Unit 10 Quiz a

In a rising market, which of the following is least volatile?

A stock with a beta of 0.5

An investor's portfolio consists of a single stock. If a stock with a correlation of +.95 was added to the portfolio and the stock market turned bearish, what would be the likely effect of having added this additional security?

Almost no noticeable impact.

Which of the following statements is NOT true?

Beta is a measure of a security's deviation from its historical average returns.

Which of the following statements best represents a bond's present value?

Present value is the sum of all the discounted future payments.

Which of the following statements regarding investment theory is not correct?

The beta coefficient may be used to help select a portfolio that is consistent with an investor's willingness to assume unsystematic risk.

The XYZ Corporation's income statement contains the following information: Total revenue$200,000 Cost of goods sold60,000 Administrative expenses30,000 Depreciation10,000 Miscellaneous expenses3,000 Taxes paid5,000 Based on this information, XYZ's gross profit is

$140,000

XYZ Corporation common stock has a market price of $45 per share and earnings per share of $3 when XYZ announces a 3-for-1 split. After the split, the price-to-earnings ratio of XYZ stock will be

15

If a company successfully gets the owners of its long-term bond issue paying 7% annual interest to exchange them on a dollar-for-dollar basis with the company's preferred stock paying a 7% annual dividend, what is the effect on EPS?

Decrease

Your client has $10,000 to invest today and expects to earn an after-tax return of 8% to send his daughter to college in 12 years. Which of the following is needed to determine whether the investment is likely to satisfy the client's goal?

Expected cost of college

When computing a company's quick ratio, which of the following assets is NOT counted?

Inventory

Which of the following statements regarding standard deviation is TRUE?

Two investments with the same expected return will not necessarily have the same level of risk and standard deviation.

The difference between present value and net present value represents

the initial cash outlay

Moonglow Specialties, Inc., is paying a quarterly dividend per share of $0.05. Based on a current share price of $10, the dividend yield is closest to

2.00%

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

28.6%

If a company with 10 million shares outstanding with total earnings of $50 million pays a $2 dividend, the dividend payout ratio is

40%

A stock traded on the Nasdaq Stock Market has a beta of 1.20. One could expect that the stock's volatility compared to the S&P 500 would be

20% more volatile

Moonglow Specialties, Inc., is currently trading at $20 per share. Recently, the company reported net income of $1 million. The company is capitalized with 200,000 common shares and $5 million of 20-year debentures with a coupon of 4%. Given the data, Moonglow's price-to-earnings (P/E) ratio is closest to

4 times

ABD Corporation's income statement reports net sales of $100 million; cost of goods sold, $60 million; administrative costs, $20 million; and interest on debt, $5 million. Based on this information, ABD's gross margin is

40%

A company's working capital equals its

current assets minus its current liabilities

The price-to-earnings ratio

shows how much investors value the stock as a function of earnings to the company's market price

An investment of $5,000 made 10 years ago is now worth $20,000. Using the Rule of 72, the approximate compounded annual rate of return is

14.4%

An investor's portfolio has a beta coefficient of 0.85. If the overall market declined by 10% over the course of a year, the portfolio's value has likely

decreased by 8.5%

In general, one would prefer to purchase a bond when its current market price is

less than its present value

When it comes to computing market returns, it is TRUE to state that

the geometric mean could never be greater than the arithmetic mean

Use the following chart to answer this question Equity100%35%20%0% Fixed income0%65%80%100% Highreturn45.4%34.2%31.3%28.7% Low return-7.4%5.5%8.2%6.5% Avg. return18.8%19.2%16.5%14.2% Std. dev.12.2510.9510.0210.46 Which of these portfolio allocations would you expect to show the least volatility over the next year?

20%/80%

If your customer is pursuing an aggressive stock buying strategy, which of the following is most suitable for him?

GHI stock with a beta coefficient of 1.20

If an investor wished to compute the mean return of her portfolio, she is going to

find the arithmetic mean

If a corporation has a dividend payout ratio of 70%, the undistributed earnings will

increase retained earnings

FNK Corporation reported earnings of $2.47 per share last year on its stock, currently trading at $9.42 per share. Dividends paid out during the year totalled $0.93 per share. FNK's dividend payout ratio is closest to

38%

The rate that produces a net present value of a series of discounted cash flows equal to zero is called

the internal rate of return (IRR).