FIN 320 Final Exam Multiple Choice

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In what year was SARBOX enacted by congress?

2002

Jenny needs to borrow 5500 for 4 years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Jenny?

6.5% simple interest

Janis just won a scholarship that will pay her 500 a month, starting today, and continuing for the next 48 months. What term describes these payments?

Annuity due

Who brings buyers and sellers of securities together?

Broker

Which of the following occupations best fits into the area of corporate finance?

CFO

The process of planning and managing a firms long term investments is defined as...

Capital Budgeting

Jenna has been promoted and is now in charge of all external financing. in other words, she is in charge of?

Capital Structure Management

Firm is a separate legal entity and shares ownership of that firm on a 50/50 basis. What type of entity did they create if they have no personal liability for the firms debt?

Corporation

Which of the following generally pays a fixed dividend, receives first priority in dividend payment, and maintains the right to a dividend payment, even if the payment is deferred?

Cumulative preferred

The process of discounting an investments future cash flows is known as

Discounted Cash Flows Valuation

What is the name given to the model that computes the PV of a stock by diving next years annual dividend amount by the difference between the discount rate and the rate of change in the annual dividend amount?

Dividend Growth Model

The capital gains yield equals which one of the following?

Dividend growth rate

Which of the following individuals is most apt to purchase a municipal bond?

Highly compensated business owners

Which of the following statements is correct?

If the IRR equal the required return, the NPV will equal 0

Bonds are described at which form of loan?

Interest Only Loan

Stacy deposits 5000 into an account that pays 2% interest, compounded annually. At the same time, Kurt deposits 5000 into an account paying 3.5% interest, compounded annually. At the end of 3 years....

Kurt will have a larger account value than Stacy

Which of the following had the second highest distribution of returns for the period 1926-2014?

Large company stocks

What happened to the organization of the NYSE post-2006?

NYSE became a public corp

Smith and Son's co. has a current ratio that is average in comparison to their industry, however, their quick ratio is significantly lower than their industry average. The following can be concluded...

Smith and Sons has higher inventory than the industry average

The owner of a trading license who trades on the floor of the NYSE for their personal account is called a....

Supplemental Liquidity Provider

What type of risk does beta measure?

Systematic risk

Which of the following had the least negative returns for the period 1926-2014?

Treasury Bills

What is eliminated by diversification?

Unsystematic risk

The Jones Brothers recently established a trust fund that will provide annual scholarships of 12000 indefinitely. These annual scholarships are....

a perpetuity

Production equipment is classified as......

a tangible fixed asset

The rule of IRR states.....

accept the project if IRR is the same or greater than the required return by investors

Semi-strong form market efficiency states that the value at a security is based on.....

all publicly available info

Lee pays 1% 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

What is the primary benefit of "S" Corp?

avoids double taxation

The financial statement that summarizes a firms accounting value as of a particular date is called the...

balance sheet

the amount of systematic risk present in a particular risky asset relative to that in an average risky asset is measured by the...

beta coefficient

A bond trader just purchased and resold a bond. The amount of profit earned by the trader from this purchase and resale is......

bid-ask spread

A firm decides to make a decision that decreases their liquidity. What decision did the firm just make?

cash purchase on inventory

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

debenture

Which of the following will increase the present value of a lump sum future amount to be received in 15 years?

decrease in the interest rate

Which of the following will lower the overall expected rate of return on this stock?

decrease in the probability of an economic boom

Which one of the following will increase the profit margin of a firm, all else held constant?

decrease in the tax rate

When reviewing a balance sheet, the assets are listed from top to bottom in order of...

decreasing liquidity

Russell has a bond issue outstanding. The issue's indenture provision prohibits the firm from redeeming the bonds during the first five years following issuance. This provision is referred to as the....

deferred call provision

John owns a stock with a market price of $38 per share. This stock pays the same annual dividend of $.60 per share. If the price of the stock suddenly decreased to $33, you would expect the.....

dividend yield to increase

The ratios that are based on financial statement values and used for comparison purposes are called...

financial ratios

NPV involes discounting an investments.....

future cash flows

Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firms net working capital

had to decrease

Assume all else is equal. When comparing savings accounts, you should select the account that has the

highest effective annual rate

The future value of a lump sum investment will increase if you...

increase the time period

Jamie earned $14 in interest on her savings account last year. She decided to leave the $14 in her account so that she can earn interest on the $14 this year. The interest earned on last years interest earnings is called....

interest on interest

The relationship between the present value and the investment time period is best described as...

inverse

Generally speaking, payback is best used to evaluate which type of projects?

low-cost, short-term

The lower the standard deviation of returns on a security, the _________ the expected rate of return and the __________ the risk

lower; lower

The amount of tax paid on the next whole dollar of income, refers to which type of tax?

marginal tax

Unsystematic risk can be defined by all of the following except...

market risk

The rate of return an investor earns on a bond prior to adjusting for inflation is called the...

nominal rate

Stock A comprises 28% of Susan's portfolio. What term applies to the 28%?

portfolio rate

3 investments, each pay 100 mo, with an 8% interest rate. one is an ordinary annuity, one is an annuity due, and the third is a perpetuity. which statement is correct given these three options?

present value of a perp has to be higher than the present value either the ordinary annuity or annuity due

Given an interest rate of 0%, the future value of a lump sum invested today will always...

remain constant, regardless of the investment period

If a firm has an inventory turnover of 15, the firm...

sells its entire inventory an average of 15 times each year

Capital budgeting includes the evaluation of what?

size, timing, and risk of future cash flows

For a risky security to have a positive expected return but less risk than the overall market, the security must have a beta.....

that is > 0 but < 1

An agency issue is most apt to develop when.....

the control of a firm is separated from the firm's ownership

What is the nickname of the payback method?

the get your bait back method

Which of the following reactions to this announcement indicates the market for Flue Gone Inc's stock is efficient?

the price of flue gone stock increases rapidly to a higher price then remains at that price

EPS measures the net income with respect to

the profit or loss for each share of stock

Which statement is true?

the weight of the securities held in any portfolio must equal 1

The wood shop generate $.97 in sales for every $1 invested in total assets. Which of the following ratios would reflect this relationship?

total asset turnover

Which ratio is known as the "big picture ratio"

total asset turnover ratio

Which of the following best exemplifies unsystematic risk?

unexpected increase in the variable costs of a firm

Which of the items below is not one of the 5 questions to ask yourself about ratios?

what is it telling us about the future?

All else held constant, PV of a bond increase when the....

yield to maturing decreases

the market required rate of return on a bond that is held for its entire life is called the

yield to maturity

If an investment is producing a return that is equal to the required return, the investments NPV will be...

zero


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