MyFinanceLab Final Exam Portion
In a perfectly efficient market, all assets would plot on the Security Market Line. a. True b. False
a. True Securities that are fairly priced will plot on the CML and the SML.
The longer the time to maturity, the more sensitive a bond's price to changes in market interest rates. a. True b. False
a. True There is a greater probability that interest rates will rise (and thus negatively affect a bond's market price) within a longer time period than within a shorter period
Which of the following statements is true? A.A zero coupon is a bond that is secured by a lien on real property. B. A bond will sell at a premium if the prevailing required rate of return is less than the bond's coupon rate. C. The legal document that describes all of the terms and conditions of a bond issue is called a debenture agreement. D. A bond that has a rating of AA is considered to be a junk bond.
B. A bond will sell at a premium if the prevailing required rate of return is less than the bond's coupon rate.
Quirk Drugs sold an issue of 30-year, $1,000 par value bonds to the public that carry a 10.85% coupon rate, payable semiannually. It is now 10 years later, and the current market rate of interest is 9.00%. If interest rates remain at 9.00% until Quirk's bonds mature, what will happen to the value of the bonds over time? a. The bonds will sell at a discount and rise in value until maturity. B. The bonds will sell at a premium and decline in value until maturity. C. The bonds will sell at a discount and fall in value until maturity. D. The bonds will sell at a premium and rise in value until maturity.
B. The bonds will sell at a premium and decline in value until maturity. Required rate of return = 9 Coupon rate = 10.85 Required rate of return < coupon rate so the bond will sell at a premium
When assets are positively correlated, they tend to rise or fall together. a. True b. False
a. True
Question 13
Read the balance sheet and calculate stuff and things.
Question 39
Read the chart fam
A AAA rated bond's yield to maturity will be very close to it's expected yield. a. True b. False
a. True AAA is the highest possible rating that may be assigned to an issuer's bonds by any of the major credit rating agencies
What is the expected dollar return on a portfolio which consists of $9,000 invested in an S&P 500 Index fund, $32,500 in a technology fund, and $8,500 in Treasury Bills. The expected rate of return 11% on the S&P Index fund, 14% on the technology fund and 2% on the Treasury Bills. a. $4,500 b. $13,640 c. $5,710 d. $5,710
Ugh it's 5,710 but wth (think of Nathan saying that in a heavy accent)
ABC, Inc. just paid a dividend of $2. ABC expects dividends to grow at 10%. The return on stocks like ABC, Inc. is typically around 12%. What is the most you would pay for a share of ABC stock? a. $110 b. $120 c. $130 d. $100
a. $110 Price = Dividend * (1 + growth) / (Return - growth) = 2 * (1+0.1) / (0.12 - 0.1) = 2.2 / 0.02 = $110
What is the present value of $250 received at the beginning of each year for 21 years? Assume that the first payment is received today. Use a discount rate of 12%, and round your answer to the nearest $10. a. $2,117 b. $1,870 c. $2,090 d. $3,243
a. $2,117
Charlie Stone wants to retire in 30 years, and he wants to have an annuity of $1,000 a year for 20 years after retirement. Charlie wants to receive the first annuity payment at the end of the 30th year. Using an interest rate of 10%, how much must Charlie invest today in order to have his retirement annuity (round to the nearest $10)? a. $540 b. $500 c. $570 d. $490
a. $540 N=19
Smith Corporation has current assets of $11,400, inventories of $4,000, and a current ratio of 2.6. What is Smith's quick or acid test ratio? a. 1.69 b. 0.54 c. 0.74 d. 1.35
a. 1.69 Current ratio = current assets / current liabilities quick ratio = (current assets - inventories) / current liabilities
Tanzlin Manufacturing's common stock has a beta of 1.5. If the expected risk-free return is 2% and the expected return on the market is 14%, what is the expected return on the stock? a. 20.0% b. 16.8% c. 13.5% d. 21.0%
a. 20.0% Expected Rate of Return = Risk-free rate + Beta * (Market Return - Risk-free rate) ERR = 0.02 + 1.5 * (0.14 - 0.02)
Skrit Corporation has a net profit margin of 15% and a total asset turnover of 1.7. What is Skrit's return on total assets? a. 25.5% b. 8.8% c. 11.1% d. 12.3%
a. 25.5% Return on Total Assets = EBIT or Net Income / Average Total Assets OR Net Profit Margin * Total Asset Turnover
Interest rates have increased by 50 basis points (0.5%). Which of the following bonds will decline most in price? All of the bonds have AA ratings. a. A bond that matures in 10 years b. A bond that matures in 5 years c. All of the bonds will decline in price by approximately the same amount d. A bond that matures in 10 days
a. A bond that matures in 10 years The longer a bond is, the more susceptible it is to interest rates, and the more susceptible it is to decline
A decrease in ____________ will increase gross profit margin. a. Cost of goods sold b. depreciation expense c. interest expense d. both A and B
a. Cost of goods sold
Which of the following best represents operating income? a. Earnings before interest and taxes b. Income from discontinued operations c. Income from capital gains d. Income after financing activities
a. Earnings before interest and taxes
Which of the following statements about bonds is true? a. If market interest rates change, long-term bonds will fluctuate more in value than short-term bonds b. Bond prices move in the same direction as market interest rates c. Long-term bonds have less interest rate risk than do short-term bonds d. As the maturity date of a bond approaches, the market value of a bond will become more volatile
a. If market interest rates change, long-term bonds will fluctuate more in value than short-term bonds
Which of the following statements about bonds is true? a. If market interest rates change, long-term bonds will fluctuate more in value than short-term bonds b. Bond prices move in the same direction as market interest rates c. If market interest rates are higher than a bond's coupon interest rate, then the bond will sell above its par value d. Long-term bonds are less risky than short-term bonds e. None of the above
a. If market interest rates change, long-term bonds will fluctuate more in value than short-term bonds
Which of the following sequences is arranged in the correct order, from highest long-term returns to lowest? a. International equities, U.S government bonds, treasury bills b. Government bonds, emerging market equities, treasury bills c. Corporate bonds, treasury bills, international equities d. International equities, U.S government bonds, U.S equities
a. International equities, U.S government bonds, treasury bills
You are considering buying some stock in Continental Grain. Which of the following is an example of non-diversifiable risk? a. Risk resulting from a general decline in the stock market b. Risk resulting from a news release that several of Continental's grain silos were tainted c. Risk resulting from an explosion in a grain elevator owned by Continental d. Risk resulting
a. Risk resulting from a general decline in the stock market Nondiversifiable Risk aka Systematic Risk - Risk that is both unpredictable and impossible to completely avoid
All of the following are true about insurance companies EXCEPT: a. They may only invest their reserves in interest paying bank accounts under Federal law. b. They may guarantee to reimburse lenders should lenders' loans go into default. c. They participate in equipment leasing. d. They invest their reserves.
a. They may only invest their reserves in interest paying bank accounts under Federal law.
A basis point is equal to 1/100th of a percentage point. a. True b. False
a. True
All else constant, an individual would be indifferent between receiver $2,000 today or receiving $200 perpetuity when the discount rate is 10% annually. a. True b. False
a. True
As bond approaches maturity, discounts, and premiums become less and less significant a. True b. False
a. True
For any number of compounding periods per year greater than 1, EAR will always be greater than the APR. a. True b. False
a. True
The purpose of financial markets is to bring borrowers and savers together. a. True b. False
a. True
The sensitivity of a bond's value to changing interest rates depends on both the bond's time to maturity and its pattern of cash flows. a. True b. False
a. True
The standard deviation of returns on Warchester stock is 20% and on Shoesbury stock it is 16%. The coefficient of correlation between the stocks is .75. The standard deviation of any portfolio combining the two stocks will be less than 20%. a. True b. False
a. True
CEOs naming friends to the board of directors and paying them more than the norm is an example of the: a. agency problem b. majority voting feature c. proxy fights d. preemptive right
a. agency problem Agency Problem - A conflict of interest inherent in any relationship where one party is expected to act in another's best interests.
Evidence that agency costs a. because stock prices increase when an underperforming CEO is unexpectedly replaced b. because underperforming CEO's are frequently voted out by shareholders c. because they are shown in footnotes to the financial statements d. because management often pursues risky but profitable opportunities rather than safer, less profitable opportunities
a. because stock prices increase when an underperforming CEO is unexpectedly replaced Agency Cost - A type of internal company expense which comes from the actions of an agent acting on behalf of a principal.
The capital asset pricing model: a. provides a risk-return trade-off in which risk is measured in terms of beta b. measures risk as the correlation coefficient between a security and market rates of return c. depicts the total risk of a security d. provides a risk-return trade-off in which risk is measured in terms of the market returns
a. provides a risk-return trade-off in which risk is measured in terms of beta
The par value of a corporate bond indicates the level of interest payments that will be paid to investors. a. True b. False
b. False Par value is the face value of a bond
Adequate portfolio diversification can be achieved by investing in several companies in the same industry. a. True b. False
b. False Should be several companies in DIFFERENT industries
What is the value of $750 invested at 7.5% compounded quarterly for 4.5 years (round to the nearest $1)? a. $808 b. $1,048 c. $1,010 d. $1,038
b. $1,048
MI has a $1,000 par value, 30-year bond outstanding that was issued 20 years ago at an annual coupon rate of 10%, paid semiannually. Market interest rates on similar bonds are 7%. Calculate the bond's price. a. $1,168.31 b. $1,213.19 c. $1,000,000 d. $956.42
b. $1,213.19 N = 10 * 2 = 20 I/Y = 7 / 2 = 3.5 PV = ? ---> $1,213.19 PMT = (-1000 * 0.1) / 2 = -50 FV = -1000 The future value for bonds will always be $1,000
Michael Masury has an opportunity to buy a commercial property. Rents from the property will be $24,000 and he expects them to increase at a rate of 3% per year annually. His required rate of return on this investment is 12%. At what price would Michael be indifferent to buying or not buying the investment? Round off to the nearest $1. a. $800,000 b. $266,667 c. $240,000 d. $171,429
b. $266,667 (Growing perpetuity problem) Periodic Payment / (Interest Rate - Growth Rate) aka P / (r - g)
A retirement plan guarantees to pay you or your estate a fixed amount for 20 years. At the time of retirement, you will have $31,360 to your credit in the plan. The plan anticipates earning 8% interest annually over the period you receive benefits. How much will your annual benefits be, assuming the first payment occurs one year from your retirement date? a. $682 b. $3,194 c. $6,272 d. $2,000
b. $3,194
If you put $6,000 in a savings account that yields an 1% rate of interest compounded daily, what will the investment be worth at the end of year? a. $6,006.03 b. $6,060.30 c. $6,760.95 d. $6060.00
b. $6060.30
What is the yield to maturity of a nine-year bond that pays a coupon rate of 20% per year, has a $1,000 par value, and is currently priced at $1,407? Assume annual coupon payments. a. 11.43% b. 12.28% c. 21.81% d. 6.14%
b. 12.28%
What is the expected rate of return on a bond that pays a coupon rate of 9% paid semi−annually, has a par value of $1,000, matures in five years, and is currently selling for $1071? a. 8.40% b. 7.28% c. 3.64% d. 4.21%
b. 7.28%
You paid $865.50 for a corporate bond that has a 6.75% coupon rate. What is the bond's current yield? a. 6.667% b. 7.800% c. 8.735% d. 15.001%
b. 7.800% N = I/Y = ? ---> 7.88% PV = -865.50 PMT = (1000 * 0.0675) = 67.5 FV = 1000 Current Yield = Annual Coupon Rate / Price of the Bond = ($1000 * 0.0675) / 865.5 = 7.800%
At 8 % compounded annually, how will it take $750 to double? a. 6.5 years b. 9 years c. 48 months d. 12 years
b. 9 years
Stephen's grandmother deposited $100 in an investment account for him when he was born, 25 years ago. The account is now worth $1,500. What was the average rate of return on the account? Which of the following is the correct way to solve this problem using EXCEL? a. =PV(25,i,-100,1500) b. =rate(25,0,-100,1500) c. =rate(25,0,100,1500) d. rate(0,-100,1500,25)
b. =rate(25,0,-100,1500)
Which of the following has a beta of zero? a. The market b. A risk-free asset c. A high-risk asset d. Both A and B
b. A risk-free asset
A negative coefficient of correlation implies that: a. asset return tend to move in opposite directions b. asset returns tend to move in opposite directions c. on average, returns to such assets are negative d. None of the above because the coefficient of correlation cannot be negative
b. Asset returns tend to move in opposite directions
The goal of profit maximization is equivalent to the goal of maximization of share value. a. True b. False
b. FALSE shareholders want the max future returns
Debentures are unsecured long-term debt. a. True b. False
b. False
If an investor earns 10% on her investment in the first year and loses 10% the next year, she will have neither a gain or a loss. a. True b. False
b. False
If investors became more risk averse The SML would shift downward and the slope of the SML would fall. a. True b. False
b. False
Shorter-term bonds have greater interest rate risk than do longer-term bonds: a. True b. False
b. False
The arithmetic average rate of return takes compounding into effect. a. True b. False
b. False
A bond's "spread" refers to the difference between it's Moody's rating and its Standard & Poors rating. a. True b. False
b. False Bond Spread - Refers to the interest rate differential between two bonds
Bonds cannot be worth less than their book value. a. True b. False
b. False Book Value of a Bond - The actual amount of money that the bond issuer owes the bondholder at any one point in time. That is the bond par value less any remaining discounts or plus any remaining premiums.
Miller Motorworks has a $1,000 par value, 8% annual coupon bond with interest payable semiannually with a remaining term of 15 years. The annual market yield on similar bonds is 6%. This bond will at a discount from par. a. True b. False
b. False Discount from par = Bond coupon interest rate < required rate of return8% is NOT less than 6%
Portfolio returns can be calculated as the geometric mean of the returns on the individual assets in the portfolio. a. True b. False
b. False Geometric Mean - A special type of average where we multiply the numbers together and then take a square root (for two numbers), cube root (for three numbers) etc.
If a market is weak-form efficient, an investor can make higher than expected profits by studying the past price patterns of a stock. a. True b. False
b. False Weak form efficient argues that stock prices reflect all current information but also concedes that anomalies may be found by researching companies' financial statements thoroughly
Which of the following is NOT a component of return of assets (ROA)? a. Cost of goods sold b. Leverage c. Sales d. Total assets
b. Leverage
On the income statement, sales revenue, minus cost of goods and operating expenses, equals: a. Net income available to preferred shareholders b. Net operating income (EBIT) c. Net profit d. Retained earnings
b. Net operating income (EBIT) EBIT = sales - COGS - operating expense
Which of the following streams of income is not affected by how a firm is financed (whether with debt or equity)? a. Income before tax b. Operating income c. Net working capital d. Net profit after tax but before dividends
b. Operating income
You are considering investing in Ford Motor Company. Which of the following is an example of diversifiable risk? a. Risk resulting from an expected recession b. Risk resulting from uncertainty regarding a possible strike against Ford c. Risk resulting from interest rates decreasing d. Risk resulting from the possibility of a stock market crash
b. Risk resulting from uncertainty regarding a possible strike against Ford Diversifiable Risk aka Unsystematic Risk - Can be described as the uncertainty inherent in a company or industry investment
Managers of corporations need to act in an ethical manner: a. because ethics violations will be punished by the law b. because a business must be trusted by investors, customers, and the public if it is to succeed c. because business managers must answer to a higher authority d. because ethical behavior is its own justification
b. because a business must be trusted by investors, customers, and the public if it is to succeed
Evidence exists that directors: a. are vigilant in requiring that the firm's assets be used efficiently b. often represent the interests of the managers who nominated them for directorships c. are quick to replace or reduce the compensation of underperforming CEOs d. aggressively represent the interests of shareholders
b. often represent the interests of the managers who nominated them for directorships
Advantages of privately placing debt include all of the following except: a. speed b. restrictive covenants c. flexibility d. reduced placement costs
b. restrictive covenants Advantages include speed, flexibility, and reduced placement costs
If the market price of a bond increases, then: a. the coupon rate increases b. the yield to maturity decreases c. the yield to maturity increases. d. none of the above
b. the yield to maturity decreases Bond prices will go up when interest rates go down AND Bond prices will go down when interest rates go up
When a bond's coupon rate is lower than the required rate of return, the bond: a. will sell at par value b. will sell at a discount from par c. will sell at a premium over par d. may sell at either a discount or a premium
b. will sell at a discount from par
Terminator Bug Company bonds have a 14% coupon rate. Interest is paid semiannually. The bonds have a par value of $1,000 and will mature 10 years from now. Compute the value of Terminator bonds if investors' required rate of return is 12%. a. $894.06 b. $1,000.00 c. $1,114.70 d. $1,149.39
c. $1,114.70 N = 10 * 2 = 20 I/Y = 12 / 2 = 6 PV = ? ---> $1114.70 PMT = (1000 * 0.14) / 2 = 70 FV = 1000
A commercial bank will loan you $17,500 for two years to buy a car. The loan must be repaid in 24 equal monthly payments. The annual interest rate on the loan is 6% of the unpaid balance. What is the amount of the monthly payments? a. $1,394.98 b. $688.11 c. $775.61 d. $3779.39
c. $775.61
You are considering investing in a portfolio consisting of 40% Electric General and 60% Buckstar. If the expected rate of return on Electric General is 16% and the expected return on Buckstar is 9%, what is the expected return on the portfolio? a. 12.50% b. 13.20% c. 11.80% d. 10.00%
c. 11.80% [ (0.4) * (0.16) ] + [ (0.6) * (0.09) ] = 0.118 = 11.80%
You bought a painting 10 years ago as an investment. You originally paid $85,000 for it. If you sold it for $484,050, what was your annual return on investment? a. 12.8% b. 4.7% c. 19% d. 47%
c. 19%
You have been offered a credit card with an interest rate 1.5% per month. This is equivalent to and effective annual rate (EAR) of: a. 24.00% b. 18.00% c. 19.56% d. 12.17%
c. 19.56% EAR = ((1 + (i/n))^n) - 1
Storm King Associates has a total asset turnover ratio of 1.90 and a return on total assets of 7.20%. What is Storm King's net profit margin? a. 13.68 b. 9.10 c. 3.79 d. None of the above (It will never be this answer goodness gracious)
c. 3.79 Net Profit Margin = Return on Total Assets / Total Asset Turnover
What is the annual compounded interest of an investment with a stated interest rate of 6% compounded quarterly for seven years (round to the nearest .1%)? a. 51.7% b. 6.7% c. 6.1% d. 10.9%
c. 6.1% Annual Compounded Interest Rate without Principal = (1 + (rate / # of time compounded per year)) ^ time in years
The Blackburn Group has recently issued 20-year, unsecured bonds rated BB by Moody's. These bonds yield 443 basis points above the U.S treasury yield of 2.76%. The yield to maturity on these bonds is: a. 4.43% b. mortgage bonds c. 7.19% d. 12.23%
c. 7.19% The yield to maturity on these bonds is 4.43 + 2.76 = 7.19 A basis point is 1/100 of a percent Add risk to risk-free rate
You are considering the purchase of Hytec bonds that were issued 14 years ago. When the bonds were originally sold, they had a 30−year maturity and a 14.375% coupon interest rate that is payable semiannually. The bond is currently selling for $1,508.72. What is the yield to maturity on the bonds? a. 11.11% b. 14.38% c. 8.50% d. 7.67%
c. 8.50% N = 16 * 2 = 32 I/Y = ? ---> 4.25 * 2 = 8.50% PV = -1508.72 PMT = (1000 * 0.14375) / 2 = 71.875 FV = 1000
Which of the following statements is true? a. A Stock with a beta greater than 1.0 has lower nondiversifiable risk than a stock with a beta of 1.0. B.A stock with a beta less than 1.0 has higher nondiversifiable risk than a stock with a beta of 1.0. C. A stock with a beta less than 1.0 has lower nondiversifiable risk than a stock with a beta of 1.0. D. A stock with a beta less than zero has no exposure to systematic risk.
c. A stock with a beta less than 1.0 has lower nondiversifiable risk than a stock with a beta of 1.0.
If current market interest rates rise, what will happen to the value of outstanding bonds? a. It will remain unchanged b. It will rise c. It will fall d. There is no connection between current market interest rates and the value of outstanding bonds.
c. It will fall
If current market interest rates falls, what will happen to the value of outstanding bonds? a. It will fall b. It will remain unchanged c. It will rise d. There is no connection between current market interest rates and the value of outstanding bonds
c. It will rise
Which of the following is NOT an example of systematic risk? a. Recession b. Inflation c. Management risk d. Interest rate risk
c. Management risk
If the total asset turnover decreases, then the return of equity will: a. increase. b. not change. c. decrease. d. change, but in an indeterminate way.
c. decrease Return of Assets = Net Income / Average Total Assets
Currently, the expected return on the market is 12.5% and the required rate of return for Alpha, Inc. is 12.5%. Therefore, Alpha's beta must be a. greater than 1.0 b. less than 1.0 c. equal to 1.0 d. unknown based on the information provided
c. equal to 1.0
The expected yield of a bond will be less than its yield to maturity when a. market interest rates are expected to rise b. when the bond is purchased at a discount c. market interest rates are expected to fall
c. market interest rates are expected to fall
The market risk premium is measured by: a. standard deviation b. beta c. market return less risk-free rate d. T-bill rate
c. market return less risk-free rate
Bond ratings directly affect a bond's: a. maturity date b. call provisions c. spread over the Treasury yield d. coupon rate
c. spread over the Treasury yield
All of the following are classified as non-bank financial intermediaries EXCEPT: a. insurance companies b. hedge funds c. stock brokerages d. investment banks
c. stock brokerages non-bank financial intermediaries: leasing, factoring, and venture capital companies to various types of contractual savings and institutional investors (pension funds, insurance companies, and mutual funds) Includes insurance companies, hedge funds, and investment banks
Which of the following features allows borrower to redeem or repurchase a bond issue before its maturity date? a. convertibility b. floating rate c. the call provision d. the priority of claims
c. the call provision
The beta of ABC Co. Stock is the slope of: a. The characteristic line for a plot of returns on the S&P 500 versus returns on short-term Treasury bills b. the security market line c. the line of best fit for a plot ABC Co. returns against the returns of the market portfolio for the same period d. the arbitage pricing line
c. the line of best fit for a plot of ABC Co. returns against the returns of the market portfolio for the same period
Caldwell, Inc. sold an issue of 30−year, $1,000 par value bonds to the public. The bonds carry a 10.85% coupon rate and pay interest semiannually. It is now 12 years later. The current market rate of interest on the Caldwell bonds is 8.45%. What is the current market price (intrinsic value) of the bonds? Round off to the nearest $1. a. $976 b. $751 c. $1,177 d. $1,220
d. $1220 N = 18 * 2 = 36 I/Y = 8.45 / 2 = 4.225 PV = ? ---> 1,220 PMT = (-1000 * 0.1085) / 2 = -54.25 FV = -1000
What is the present value of $1,000 to be received 10 years from today? Assume that the investment pays 8.5% and it is compounded monthly (round to the nearest $1). a. $893 b. $833 c. $3,106 d. $429
d. $429
Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's EBIT? a. $4,630,000 b. $58,000,000 c. $15,552,000 d. $5,110,000
d. $5,110,000 EBIT = Sales Revenue - (COGS + Operating Exp)
ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is 12%. (Round your answer to the nearest $1.) a. $1,056 b. $7,621 c. $4,568 d. $6,577
d. $6,577 Calculator: CF ---> -15,052 ---> Enter Down arrow C01 = 6000 ---> Enter Down arrow F01 = 5 ---> Enter NPV I = 12 ---> Enter Down arrow CPT ---> NPV
Millers Metalworks, Inc. has a total asset turnover of 2.5 and a net profit margin of 3.5%. The total debt ratio for the firm is 50%. Calculate Miller's return on equity. a. 21.5% b. 19.5% c. 23.5% d. 17.5%
d. 17.5% Total Asset Turnover = Sales / Total Assets --> sales = 2.5 * total assets Net profit margin=Net income/Sales --> net income = .035 Total debt ratio=Debt/Assets -->Debt=0.5 *Total Assets Total assets=Debt+Equity -->Equity=(1-0.5)=0.5 Total assets ROE=Net income/Equity =0.035Sales/0.5Total Assets =0.035*2.5*Total assets/0.5Total assets =0.175Total assets/0.5Total assets =0.35=35%. ???????
Your firm has the following income statement items: sales of $52,000,000; income tax of $1,880,000; operating expenses of $9,000,000; cost of goods sold of $36,000,000; and interest expense of $800,000. Compute the firm's gross profit margin. a. 8.3% b. 13.5% c. 69.2% d. 30.8%
d. 30.8% Gross Profit Margin = (Net Sales - COGS) / Net Sales
Jayden spends a lot of time studying charts of stocks past performance, but his investment return are only average. This outcome supports: a. the weak-form efficient market hypothesis. b. the strong form efficient market hypothesis c. the semi-strong form efficient market hypothesis d. all of the above
d. ALL OF THE ABOVE
Which of the following factors will influence a firm's P/E ratio? a. General market conditions b. The investors' required rate of return c. Firm investment opportunities d. All of the above
d. All of the above
Which of the following portfolios is clearly preferred to the others? Expected Standard Return Deviation A 14% 12% B 22% 20% C 18% 16% a. Investment C b. Investment A c. Investment B d. Cannot be determined
d. Cannot be determined all of the standard deviations and expected return rates are within 2% of each other
Which of the following is NOT included in computing EBT (earnings before taxes)? a. Marketing expenses b. Cost of goods sold c. Depreciation expense d. Dividends
d. Dividends
Which of the following statements about bonds is true? a. As the maturity of a bond approaches, the market value of a bond will become more volatile b. Long-term bonds have less interest rate risk than do short-term bonds c. Bond prices move in the same direction as market interest rates d. If the market interest rates are below a bond's coupon interest rate, then the bond will sell above its par value.
d. If the market interest rates are below a bond's coupon interest rate, then the bond will sell above its par value.
Why is the quick ratio a more refined measure of liquidity than the current ratio? a. It is a quicker calculation to make. b. Cash is the most liquid current asset. c. It measures how quickly cash and other liquid assets flow through the company. d. Inventories are omitted from the numerator of the ratio because they are generally the least liquid of the firm's current assets.
d. Inventories are omitted from the numerator of the ratio because they are generally the least liquid of the firm's current assets. Current ratio = current assets / current liabilities quick ratio = (current assets - inventories) / current liabilities
The security market line (SML) relates risk to return, for a given set of market conditions. If expected inflation increases, which of the following would most likely occur? a. The slope of the SML would increase b. The market risk premium would increase. c. Beta would increase. d. The SML line would shift up.
d. The SML line would shift up.
The security market line (SML) relates risk to return, for a given set of market conditions. If risk aversion increases, which of the following would most likely occur? a. Beta would increase. b. The SML line would shift up. c. The slope of the SML would increase. d. The market risk premium would increase.
d. The market risk premium would increase. higher risk --> higher reward
Which of the following statements about bonds is true? a. Long-term bonds are less risky than short-term bonds b. As the maturity date of a bond approaches, the market value of a bond will become more volatile. c. If the market interest rates are higher than a bond's coupon interest rate, then the bond will sell above its par value d. The market value of a bond moves in the opposite direction of market interest rates e. None of the above
d. The market value of a bond moves in the opposite direction of market interest rates
Common stockholders expect returns than bondholders because: a. in the event of liquidation, they are only entitled to receive any cash that is left after all creditors are paid b. they bear greater risk c. they have no legal right to receive dividends d. all of the above
d. all of the above
The issuance of bonds to raise capital for a corporation: a. increases risk to the stockholders b. magnifies the returns to the stockholders c. is a cheaper form of capital than the issuance of common stock d. all of the above
d. all of the above
Businesses that wish to issue public debt will usually seek help from: a. the Federal Reserve bank b. a large life insurance company c. a state or union pension fund d. an investment banking firm
d. an investment banking firm
An attempt to profit by converting dollars to yen, yen to euros, and euros back to dollars would be an example of: a. intervention b. hedging c. speculation d. arbitrage
d. arbitrage
A bond investor seeking capital gains should purchase: a. bonds with short maturity dates when interest rates are expected to decline b. bonds with distant maturity dates when interest rates are expected to rise c. bonds with short maturity dates when interest rates are expected to rise d. bonds with distant maturity dates when interest rates are expected to decline
d. bonds with distant maturity dates when interest rates are expected to decline
All else constant, the present value of an investment will increase if: a. the investment is discounted at a higher interest rate. b. the investment is discounted at a lower interest rate. c. the investment is discounted for fewer years. d. both B & C.
d. both B & C. The investment is discounted at a lower interest rate AND The investment is discounted for fewer years
The nominal interest rate: a. ignore the Fisher effect b. does not include inflation c. is the rate at which banks lend money to other banks d. includes inflation and the real rate of interest
d. includes inflation and the real rate of interest
All of the following operate as financial intermediaries EXCEPTTTT: a. mutual funds b. commercial banks c. insurance companies d. the U.S Treasury
d. the U.S treasury financial intermediaries: entity that acts as a middle man. ex: commercial banks, mutual funds, insurance companies
The P/E ratio is calculated by dividing: a. the current stock price by operating cash flow per share b. the current stock price by stockholders' equity c. total assets by net income d. the current stock price by earnings per share
d. the current stock price by earnings per share P/E Ratio = Current Stock Price / Earnings per Share
All of the following affect the value of a bond EXCEPT: a. investors' required rate of return b. the coupon rate of interest c. the maturity date of the bond d. the recorded value of the firm's assets
d. the recorded value of the firm's assets
what is the formula for degree of leverage?
degree of leverage = profit elasticity from sales degree of leverage = % change in profit / % change in sales
