risky asset relative to that in an average risky asset? Squared deviation Beta coefficient Standard deviation Mean Variance

Beta coefficient

Based on the period 1926-2011, what rate of return should you expect to earn over the long-term if you are unwilling to bear risk? Between 0 and 1 percent Between 1 and 2 percent Between 2 and 3 percent Between 3 and 4 percent Between 4 and 5 percent

Between 3 and 4 percent

The primary purpose of protective covenants is to help:

protect bondholders from issuer actions.

Marti had an unexpected surprise when she ate her Lotsa Good cereal this morning. She found a piece of metal mixed in her cereal. The potential claim that Marti has against this firm is that of a(n): general creditor. debtholder. shareholder. stakeholder. agent.

stakeholder.

If the financial markets are efficient then: stock prices should remain constant. stock prices should increase or decrease slowly as new events are analyzed and the information is absorbed by the markets. an increase in the value of one security should be offset by a decrease in the value of another security. stock prices will change only when an event actually occurs, not at the time the event is anticipated. stock prices should respond only to unexpected news and events.

stock prices should respond only to unexpected news and events.

Dan is a chemist for ABC, a major drug manufacturer. Dan cannot earn excess profits on ABC stock based on the knowledge he has related to his experiments if the financial markets are: weak form efficient. strong form efficient. semistrong form efficient. efficient at any level. aware that the trader is an insider.

strong form efficient

Dan is a chemist for ABC, a major drug manufacturer. Dan cannot earn excess profits on ABC stock based on the knowledge he has related to his experiments if the financial markets are: weak form efficient. strong form efficient. semistrong form efficient. efficient at any level. aware that the trader is an insider.

strong form efficient.

The risk premium for an individual security is based on which one of the following types of risk? Total Surprise Diversifiable Systematic Unsystematic

systematic

All else constant, the weighted average cost of capital for a risky, levered firm will decrease if: the firm's bonds start selling at a premium rather than at a discount. the market risk premium increases. the firm replaces some of its debt with preferred stock. corporate taxes are eliminated. the dividend yield on the common stock increases.

the firm's bonds start selling at a premium rather than at a discount

Assume that clienteles exist. Given this assumption, which one of the following statements is correct? A firm can increase its share price by increasing its dividend payout. Dividend policy is irrelevant as long as each clientele group is currently satisfied. All firms will adopt a high-dividend-payout policy. All dividends become irrelevant. All firms should adopt a low-dividend-payout policy.

Dividend policy is irrelevant as long as each clientele group is currently satisfied

The required return on a stock is equal to which one of the following if the dividend on the stock decreases by 1 percent per year?

Dividend yield + capital gains yield

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

Face value

Based on the most recent survey information presented in your textbook, CFOs tend to use which two methods of investment analysis the most frequently? Payback and net present value Payback and internal rate of return Internal rate of return and net present value Net present value and profitability index Profitability index and internal rate of return

Internal rate of return and net present value

Jeff deposits $3,000 into an account which pays 2.5 percent interest, compounded annually. At the same time, Kurt deposits $3,000 into an account paying 5 percent interest, compounded annually. At the end of three years: Both Jeff and Kurt will have accounts of equal value. Kurt will have twice the money saved that Jeff does. Kurt will earn exactly twice the amount of interest that Jeff earns. Kurt will have a larger account value than Jeff will. Jeff will have more money saved than Kurt.

Kurt will have a larger account value than Jeff will.

Which one of the following indicates that a project should be rejected? Average accounting return that exceeds the requirement Payback period that is shorter than the requirement period Positive net present value Profitability index less than 1.0 Internal rate of return that exceeds the required return

Profitability index less than 1.0

Which one of the following is most apt to cause a wise manager to increase a project's cost of capital? Assume the firm is levered. Management decides to issue new stock to finance the project. The initial cash outlay requirement is reduced. She learns the project is riskier than previously believed. The aftertax cost of debt just decreased. The project's life is shortened.

She learns the project is riskier than previously believed.

Valerie bought 200 shares of Able stock today. Able stock has been trading for some time on the NYSE. Valerie's purchase occurred in which market? Dealer market Over-the-counter market Secondary market Primary market Tertiary market

Secondary market

Capital budgeting includes the evaluation of which of the following? Size of future cash flows only Size and timing of future cash flows only Timing and risk of future cash flows only Risk and size of future cash flows only Size, timing, and risk of future cash flows

Size, timing, and risk of future cash flows

The federal government has a tax claim on the cash flows of The Window Store. This claim is defined as a claim by one of the firm's: residual owners. shareholders. financiers. provisional partners. stakeholders.

Stakeholders.

Which one of the following is the best example of an announcement that is most apt to result in an unexpected return? A news bulletin that the anticipated layoffs by a firm will occur as expected on December 1 Announcement that the CFO of the firm is retiring June 1 as previously announced Announcement that a firm will continue its practice of paying a $3 a share annual dividend Statement by a firm that it has just discovered a manufacturing defect and is recalling its product The verification by senior management that the firm is being acquired as had been rumored

Statement by a firm that it has just discovered a manufacturing defect and is recalling its product

This morning, Lambert Materials bought 10,000 of its outstanding shares in the open market. What type of transaction was this? Stock payout Stock distribution Stock dividend Stock repurchase Stock reversal

Stock repurchase

Which one of the following increases the number of shares outstanding but does not increase the value of owners' equity? Stock repurchase Reverse stock split Stock split Cash distribution Liquidating dividend

Stock split

Which one of the following statements is correct related to the dividend growth model approach to computing the cost of equity? The rate of growth must exceed the required rate of return. The rate of return must be adjusted for taxes. The annual dividend used in the computation must be for year 1 if you are using today's stock price to compute the return. The cost of equity is equal to the return on the stock plus the risk-free rate. The cost of equity is equal to the return on the stock multiplied by the stock's beta.

The annual dividend used in the computation must be for year 1 if you are using today's stock price to compute the return.

Black Stone Furnaces wants to build a new facility. The cost of capital for this investment is primarily dependent on which one of the following? Firm's overall source of funds Source of the funds used to build the facility Current tax rate The nature of the investment Firm's historical average rate of return

The nature of the investment

The payback method of analysis ignores which one of the following? Initial cost of an investment Arbitrary cutoff point Cash flow direction Time value of money Timing of each cash inflow

Time value of money

A broker is an agent who: trades on the floor of an exchange for himself or herself. buys and sells from inventory. offers new securities for sale to dealers only. is ready to buy or sell at any time. brings buyers and sellers together.

brings buyers and sellers together.

Discounted cash flow valuation is the process of discounting an investment's: assets. future profits. liabilities. costs. future cash flows.

future cash flows.

The yield to maturity on a discount bond is:

greater than both the current yield and the coupon rate.

An auction market: is an electronic means of exchanging securities. has a physical trading floor. handles primary market transactions exclusively. is also referred to as an OTC market. is dealer based.

has a physical trading floor.

A firm that uses its weighted average cost of capital as the required return for all of its investments will: maintain a constant value for its shareholders. increase the risk level of the firm over time. make the best possible accept and reject decisions related to those investments. find that its cost of capital declines over time. accept only the projects that add value to the firm's shareholders.

increase the risk level of the firm over time.

Aardvark, Inc. pays a constant annual dividend. At the end of trading on Wednesday, the price of its stock was $28. At the end of trading on the following day, the stock price was $27. As a result of the decline in the stock's price, the dividend yield _____ while the capital gains yield ____.

increased; remained constant

The present value of a lump sum future amount: increases as the interest rate decreases. decreases as the time period decreases. is inversely related to the future value. is directly related to the interest rate. is directly related to the time period.

increases as the interest rate decreases.

Jamie earned $180 in interest on her savings account last year. She has decided to leave the $180 in her account so that she can earn interest on the $180 this year. The interest Jamie earns this year on this $180 is referred to as: simple interest. complex interest. accrued interest. interest on interest. discounted interest.

interest on interest.

A corporation: A. is ultimately controlled by its board of directors. B. is a legal entity separate from its owners. C. is prohibited from entering into contractual agreements. D. has its identity defined by its bylaws. E. has its existence regulated by the rules set forth in its charter.

is a legal entity separate from its owners

A callable bond:

may be structured to pay bondholders the current value of the bond on the date of call

Any person who owns a license to trade on the NYSE is called a:

member.

If the financial markets are semistrong form efficient, then: only the most talented analysts can determine the true value of a security. only individuals with private information have a marketplace advantage. technical analysis provides the best tool to use to gain a marketplace advantage. no one individual has an advantage in the marketplace. every security offers the same rate of return.

only individuals with private information have a marketplace advantage.

A registered form bond is defined as a bond that:

pays coupon payments directly to the owner of record.

A $1,000 face value bond currently has a yield to maturity of 6.69 percent. The bond matures in three years and pays interest annually. The coupon rate is 7 percent. What is the current price of this bond?

$1,008.18

Red Mountain, Inc. bonds have a face value of $1,000. The bonds carry a 7 percent coupon, pay interest semiannually, and mature in 13.5 years. What is the current price of these bonds if the yield to maturity is 6.82 percent?

$1,015.72

Ten years from now, you will be inheriting $100,000. What is this inheritance worth to you today if you can earn 5.5 percent interest, compounded annually? $58,543.06 $63,215.46 $72,419.05 $72,798.47 $74,003.15

$58,543.06

Angela has just received an insurance settlement of $35,000. She wants to save this money until her daughter goes to college. If she can earn an average of 5.5 percent, compounded annually, how much will she have saved when her daughter enters college 10 years from now? $48,000.00 $50,929.02 $51,374.89 $59,875.06 $59,785.06

$59,785.06

Charles Henri is considering investing $36,000 in a project that is expected to provide him with cash inflows of $12,000 in each of the first two years and $18,000 for the following year. At a discount rate of zero percent this investment has a net present value of ____, but at the relevant discount rate of 17 percent the project's net present value is ____. $0; -$5,739 $0; -$3,406 $6,000; -$5,739 $6,000; -$3,406 $6,000; $1,897

$6,000; -$5,739

Uptown Insurance offers an annuity due with semiannual payments for 25 years at 6 percent interest. The annuity costs $200,000 today. What is the amount of each annuity payment?

$7,546.70

Design Interiors has a cost of equity of 18.6 percent and a pretax cost of debt of 9.7 percent. The firm's target weighted average cost of capital is 12 percent and its tax rate is 35 percent. What is the firm's target debt-equity ratio? 0.81 0.87 0.98 1.02 1.16

1.16 WACC = 0.12 = (1 - x)(0.186) + ( x)(0.097)(1 - 0.35) x = 0.5370 Debt-equity ratio = 0.5370/(1 - 0.5370) = 1.16

BJB, Inc. stock has an expected return of 15.15 percent. The risk-free rate is 3.8 percent and the market risk premium is 8.6 percent. What is the stock's beta? 1.19 1.21 1.32 1.48 1.62

1.32

A stock has an expected return of 15.0 percent, the risk-free rate is 3.2 percent, and the market risk premium is 8.1 percent. What must the beta of this stock be? 0.88 0.94 1.08 1.31 1.46

1.46 E( R) = 0.15 = 0.032 + β(0.081) β = 1.46

Home Grown Tomatoes stock returned 28.7 percent, 2.6 percent, 13.1 percent, 12.2, and 11.8 percent over the past five years, respectively. What is the arithmetic average return for this period? 13.68 percent 14.62 percent 15.10 percent 15.93 percent 17.10 percent

13.68 percen

Currently, you owe the bank $9,800 for a car loan. The loan has an interest rate of 7.75 percent and monthly payments of $310. Your financial situation recently changed such that you can no longer afford these payments. After talking with your banker and explaining the situation, he has agreed to lower the monthly payments to $225 while keeping the interest rate at 7.75 percent. How much longer will it take you to repay this loan than you had originally planned?

15.84 months

Bama Entertainment has common stock with a beta of 1.46. The market risk premium is 9.3 percent and the risk-free rate is 4.6 percent. What is the expected return on this stock? 16.31 percent 16.67 percent 17.40 percent 18.03 percent 18.13 percent

18.03 percent

The common stock of Contemporary Interiors has a beta of 1.65 and a standard deviation of 27.4 percent. The market rate of return is 13.2 percent and the risk-free rate is 4.8 percent. What is the cost of equity for this firm? 18.66 percent 18.76 percent 21.08 percent 24.40 percent 26.05 percent

18.66 percent RE = 0.048 + 1.65(0.132 - 0.048) = 18.66 percent

Hercules Movers pays a constant annual dividend of $1.75 per share on its stock. Last year at this time, the market rate of return on this stock was 14.8 percent. Today, the market rate has fallen to 11.2 percent. What would your capital gains yield have been if you had purchased this stock one year ago and then sold the stock today? 18.78 percent 22.03 percent 28.16 percent 30.00 percent 32.14 percent

32.14 percent

A 7 percent bond has a yield to maturity of 6.5 percent. The bond matures in seven years, has a face value of $1,000, and pays semiannual interest payments. What is the amount of each coupon payment?

35

EKG, Inc. is considering a new project that will require an initial cash investment of $398,000. The project will produce no cash flows for the first two years. The projected cash flows for years 3 through 7 are $79,000, $88,000, $102,000, $140,000, and $160,000, respectively. How long will it take the firm to recover its initial investment in this project? 3.81 years 3.98 years 5.57years 5.92 years The project never pays back.

5.92 years

Kelly decided to accept the risk and purchased a high growth stock. Her returns for the past five years are 48 percent, 39 percent, -56 percent, 61 percent, and -24 percent, respectively. What is the standard deviation of these returns? 43.20 percent 45.46 percent 47.88 percent 50.83 percent 58.39 percent

50.83 percent

One year ago, Alpha Supply issued 15-year bonds at par. The bonds have a coupon rate of 6.5 percent and pay interest annually. Today, the market rate of interest on these bonds is 7.2 percent. How does the price of these bonds today compare to the issue price?

6.05 lower

Electronic Products has 35,000 bonds outstanding that are currently quoted at 102.3. The bonds mature in 11 years and carry a 9 percent annual coupon. What is the firm's aftertax cost of debt if the applicable tax rate is 30 percent? 4.47 percent 4.79 percent 6.07 percent 6.98 percent 8.67 percent

6.07 percent Aftertax cost of debt = 8.667318 percent × (1 - 0.30) = 6.07 percent

Titans, Inc. has 6 percent bonds outstanding that mature in 14 years. The bonds pay interest semiannually and have a face value of $1,000. Currently, the bonds are selling for $993 each. What is the firm's pretax cost of debt? 5.97 percent 6.08 percent 6.14 percent 6.31 percent 6.40 percent

6.08 percent

A 12-year, semiannual coupon bond is priced at $1,102.60. The bond has a $1,000 face value and a yield to maturity of 5.33 percent. What is the coupon rate?

6.5

Chasteen, Inc. is considering an investment with an initial cost of $185,000 that would be depreciated straight-line to a zero book value over the life of the project. The cash inflows generated by the project are estimated at $76,000 for the first two years and $30,000 for the following two years. What is the internal rate of return? 6.44 percent 6.94 percent 7.43 percent 7.55 percent 8.11 percent

6.94 percent

A stock has yielded returns of 6 percent, 11 percent, 14 percent, and -2 percent over the past four years, respectively. What is the standard deviation of these returns? 5.52 percent 5.86 percent 6.05 percent 6.47 percent 6.99 percent

6.99 percent

Last year, Paul invested $38,000 in Oil Town stock, $11,000 in long-term government bonds, and $8,000 in U.S. Treasury bills. Over the course of the year, he earned returns of 12.1 percent, 7.2 percent, and 4.1 percent, respectively. What was the nominal risk premium on Oil Town's stock for the year? 2.1 percent 4.9 percent 6.0 percent 7.8 percent 8.0 percent

8.0 percent

Madison Square Stores has a $20 million bond issue outstanding that currently has a market value of $18.6 million. The bonds mature in 6.5 years and pay semiannual interest payments of $35 each. What is the firm's pretax cost of debt? 4.21 percent 8.42 percent 7.58 percent 7.74 percent 7.80 percent

8.42 percent Current bond price = (18.6/20) × $1,000 = $930

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

Which one of the following statements is correct, all else held constant? Beta is used to compute the return on equity and the standard deviation is used to compute the return on preferred. A decrease in a firm's WACC will increase the attractiveness of the firm's investment options. The aftertax cost of debt increases when the market price of a bond increases. If you have both the dividend growth and the security market line's costs of equity, you should use the higher of the two estimates when computing WACC. WACC is applicable only to firms that issue both common and preferred stock.

A decrease in a firm's WACC will increase the attractiveness of the firm's investment options.

Which one of the following portfolios will have a beta of zero? A portfolio that is equally as risky as the overall market A portfolio that consists of a single stock A portfolio comprised solely of U. S. Treasury bills A portfolio with a zero variance of returns No portfolio can have a beta of zero.

A portfolio comprised solely of U. S. Treasury bills

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict? Organizational Structural Formation Agency Territorial

Agency

Which one of the following functions should be assigned to the treasurer rather than the controller? Data processing Cost accounting Tax management Cash management Financial accounting

Cash management

Todd and Cathy created a firm that is a separate legal entity and will share ownership of that firm on a 50-50 basis. Which type of entity did they create if they have no personal liability for the firm's debts? Limited partnership Corporation Sole proprietorship General partnership Public company

Corporation

Which one of the following is the minimum required rate of return on a new investment that makes that investment attractive? Risk-free rate Market risk premium Expected return minus the risk-free rate Market rate of return Cost of capital

Cost of capital

Which one of the following occupations best fits into the international area of finance? Bank teller Treasury bill analyst Currency trader Insurance risk manager Local bank manager

Currency trader

Sixty years ago, your grandparents opened two savings accounts and deposited $200 in each account. The first account was with City Bank at 3 percent, compounded annually. The second account was with Country Bank at 3.5 percent, compounded annually. Which one of the following statements is true concerning these accounts? A. The City Bank account is currently worth $1,201.54. B. The City Bank account has earned $211.19 more in interest than the Country Bank account. C. The Country Bank account is currently worth $1,526.08. D. The Country Bank account has paid $367.48 more in interest than the City Bank account. E. The Country Bank account has paid $397.30 more in interest than the City Bank account.

D. The Country Bank account has paid $397.30 more in interest than the City Bank account.

On which one of the following dates is the determination made as to which shareholders will receive a dividend payment? Date of record Ex-dividend date Payment date Declaration date Public announcement date

Date of record

Which one of the following statements related to securities dealers is correct? Dealers match buyers with sellers. Dealers buy and sell from their own inventory. Dealers operate on a physical trading floor. Dealers operate exclusively in auction markets. Dealers are limited to trading nonlisted stocks.

Dealers buy and sell from their own inventory.

Which one of the following can be classified as an annuity but not as a perpetuity?

Equal annual payments for life

Which one of the following is a capital structure decision? Determining the optimal inventory level Establishing the preferred debt-equity level Selecting new equipment to purchase Setting the terms of sale for credit sales Determining when suppliers should be paid

Establishing the preferred debt-equity level

Mary owns a risky stock and anticipates earning 16.5 percent on her investment in that stock. Which one of the following best describes the 16.5 percent rate? Expected return Real return Market rate Systematic return Risk premium

Expected return

The security market line is defined as a positively sloped straight line that displays the relationship between which two of the following variables? Beta and standard deviation Systematic and unsystematic risk Nominal and real returns Expected return and beta Risk premium and beta

Expected return and beta

Jamie is employed as a commercial loan officer for a regional bank centered in the midwestern section of the U.S. Her job falls into which one of the following areas of finance? International finance Financial institutions Corporate finance Capital management Investments

Financial institutions

Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts? Sole proprietorship Limited partnership Corporation Joint stock company General partnership

General partnership

Which one of the following is a working capital decision? How should the firm raise additional capital to fund its expansion? What debt-equity ratio is best suited to the firm? What is the cost of debt financing? Which type of debt is best suited to finance the inventory? How much cash should the firm keep in reserve?

How much cash should the firm keep in reserve?

The expected return on a security depends on which of the following? I. Risk-free rate of return II. Amount of the security's unique risk III Market rate of return IV. Standard deviation of returns I and III only II and IV only II, III, and IV only I, III, and IV only I, II, III, and IV

I and III only

Which of the following will increase the present value of an annuity, all else held constant? I. Increase in the number of payments II. Increase in the interest rate III. Decrease in the interest rate IV. Decrease in the payment amount

I and III only

Maria is the sole proprietor of an antique store that she has operated at the same location for the past 16 years. The store rents the space in which it is located but does own all of the inventory and fixtures. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific loan covenants or assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed? I. Sell the inventory and use the cash raised to apply to the debt II. Sell the store fixtures and use the cash raised to apply to the debt III. Take funds from Maria's personal account at the bank to pay the store's debt IV. Sell any assets Maria personally owns and apply the proceeds to the store's debt I only III only I and II only I, II, and III only I, II, III, and IV

I, II, III, and IV

Which of the following are advantages of the corporate form of organization? I. Ability to raise large sums of equity capital II. Ease of ownership transfer III. Profits taxed at the corporate level IV. Limited liability for all owners I and II only III and IV only II, III, and IV only I, II, and IV only I, II, III, and IV

I, II, and IV only

Which of the following will increase the future value of a lump sum investment? I. Decreasing the interest rate II. Increasing the interest rate III. Increasing the time period IV. Decreasing the amount of the lump sum investment I and III only I and IV only II and III only II and IV only II, III, and IV only

II and III only

Which one of the following is an example of systematic risk? Major layoff by a regional manufacturer of power boats Increase in consumption created by a reduction in personal tax rates Surprise firing of a firm's chief financial officer Closure of a major retail chain of stores Product recall by one manufacturer

Increase in consumption created by a reduction in personal tax rates

Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002? Increase the costs of going public Increase protection against corporate fraud Limit secondary issues of corporate securities Decrease the number of publicly traded firms Increase the number of firms that "go dark"

Increase protection against corporate fraud

Which one of the following is an advantage of being a limited partner? Nontaxable share of any profits Control over the daily operations of the firm Losses limited to capital invested Unlimited profits without risk of incurring a loss Active market for ownership interest

Losses limited to capital invested

A DMM is a(n):

NYSE member who functions as a dealer for a limited number of securities.

Mary has just been asked to analyze an investment to determine if it is acceptable. Unfortunately, she is not being given sufficient time to analyze the project using various methods. She must select one method of analysis and provide an answer based solely on that method. Which method do you suggest she use in this situation? Internal rate of return Payback Average accounting rate of return Net present value Profitability index

Net present value

Dividends are which one of the following?

Paid out of aftertax profits

On which one of the following dates are dividend checks mailed? Date of record Ex-dividend date Payment date Declaration date Public announcement date

Payment date

Which one of the following indicators offers the best assurance that a project will produce value for its owners? PI equal to zero Negative rate of return Positive AAR Positive IRR Positive NPV

Positive NPV

Which one of the following indicates that a project is expected to create value for its owners? Profitability index less than 1.0 Payback period greater than the requirement Positive net present value Positive average accounting rate of return Internal rate of return that is less than the requirement

Positive net present value

Chandler Tire Co. is trying to decide which one of two projects it should accept. Both projects have the same start-up costs. Project 1 will produce annual cash flows of $52,000 a year for six years. Project 2 will produce cash flows of $48,000 a year for eight years. The company requires a 15 percent rate of return. Which project should the company select and why?

Project 2, because the present value of the cash inflows exceeds those of Project 1 by $18,598.33

Diversifying a portfolio across various sectors and industries might do more than one of the following. However, this diversification must do which one of the following? Increase the expected risk premium Reduce the beta of the portfolio to zero Increase the security's risk premium Reduce the portfolio's systematic risk level Reduce the portfolio's unique risks

Reduce the portfolio's unique risks

Investors require a 4 percent return on risk-free investments. On a particular risky investment, investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent. What is this excess return called? Inflation premium Required return Real return Average return Risk premium

Risk premium

Today, Courtney wants to invest less than $5,000 with the goal of receiving $5,000 back some time in the future. Which one of the following statements is correct? The period of time she has to wait until she reaches her goal is unaffected by the compounding of interest. The lower the rate of interest she earns, the shorter the time she will have to wait to reach her goal. She will have to wait longer if she earns 6 percent compound interest instead of 6 percent simple interest. The length of time she has to wait to reach her goal is directly related to the interest rate she earns. The period of time she has to wait decreases as the amount she invests today increases.

The period of time she has to wait decreases as the amount she invests today increases.

New Labs just announced that it has received a patent for a product that will eliminate all flu viruses. This news is totally unexpected and viewed as a major medical advancement. Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient? The price of New Labs stock remains unchanged. The price of New Labs stock increases rapidly and then settles back to its pre-announcement level. The price of New Labs stock increases rapidly to a higher price and then remains at that price. All stocks quickly increase in value and then all but New Labs stock fall back to their original values.

The price of New Labs stock increases rapidly to a higher price and then remains at that price.

New Labs just announced that it has received a patent for a product that will eliminate all flu viruses. This news is totally unexpected and viewed as a major medical advancement. Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient? The price of New Labs stock remains unchanged. The price of New Labs stock increases rapidly and then settles back to its pre-announcement level. The price of New Labs stock increases rapidly to a higher price and then remains at that price. All stocks quickly increase in value and then all but New Labs stock fall back to their original values. The value of all stocks suddenly increase and then level off at their higher values.

The price of New Labs stock increases rapidly to a higher price and then remains at that price.

Assume the securities markets are strong form efficient. Given this assumption, you should expect which one of the following to occur? The risk premium on any security in that market will be zero. The price of any one security in that market will remain constant at its current level. Each security in the market will have an annual rate of return equal to the risk-free rate. The price of each security in that market will frequently fluctuate. The prices of each security will fall to zero because the net present value of the investments will be zero.

The price of each security in that market will frequently fluctuate.

Which one of the following statements is correct? A. All of the major stock exchanges are U.S. based. B. The NYSE was created by the National Association of Securities Dealers in the early 1970s. C. The American Stock Exchange is a dealer market. D. OTC markets have a physical trading floor generally located in either New York City or Chicago. E. The primary purpose of the NYSE is to match buyers with sellers

The primary purpose of the NYSE is to match buyers with sellers.

Today, Sweet Snacks is investing $491,000 in a new oven. As a result, the company expects its cash flows to increase by $64,000 a year for the next two years and by $98,000 a year for the following three years. How long must the firm wait until it recovers all of its initial investment? 3.97 years 4.18 years 4.46 years 4.70 years The project never pays back.

The project never pays back.

Which one of the following is a general characteristic of a securities broker? Trades from his or her own inventory Trades only foreign securities Trades listed securities in an auction market Trades electronically from any geographic location Is the principal trader of debt securities

Trades listed securities in an auction market

For the period 1926-2011, which one of the following had the smallest risk premium? Large-company stocks Small-company stocks Long-term corporate bonds U.S. Treasury bills Long-term government bonds

U.S. Treasury bills

Which one of the following is an example of a liquidating dividend? Valley Feed Mills recently sold its grain storage facility and is distributing the proceeds of that sale to its shareholders. Kate's Winery has excess cash that it wishes to distribute to its shareholders in addition to its normal cash dividend. This extra distribution usually occurs about once every year. Kurt's Music is planning to increase its quarterly dividend by 3 percent. The Dried Florist is preparing to pay its first annual dividend of $0.08 per share. Hi Tek had an extraordinarily profitable year and has decided to do a one-time only $10 per share cash dividend.

Valley Feed Mills recently sold its grain storage facility and is distributing the proceeds of that sale to its shareholders.

A broker is an agent who:

brings buyers and sellers together

According to the efficient markets hypothesis, professional investors will earn: excess profits over the long-term. excess profits, but only on short-term investments. a dollar return equal to the value paid for an investment. a return that cannot be accurately predicted because investments are subject to the random movements of the markets. a return that "beats the market."

a dollar return equal to the value paid for an investment.

Lee pays 1 percent per month interest on his credit card account. When his monthly rate is multiplied by 12, the resulting answer is referred to as the:

annual percentage rate.

Tim has been promoted and is now in charge of all fixed asset purchases. In other words, Tim is in charge of: capital structure management. asset allocation. risk management. capital budgeting. working capital management.

capital budgeting.

Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as: simple interest. interest on interest. discounted interest. complex interest. compound interest.

compound interest.

Tom earned $120 in interest on his savings account last year. Tom has decided to leave the $120 in his account so that he can earn interest on the $120 this year. This process of earning interest on prior interest earnings is called: discounting. compounding. duplicating. multiplying. indexing.

compounding.

The net present value of an investment represents the difference between the investment's: cash inflows and outflows. cost and its net profit. cost and its market value. cash flows and its profits. assets and liabilities.

cost and its market value.

The weighted average cost of capital is defined as the weighted average of a firm's: return on its investments. cost of equity and its aftertax cost of debt. pretax cost of debt and equity securities. bond coupon rates. dividend and capital gains yields.

cost of equity and its aftertax cost of debt.

A bond for which no specific property has been pledged as security is classified as a:

debenture

Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt can be described as a:

debenture.

The net present value: decreases as the required rate of return increases. is equal to the initial investment when the internal rate of return is equal to the required return. method of analysis cannot be applied to mutually exclusive projects. is directly related to the discount rate. is unaffected by the timing of an investment's cash flows.

decreases as the required rate of return increases.

The interest rate used to compute the present value of a future cash flow is called the: prime rate. current rate. discount rate. compound rate. simple rate.

discount rate.

he interest rate used to compute the present value of a future cash flow is called the: prime rate. current rate. discount rate. compound rate. simple rate

discount rate.

Computing the present value of a future cash flow to determine what that cash flow is worth today is called: compounding. factoring. time valuation. simple cash flow valuation. discounted cash flow valuation.

discounted cash flow valuation.

Todd will be receiving a $10,000 bonus one year from now. The process of determining how much that bonus is worth today is called: aggregating. discounting. simplifying. compounding. extrapolating.

discounting.

An individual who executes buy and sell orders on the floor of an exchange for a fee is called a:

floor broker

Given an interest rate of zero percent, the future value of a lump sum invested today will always: remain constant, regardless of the investment time period. decrease if the investment time period is shortened. decrease if the investment time period is lengthened. be equal to $0. be infinite in value.

remain constant, regardless of the investment time period.

Standard deviation measures _____ risk while beta measures _____ risk. systematic; unsystematic unsystematic; systematic total; unsystematic total; systematic asset-specific; market

total; systematic

Centre Bank pays 2.5 percent interest, compounded annually, on its savings accounts. Country Bank pays 2.5 percent simple interest on its savings accounts. You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today. The amount you must deposit today: A. is the same regardless of which bank you choose because they both pay compound interest. B. is the same regardless of which bank you choose because they both pay simple interest. C. is the same regardless of which bank you choose because the time period is the same for both banks. D. will be greater if you invest with Centre Bank. E. will be greater if you invest with Country Bank.

will be greater if you invest with Country Bank.

A credit card has an annual percentage rate of 12.9 percent and charges interest monthly. The effective annual rate on this account:

will be greater than 12.9 percent.

All else constant, an increase in a firm's cost of debt: could be caused by an increase in the firm's tax rate. will result in an increase in the firm's cost of capital. will lower the firm's weighted average cost of capital. will lower the firm's cost of equity. will increase the firm's capital structure weight of debt.

will result in an increase in the firm's cost of capital.

The daily financial operations of a firm are primarily controlled by managing the: total debt level. working capital. capital structure. capital budget. long-term liabilities

working capital.