Finance 305- Financial Management Final

Which one of the following best indicates a firm is utilizing its assets more efficiently than it has in the past?

A decrease in the capital intensity ratio

A stock is expected to return 13 percent in an economic boom, 10 percent in a normal economy, and 3 percent in a recessionary economy. Which one of the following will lower the overall expected rate of return on this stock?

A decrease in the probability of an economic boom

bond

A financial security that represents a promise to repay a fixed amount of funds

Income Statement

A financial statement showing the revenue and expenses for a fiscal period.

Which one of the following portfolios will have a beta of zero?

A portfolio comprised solely of U. S. Treasury bills

Systematic Risk

A risk that influences a large number of assets. Also, market risk.

Builder's Outlet just hired a new chief financial officer. To get a feel for the company, she wants to compare the firm's sales and costs over the past three years to determine if any trends are present and also determine where the firm might need to make changes. Which one of the following statements will best suit her purposes?

Common sized income statement

Which one of the following types of securities has the lowest priority in a bankruptcy proceeding?

Common stock

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

Face Value

Which one of the following is defined as the average compound return earned per year over a multiyear period?

Geometric average return

Semistrong form market efficiency states that the value of a security is based on:

all publicly available information.

expected returns

based on the probabilities of possible outcomes

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

If a trade is made "in the crowd," the trade has occurred:

between two brokers

The price at which a dealer will purchase a bond is referred to as the _____ price.

bid

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

bid-ask spread

A broker is an agent who:

brings buyers and sellers together

Annuity

finite series of equal payments that occur at regular intervals

A common-size balance sheet helps financial managers determine:

if changes are occurring in a firm's mix of assets.

The written agreement that contains the specific details related to a bond issue is called the bond:

indenture

perpetuity

infinite series of equal payments

A firm's liquidity level decreases when:

inventory is purchased with cash

A protective covenant:

limits the actions of the borrower

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

lower; lower

Given a profitable firm, depreciation:

lowers taxes

The slope of the security market line represents the:

market risk premium

The market value

of an asset tends to provide a better guide to the actual worth of that asset than does the book value.

A call provision grants the bond issuer the:

option of repurchasing the bonds prior to maturity at a prespecified price.

To be a member of the NYSE, you must:

own a trading license

Capital Structure

percent of debt and equity used to fund the firm's assets

Companies can list their stock on which one of the following without having to meet listing requirements or filing financial statements with the SEC?

pink sheets

total percent return

the return on an investment measured as a percentage of the original investment

Total Dollar Return

the return on an investment measured in dollars that accounts for all cash flows and capital gains or losses

coupon interest rate

the stated annual interest rate on a bond

financial leverage

the use of debt in a firm's capital structure

Common-size financial statements present all balance sheet account values as a percentage of:

total assets

Market Value

true value; the price at which the assets, liabilities, or equity can actually be bought or sold

Portfolio diversification eliminates:

unsystematic risk

risk premium

Excess return on a risky asset over the risk-free rate

risk free rate

the rate of return that can be earned with certainty

yield to maturity

the rate required in the market on a bond

Partnership

A business in which two or more persons combine their assets and skills

Sole Proprietorship

A business owned by one person

Corporation

A business owned by stockholders who share in its profits but are not personally responsible for its debts

portfolio

A collection of financial assets

Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0.

Cash payment of an account payable

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

Decrease in the tax rate

Donovan's would like to increase its internal rate of growth. Decreasing which one of the following will help the firm achieve its goal?

Dividend payout ratio

Which one of these represents systematic risk?

Increase in consumption created by a reduction in personal tax rates

Julie wants to create a $5,000 portfolio. She also wants to invest as much as possible in a high risk stock with the hope of earning a high rate of return. However, she wants her portfolio to have no more risk than the overall market. Which one of the following portfolios is most apt to meet all of her objectives?

Invest $2,500 in a risk-free asset and $2,500 in a stock with a beta of 2.0

Newly issued securities are sold to investors in which one of the following markets?

Primary

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?

Risk Premium

What is the market called that facilitates the sale of shares between individual investors?

Secondary

Over the period of 1926-2014, which one of the following investment classes had the highest volatility of returns?

Small company stocks

Diversification

Spreading out investments to reduce risk

What condition must exist if a bond's coupon rate is to equal both the bond's current yield and its yield to maturity? Assume the market rate of interest for this bond is positive.

The bond must be priced at par

Which statement is true?

The weights of the securities held in any portfolio must equal 1.0.

For the period 1926-2014, which one of the following had the smallest risk premium?

US Treasury Bills

Portfolio Beta

Weighted average of portfolio stocks' betas

Which one of the following terms applies to a bond that initially sells at a deep discount and only makes one payment to bondholders?

Zero coupon

unsystematic risk

a risk that affects at most a small number of assets. Also, unique or asset-specific risk

Balance Sheet

a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.

par value

a value assigned to a share of stock and printed on the stock certificate

Dividends are best defined as:

cash or stock payments to shareholders

Capital Restructuring

changing the amount of leverage without changing the firm's assets

The current yield on a bond is equal to the annual interest divided by the:

current market price

An agent who buys and sells securities from inventory is called a:

dealer

A company originally issued bonds that were rated investment grade. These bonds have now been downgraded to junk status. These bonds are referred to as:

fallen angels

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

financial ratios

Sarbanes-Oxley Act of 2002

provides sweeping new legal protection for employees who report corporate misconduct

Financial statement analysis:

provides useful information that can serve as a basis for forecasting future performance.

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

sells its entire inventory an average of 15 times each year.

Which one of the following is the positive square root of the variance?

standard deviation

The dividend yield on a stock will increase if the:

stock price decreases

The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield and reported in your textbook, are based on the:

stocks of the 500 companies included in the S&P 500 index

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:

strong form efficient

Total Risk

systematic risk + unsystematic risk

Book Value

the balance sheet value of the assets, liabilities, and equity

Present Value (PV)

the current value of future cash flows discounted at the appropriate discount rate

cash flow

the difference between cash coming in and cash going out of a business

Efficient Market Hypothesis

the hypothesis that prices of securities fully reflect available information about securities

discount rate

the minimum interest rate set by the Federal Reserve for lending to other banks.

When valuing a stock using the constant-growth model, D1 represents the:

the next expected annual dividend

Capital Budgeting

the process of planning and managing a firm's long-term investments

The standard deviation measures the _____ of a security's returns over time.

volatility

Variance

weighted average of standard deviations