Final Finance

Ten years ago Salmon Acqua Farming Inc. issued twenty-five-year 8% annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have fallen and the yield to maturity on the Bacon bonds is now 7%. Given this information, what is the price today for such a bond?

$1,091.08

Five years ago, CleanEnergy Corporation issued an 10% coupon per year (paid semi-annually), 15-year, AA-rated bond at its par value of $1000. Currently, the annual yield to maturity (APR) on these bonds is 8%. What is the current price per bond?

$1135.9

Five years ago, CleanEnergy Corporation issued an 12% coupon per year (paid semi-annually), 25-year, AA-rated bond at its par value of $1000. Currently, the annual yield to maturity (APR) on these bonds is 10%. What is the current price per bond?

$1171.59

Lily invested $10,000 seven years ago with an insurance company that has paid her 4 percent (APR), compounded semi-annually (twice per year). How much interest did Lily earn over the 7 years?

$3,194.79

Giant Motorcycles Inc. pays a $0.77 preferred dividend every quarter and will maintain this policy forever. What price should you pay for one share of preferred stock if you want an annual return of 9.25% on your investment?

$33.30

Walmart is expected to pay a dividend of $2.12 next year, and continue to pay the same amount of dividend each year in the future. The required rate of return (r) is 4%. What should be its stock price today?

$53

What is the present value today of an ordinary annuity cash flow of $4,000 per year for thirty years at an interest rate of 6.0% per year?

$55,059.32

TravelEasy Enterprises Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 14% and the yield to maturity today is 15%, what is the firm's current price per bond?

$934.20

Walker Laboratories, Inc. pays a $2.00 dividend every quarter and will maintain this policy forever. What price should you pay for one share of common stock if you want an annual percentage return (APR) of 8% on your investment?

100$

The real rate is 1.25% and inflation is 5.25%. What is the approximate nominal rate?

6.50%

The stock of hybrid motors, has a beta of 0.84. The market risk premium is 5.2% and the risk-free rate is 2.6%. What is the expected return on this stock?

6.968%

William wishes to save enough money to purchase a retirement lake cabin. He is willing to spend $200,000 for the cabin and he can save $20,000 per year and invest the money into an account earning 7.00% per year. If his investments come in the form of equal annual end-of-the-year cash flows and the first cash flow is in exactly one year, how long will it take him to save enough money to buy the lake cabin?

Between 7 and 8 years

Which of the following statements is false?

Cash flow to owners shows cash paid to owners plus any new borrowing from owners.

_______ Means that the percentage increase in the dividend is the same each year

Constant growth

________ are always unsecured bonds.

Debentures

Which of the following actions will DECREASE the present value of an investment?

Decrease the future value

If you borrow $100,000 at an annual rate of 8.00% for a 10-year period and repay the total amount of principal and interest due of $215,892.50 at the end of 10 years, what type of loan did you have?

Discount loan

The practice of not putting all of your eggs in one basket is an illustration of

Diversification

Which of the following statements is TRUE?

Dividend payments are not tax-deductible

________ is a major disadvantage of the corporate form of business.

Double taxation

In a bowl market stock prices have been falling for a prolonged period of time

False

Which of the following is NOT an example of an equity market transaction?

Grant contacts his broker and requests a purchase of IBM bonds.

Depreciation for a tax-paying firm:

Increases expenses and lowers taxes.

The value of a financial asset is the

Present value of all of the future cash flow's that will be received

_____ May be defined as a measure of uncertainty in a set of potential outcomes for an event in which there is a chance for some loss

Risk

Which of the following is NOT true of a sole proprietorship?

Sole proprietors have limited liability

Which of the following statements is true?

The balance sheet reports the performance of the firm over the past period. It summarizes and categorizes a company's revenues and expenses for that period.

Double taxation refers to which of the following ?

The corporation pays taxes on its earnings, and shareholders pay taxes on dividends received

Which of the following is NOT an example of annuity cash flows?

The grocery bill that changes every week

A two-year investment of $200 is made today at an annual interest rate of 6%. Which of the following statements is TRUE?

The interest earned in year one is $12.00 and year two is $12.72.

An investment of $100 today is worth $116.64 at the end of two years if it earns an annual interest rate of 8%. How much interest is earned in the first year and how much in the second year of this investment?

The interest earned in year one is $8.00 and the interest earned in year two is $8.64.

Which of the statements below is TRUE?

The profits for common stock owners come after payment to the employees, suppliers, government, and creditors.

Which of the following is false?

The profits for common stock owners come before payment to employees, suppliers, government, and creditors

Which of the statements below is FALSE?

The profits for common stock owners come before payment to employees, suppliers, government, and creditors.

Which of the following is NOT true with regard to an amortization table?

The remaining principal balance at the end of a payment period is equal to the beginning-of-the-period principal less the total payment.

What annual rate of return must you earn to double your money in about 9 years? Use the Rule of 72 to determine your answer.

You would need to earn an annual rate of return of about 8%.

In your first year out of college you hope to earn $30,000 per year. How many years will you have to work until you earn $120,000 if your income increases at a rate of 10% per year? Use the Rule of 72 to determine your answer.

You would need to work for just over 14 years to reach an income level of $100,000 per year.

You want to invest in a stock that pays $1.50 annual cash dividends for the next six years. At the end of the six years, you will sell the stock for $18.50. If you want to earn 7.5% on this investment, what is a fair price for this stock if you buy it today?

about $19.03

Which of the following is NOT an example of annuity cash flows?

all are

A bull market is a prolonged declining market

false

From 1925-2006, the portfolio of large U.S. stocks has had a greater variance than the portfolio of small U.S. stocks.

false

If stock A has a greater standard deviation than stock B then it must also have a greater return.

false

________ refers to how quickly information is reflected in the available prices for trading.

informational efficiency

In finance, we separate operating decisions from financing decisions and thus exclude ________ as a part of operating income from the income statement.

interest expense

With a bearer bond, whoever held it was entitled to the ________ and the ________.

interest payments; principal

The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes. Next, interest expense is subtracted to find the taxable income for the period. Then the appropriate taxes are calculated and subtracted. We finally arrive at the ________, the so-called bottom line of the income statement.

net income

Three fundamental issues separate net income and cash flow. Which of the answers below is NOT one of these three fundamental issues?

noncash accounting

Which one of the answers below is NOT one of the three components of the "Cash Flow from Assets"?

noncash expenses

Net income is ________.

not cash flow

To determine the interest paid each compounding period, we take the advertised annual percentage rate and simply divide it by the ________ to get the appropriate periodic interest rate

number of compounding periods per year

________ has to do with the speed and accuracy of processing a buy or sell order at the best available price.

operational efficiency

A/An ________ is a series of equal end-of-the-period cash flows

ordinary annuity

The value of a financial asset is the ________.

present value of all of the future cash flows that will be received

The main variables of the time value of money (TVM) equation are ________.

present value, future value, time, interest rate, and payment

The sale of "new" securities, where the financial asset is being traded for the very first time, is said to take place in the ________ market.

primary

Which of the following are issued with the shortest time to maturity?

treasury bills

Which of the following investments is considered to be default risk-free?

treasury bills

The type of risk that can be diversified away is called ________.

unsystematic

The type of risk that can be diversified away is called

unsystematic risk

The ________ is the yield an individual would receive if the individual purchased the bond today and held the bond to the end of its life.

yield to maturity

Assume you just bought a new boat and now have a boat loan to repay. The amount of the principal is $68,000, the loan is at 6.75% APR, and the monthly payments are spread out over 7 years. What is the monthly loan payment?

$1,018.01

Your firm has sold a fleet of 50 cars to a local firm at a discounted price of $23,000 each (a total of $1,150,000) due in six months. You are willing to discount the purchase price at an annual rate of 3% if the firm pays cash today. What is the least amount of money you will accept if the firm pays your company today?

$1,133,129

Assume that Ray is 38 years old and has 27 years for saving until he retires. He expects an APR of 7.5% on his investments. How much does he need to save if he puts money away monthly in equal end-of-the-month amounts to achieve a future value of $1,200,000 dollars in 27 years' time?

$1,148.81

Quality Production Products Inc. has issued 20-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 12% and the yield to maturity today is 10%, what is the firm's current price per bond?

$1,171.59

Fifteen years ago McDemott's Motels Inc. issued twenty-five-year 10% annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have fallen and the yield to maturity on the firm's bonds is now 6%. Given this information, what is the price today for such a bond?

$1,294.40

What is the future value at the end of year thirty-five of an ordinary annuity cash flow of $4,000 per year at an interest rate of 11.0% per year?

$1,366,358.22

TravelEasy Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 14% and the yield to maturity today is 8%, what is the firm's current price per bond?

$1,678.70

Net Working Capital for 2016 is $1,890 and Net Working Capital for 2017 is $3,597. What is the change in Net Working Capital?

$1,707

You put 20% down on a home with a purchase price of $250,000. The down payment is thus $50,000, leaving a balance owed of $200,000. The bank will loan the remaining balance at 3.91% APR. You will make annual payments with a 30-year payment schedule. What is the annual annuity payment under this schedule?

$11,439.96

Five years ago, CleanEnergy Corporation issued an 12% coupon per year (paid semi-annually), 20-year, AA-rated bond at its par value of $1000. Currently, the annual yield to maturity (APR) on these bonds is 8%. What is the current price per bond?

$1345.84

Use the information below to answer the following questions about the Canary Cruises Corporation. The Canary Cruises Corporation Income Statement Accounts for the year ending December 31, 2017 Account Balance Cost of goods sold $345,000 Interest expense $79,000 Taxes $57,100 Revenue $836,000 Selling, general, and administrative expenses $93,000 Depreciation $126,000 Refer to the Canary Cruises Corporation Income Statement Accounts. What is the net income for the Canary Cruises Corporation for 2017?

$135,900

What if Jennifer were to invest $2,750 today, compounded semiannually, with an annual interest rate of 5.25%. What amount of interest will Jennifer earn in one year?

$146.27

Use the information below for the Michigan Auto Corporation (MAC) to answer the following questions. Balance Sheet Accounts of Michigan Auto Corporation (MAC) Corporation Account Balance 12/31/2017 Accumulated depreciation $7,650 Accounts payable $6,875 Accounts receivable $8,000 Cash $3,750 Common stock $15,625 Inventory $11,250 Long-Term debt $17,750 Plant, property, and equipment $37,000 Retained earnings $12,100 Refer to the Balance Sheet Accounts of MAC Corporation. The value of net working capital at the year-end is ________.

$16,125

Lily invested $10,000 ten years ago with an insurance company that has paid her 10 percent (APR), compounded semi-annually (twice per year). How much interest did Lily earn over the ten years?

$16,533

Severson has an annuity due that pays $400 per year for 20 years. What is the value of the cash flows 20 years from today if they are placed in an account that earns 7.50%? Note: You are asked to find the FV one year after the last cash flow is realized.

$18,621.01

Tesla is expected to pay no dividends over the next 4 years, pay a dividend of $5 at the end of year 5, and then grow the dividends by 6% each year afterwards. The required rate of return (r) is 8%. What should be the stock price today according to the two-stage growth model?

$183.76

Five years ago, you paid for the right to receive twelve $25,000 annual end-of-the-year cash flows. If discounting the cash flows at an annual rate of 8%, what did you pay for these cash flows back then?

$188,401.95

Lily invested $10,000 five years ago with an insurance company that has paid her 4 percent (APR), compounded semi-annually (twice per year). How much interest did Lily earn over the 5 years?

$2,189.94

A preferred stock is currently priced at $28 per share. The firm is expected to pay constant dividends every year in the future. If the required rate is 10%, what is the dividend?

$2.8

in four years your oldest child will be in 10th grade, at which point you and your family plan to vacation in Europe. You estimate that you will need $25,000 for the trip. How much do you need to set aside today if you can place your money in an investment vehicle earning an average of 4.25% per year?

$21,165.85

Walmart is expected to pay a dividend of $2.12 next year, and then grow the dividend by 3% each year afterwards. The required rate of return (r) is 4%. What should be the stock price today?

$212

Use the information below for the Michigan Auto Corporation (MAC) to answer the following questions. Balance Sheet Accounts of Michigan Auto Corporation (MAC) Corporation Account Balance 12/31/2017 Accumulated depreciation $7,650 Accounts payable $6,875 Accounts receivable $8,000 Cash $3,750 Common stock $15,625 Inventory $11,250 Long-Term debt $17,750 Plant, property, and equipment $37,000 Retained earnings $12,100 Refer to the Balance Sheet Accounts of MAC Corporation. The value of current assets for the year-end is ________.

$23,000

You want to invest in a stock that pays $2.00 annual cash dividends for the next four years. At the end of the four years, you will sell the stock for $27.00. If you want to earn 11% on this investment, what is a fair price for this stock if you buy it today?

$23.99

RadicaL CREATIONS Inc. just issued zero-coupon bonds with a par value of $1,000. If the bond has a maturity of 15 years and a yield to maturity of 10%, what is the current price of the bond if it is priced in the conventional manner?

$231.38

Flashstream Productions Inc. is issuing a zero-coupon bond that will have a maturity of fifty years. The bond's par value is $1,000, and the current yield on similar bonds is 7.5%. What is the expected price of this bond, using the semiannual convention?

$25.19

In two years Brandon plans to enroll at Umpqua University, a prestigious university in the Pacific Northwest of the USA. If the current tuition is $23,500 per year and is expected to increase at a rate of 6% per year, how much will Brandon pay in tuition his first year of school? (His first tuition payment is exactly two years from today.) In his fourth year? (His last tuition payment is exactly 5 years from today) (Rounded to the nearest dollar.)

$26,405 and $31,448

You buy a stock for which you expect to receive an annual dividend of $2.10 for the ten years that you plan on holding it. After 10 years, you expect to sell the stock for $26.15. What is the present value of a share for this company if you want an 8% return?

$26.20

Use the information below to answer the following questions about the Canary Cruises Corporation. The Canary Cruises Corporation Income Statement Accounts for the year ending December 31, 2017 Account Balance Cost of goods sold $345,000 Interest expense $79,000 Taxes $57,100 Revenue $836,000 Selling, general, and administrative expenses $93,000 Depreciation $126,000 Refer to the Canary Cruises Corporation Corporation Income Statement Accounts. What is the EBIT for the Canary Cruises Corporation for 2017?

$272,000

The present value of a $100 three-year annuity due (first cash flow occurs today) discounted at a rate of 10% is equal to ________.

$273.55

Craftwell Inc. pays a $0.75 dividend every quarter and will maintain this policy forever. What price should you pay for one share of common stock if you want an annual return of 10.5% on your investment?

$28.57

The last Dividend (Div 0) is $1.80, the growth rate (g) is 6% and the required rate of return (r) Is 12%. What is the stock price according to the constant growth different model?

$31.80

Your university is running a special offer on tuition. This year's tuition cost is $16,000. Next year's tuition cost is scheduled to be $16,640. The university offers to discount next year's tuition at a rate of 4% if you agree to pay both years' tuition in full today. How much is the total tuition bill today if you take the offer?

$32,000

Use the information below to answer the following questions about the Canary Cruises Corporation. The Canary Cruises Corporation Income Statement Accounts for the year ending December 31, 2017 Account Balance Cost of goods sold $345,000 Interest expense $79,000 Taxes $57,100 Revenue $836,000 Selling, general, and administrative expenses $93,000 Depreciation $126,000 Refer to the Canary Cruises Corporation Corporation Income Statement Accounts. What is the operating cash flow for the Canary Cruises Corporation for 2017?

$340,900

Assume you just bought a new car and now have a car loan to repay. The amount of the principal is $22,000, the loan is at 6% APR, and the monthly payments are spread out over 6 years. What is the monthly loan payment?

$364.6

Tesla is expected to pay no dividends over the next 4 years, pay a dividend of $5 at the end of year 5, and then grow the dividends by 7% each year afterwards. The required rate of return (r) is 8%. What should be the stock price today according to the two-stage growth model?

$367.51

You intend to buy a vacation home in eight years and plan to have saved $75,000 for a down payment. How much money would you have to place today into an investment that earns 9% per year to have enough for your desired down payment?

$37,640

Richard bought a share of stock for $47.50 that paid a dividend of $.72 and sold one year later for $51.38. What was Richards dollar profit or loss and holding period Return?

$4.60, 9.68%

You have $1,000,200 to invest in a stock profile. Your choices are Stock X with an expected return of 15% and stock Y with an expected return of 9%. Your goal is to create a profile with an expected return of 13%. How much do you invest in stock Y?

$400,000

Do you want to invest in a stock that pays six dollar annual cash dividends for the next five years. At the end of the five years you will sell the stock for $30. If you want to earn 10% on this investment, what is the fair price for this stock if you buy it today?

$41.37

The last dividend (Div0) is $2.0, the growth rate (g) is 5%, and the required rate of return (r) is 10%. What is the stock price according to the constant growth dividend model?

$42

Rogue Motors Inc. has a 11% required rate of return. The firm does not expect to initiate dividends for 10 years, at which time it will pay $2.00 per share in dividends. At that time, the firm expects its dividends to grow at 6% forever. What is an estimate of the firms' price in 10 years (P10) if its dividend at the end of year 10 is $2.00?

$42.40

Walker laboratories pays a $1.37 Divet in every quarter and will maintain this policy forever. What price should you pay for one share of common stock if you want an annual percentage return of 12.5% on your investment?

$42.84

Kenna invests $5,000 today, compounded monthly, with an annual interest rate of 8.52%. What amount of interest will she earn in one year?

$443.04

You have the opportunity to purchase mineral rights to a property in Wyoming with expected annual cash flows of $8,000 per year for ten years. If you discount these cash flows at a rate of 12% per year, what are these cash flows worth today if the cash flows occur at the end of each period?

$45,201.78

Tennessee fields will pay a dividend of two dollars a share at the end of the year. The dividend is expected to increase by 50% for the following two years and then the firm expects to maintain a constant dividend growth rate of 4% per year. The required return is 12%. What are the expected dividends in years one, two, three, and four? $2, $3, $4.5, $4.68 What would you be willing to pay for this stock at the end of your three? $58.5 What would you be willing to pay for the stock today ?

$49.02

Use the information below for the Michigan Auto Corporation (MAC) to answer the following questions. Balance Sheet Accounts of Michigan Auto Corporation (MAC) Corporation Account Balance 12/31/2017 Accumulated depreciation $7,650 Accounts payable $6,875 Accounts receivable $8,000 Cash $3,750 Common stock $15,625 Inventory $11,250 Long-Term debt $17,750 Plant, property, and equipment $37,000 Retained earnings $12,100 Refer to the Balance Sheet Accounts of MAC Corporation. The value of total assets for the year-end is ________.

$52,350

Assume a five-year equal payment amortization schedule with an annual interest rate of 7% and annual payments. If the beginning principal is $8,000, then the first interest payment will be how large?

$560

You dream of endowing a chair in finance at the local university that will provide a salary of $250,000 per year forever, with the first cash flow to be one year from today. If the university promises to invest the money at a rate of 4% per year, how much money must you give the university today to make your dream a reality?

$6,250,000

Plimpton has an annuity due that pays $800 per year for 11 years. What is the present value of the cash flows if they are discounted at an annual rate of 7.50%?

$6,291.26

Cash and Equivalents are $1,561; Short-Term Investments are $1,000; Accounts Receivables are $3,616; Accounts Payable are $5,121; Short-Term Debt is $288; Inventories are $1,816; Other Current Liabilities are $1,401; and Other Current Assets are $707. What is the amount of Total Current Liabilities?

$6,810

If for the next 35 years you place $4,000 in equal annual year-end-deposits into an account earning 8% per year, how much money will be in the account at the end of that time period?

$689,267.21

Assume that Ray is 20 years old and has 45 years for saving until he retires. He expects an APR of 6% on his investments. How much does he need to save if he puts money away monthly in equal end-of-the-month amounts to achieve a future value of $2,000,000 dollars in 45 years' time?

$725.69

The future value three years from today of a $200 three-year annuity due compounded at a rate of 10% is equal to ________.

$728.20

You have accumulated $1,200,000 for your retirement. How much money can you withdraw in equal annual beginning-of-the-year cash flows if you invest the money at a rate of 5% for thirty years?

$74,344.50

You borrow $40,000 at an annual interest rate of 11% for seven years, and promise to pay an equal amount back at the end of each year. What should be the amount of each annual payment?

$8,488.61

Cash and Equivalents are $1,561, Short-Term Investments are $1,000, Accounts Receivables are $3,616, Accounts Payable is $5,121, Short-Term Debt is $288, Inventories are $1,816, Other Current Liabilities are $1,401, and Other Current Assets are $707. What are the Total Current Assets?

$8,700

Creative Solutions Inc. has issued 10-year $1,000 face value, 8% annual coupon bonds, with a yield to maturity of 9.0%. The annual interest payment for the bond is ________.

$80

Big House Nursery Inc. has issued 20-year $1,000 face value, 8% annual coupon bonds, with a yield to maturity of 10%. The current price of the bond is ________.

$829.73

You have a choice between a lottery lump sum payout of $10,000,000 today or a series of thirty annual annuity payments (first payment one year from today). At a discount rate of 7.50%, how large must the annual annuity payments be to make you indifferent between the two choices?

$846,712.36

Susan's goal is to retire with $1,000,000 in her retirement account. The local bank advertises an APR of 12% with monthly compounding on retirement fund accounts. If she retires in 40 years how much should Susan save each month to reach her goal?

$85

Douglas Distributing Inc. has issued 30-year semiannual coupon bonds with a face value of $1,000. If the annual coupon rate is 6% and the yield to maturity today is 7%, what is the firm's current price per bond?

$875.28

Four years ago, CleanEnergy Corporation issued an 10% coupon per year (paid semi-annually), 15-year, AA-rated bond at its par value of $1000. Currently, the annual yield to maturity (APR) on these bonds is 12%. What is the current price per bond?

$879.58

Twenty years ago Bison Enterprises Inc. issued thirty-year 9% annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have risen and the yield to maturity on the firm's bonds is now 11%. Given this information, what is the price today for a bond from this issue?

$882.22

An investment promises a payoff of $995 two and one-half years from today. At a discount rate of 4.5% per year, what is the present value of this investment?

$891.32

Jusef has won the $3,800,000 state lottery and intends to save all of the money for his retirement. He chooses to receive an annual cash flow of $190,000 for twenty years, with the first payment to be received one year from today. How much money will be in his retirement account in twenty years if he can reinvest his money at an annual rate of 8.75%?

$9,451,909

Ten years ago Pancake House Inc. issued twenty-five-year 8% annual coupon bonds with a $1,000 face value each. Since then, interest rates in general have risen and the yield to maturity on the Bacon bonds is now 9%. Given this information, what is the price today for such a bond?

$919.39

You put 20% down on a home with a purchase price of $250,000. The down payment is thus $50,000, leaving a balance owed of $200,000. A bank will loan you this remaining balance at 3.9% APR. You will make monthly end-of-the-period payments with a 30-year payment schedule. What is the monthly annuity payment under this schedule?

$943.34

The dividend to be paid at the end of the year (Div1) is $0.75, the growth rate (g) is 5%, and the stock price is $25. What is the required rate of return (r) according to the constant growth dividend model?

0.08

Richard owns the following portfolio of securities. What is the Beta for the portfolio?

1.38

Find the standard deviation of annual returns of -9%, 14%, 12% and 7%.

10.42%

What is the standard deviation's of -10%, 14%, 9%, and -1%?

10.677%

You are running short of cash and really need to pay your rent. A friend suggests that you check out the local title pawn shop. At the shop they offer to loan you $1,000 if you pay them back $1,200 in one week. It seems like a good idea to you because you don't want to sell your car and you are sure you will be able to pay the money back in a week. What is the APR on this loan?

1040%

Given annual returns of -5%, 23%, 12% and 18%, what is the geometric average?

11.48%

Suppose you postpone consumption and invest at 14% when inflation is 2%. What is the approximate real rate of your reward for saving?

12%

Find the standard deviation for a security that has three one-year returns of -5%, 15%, and 20%.

13.23%

In 1975, the era of major league baseball free agency began. The average player salary was $16,000. In 1980, the average salary was $30,000. What was the average annual growth in the minimum salary in major league baseball over those five years?

13.4%

The stock of Hybrid Motors, Inc. has a beta of 0.8. The market risk premium is 10 percent and the risk-free rate is 6 percent. What is the expected return on this stock?

14%

You purchased 100 shares of stock for $10 per share. After holding the stock for 10 years and not receiving any dividends, you sell the stock for $42 per share. What is the effective annual rate of return on this investment?

15.43%

Given an expected market return of 10.0%, a beta of 1.75 for Carlson Industries, and a risk-free rate of 2.0%, what is the expected return for the firm?

16%

Your production manager informs you that currently the firm is producing 1,348 heating units per month but has plans to increase production at a rate of 5% per month until the firm is producing 3,000 units per month. How many months will this take?

16.4 months

Assume the following information about the market and Lithium Motors Stock. Lithium's beta = 1.80, the risk-free rate is 2.50%, the market risk premium is 8.0%. Using the SML, what is the expected return for the firm's stock?

16.9%

Assume the following information about the market and JumpMasters' stock. JumpMasters' beta = 1.50, the risk-free rate is 3.50%, the market risk premium is 10.0%. Using the SML, what is the expected return for JumpMasters' stock?

18.5%

Sahali Shopping Center Corporation is expected to grow its dividends by 5% per year forever. The required rate of return on the stock is 7%. What is the dividend yield?

2%

Given annual returns of -10%, 14%, 9%, and -1%, what is the geometric average?

2.578%

Given annual returns of -9%, 14%, 0% and 7%, what is the geometric average?

2.64%

Wallboard Inc, plans to pay a dividend in one year (Div1) of $0.80, the dividend growth rate (g) is expected to be 6%, and the required rate of return (r) for the firm's stock is 10%. What is the stock price, according to the constant growth dividend model?

20$

You gave your little sister two rabbits for Easter three years ago and now she has 64 of the cute little bunnies. What is the average annual rate of increase in the number of rabbits your sister owns? Note: Your parents are not very pleased with you right now.

217.5%

Use the information below for the Michigan Auto Corporation (MAC) to answer the following questions. Balance Sheet Accounts of Michigan Auto Corporation (MAC) Corporation Account Balance 12/31/2017 Accumulated depreciation $7,650 Accounts payable $6,875 Accounts receivable $8,000 Cash $3,750 Common stock $15,625 Inventory $11,250 Long-Term debt $17,750 Plant, property, and equipment $37,000 Retained earnings $12,100 Refer to the Balance Sheet Accounts of MAC Corporation. The value of equity for the year-end is ________.

27,725

What is the arithmetic average of the returns of -10%, 14%, 9%, and -1%?

3.0%

Your grandfather likes to tell the story about how he started his ranch with 100 head of cattle and grew the ranch to 2,500 head of cattle. He said "My plan was simple: grow the number of head of cattle at a rate of 10% per year." How long did it take him?

33.77 years

Your father spent all of his adult life working in a small T-shirt making firm. His first year sales were $98,000 and his last year sales were $350,000. If the firm grew at an average rate of 3.35% per year, how many years did your father sell T-shirts at his firm?

38.63 years

You have saved $44,000 for college and wish to use $12,000 per year. If you use the money as an ordinary annuity and earn 5.15% on your investment, how many years will your annuity last?

4.17 years

Becky is seeking to expand her stamp collection. Each year, stamps increase in price at a seven percent rate. She believes that if she invests her money for one year, she should be able to buy 24 stamps for what 23 stamps would cost today. What is her real interest rate or reward for waiting?

4.35%

Five years ago, Maria's annual salary was $73,500. Today, she earns $91,900. What has been the average annual percentage rate of growth of Maria's salary?

4.57%

You currently have $3,500 invested at an annual rate of 8%. How long will it take for this investment to grow to a value of $5,000?

4.63 years

Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2 and a dividend in year 2 of $3. After year 2, dividends are expected to grow at the rate of 4% per year. An appropriate required return for the stock is 10%. Using the DDM, the stock should be worth _______ today.

47.27

Find the standard deviation for a security that has three one-year returns of 5%, 10%, and 15%.

5%

Given annual returns of -9%, 14%, 12% and 7%, what is the geometric average?

5.593%

The Jones Brothers Inc. had net fixed assets of $4,000,000 and $4,300,000 at the end of 2011 and 2012, respectively. Its depreciation expense in 2012 was $200,000. What was the company's net capital spending in 2012?

500,000

You are running short of cash and really need to pay your rent. A friend suggests that you check out the local title pawn shop. At the shop they offer to loan you $2,000 if you pay them back $2,200 in one week. It seems like a good idea to you because you don't want to sell your car and you are sure you will be able to pay the money back in a week. What is the APR on this loan?

520%

Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2 and a dividend in year 2 of $3. After year 2, dividends are expected to grow at the rate of 4% per year. An appropriate required return for the stock is 9%. Using the DDM, the stock should be worth _______ today.

56.9

Drew is taking over as Chief Marketing Officer at SouthWest Foods. She has pledged to increase sales from their current level of $8,000,000 at a rate of 11% per year until the firm hits sales of $15,000,000 per year. How long will it take the firm to hit the target goal at this rate of increase?

6.02 years

Buying your own home is often mentioned as "the best investment you can make." In 1964, the average home sale price was $19,600. By 2009, the average home sale price had risen to $272,900. What was the average annual rate of change in the price of houses over this 45 year time period?

6.03% per year

For much of the 20th century, new car prices rose at an average annual rate of 5.89%. Given a beginning new car price of $900, how long did it take for the average new car price to rise to $27,865? Please round to the nearest year.

60 years

Suppose you postpone consumption and invest at 9% when inflation is 2%. What is the approximate real rate of your reward for saving?

7%

In 1930, the highest paid player in major league baseball was Babe Ruth of the New York Yankees, with an annual salary of $80,000. In 2017, the highest paid player in major league baseball was Clayton Kershaw of the Los Angeles Dodgers with a salary of $35,571,000. What was the average annual rate of growth in the top baseball salary over this time period?

7.26%

You purchased 100 shares of stock for five dollars per share. After holding the stock for eight years and not receiving any dividends, you sell the stock for $42 per share. What are the holding period and annual return on this investment?

740%, 30.48%

You want to invest in a stock that pays $6.00 annual cash dividends for the next five years. At the end of the five years, you will sell the stock for $90.00. If you want to earn 10% on this investment, what is a fair price for this stock if you buy it today?

78.63

Dividend growth rate is important to many investors. You are considering investing in a firm after looking at the firm's dividends over a six-year period. At the end of the year 2010, the firm paid a dividend of $0.98. At year-end 2016, it paid a dividend of $1.64. What was the average annual growth rate of dividends for this firm?

8.96%

You purchased 1000 shares of stock for $25 per share. After holding the stock for 6 years and not receiving any dividends, you sell the stock for $42 per share. What is the effective annual return on this investment?

9.03%

Lila purchased Hampton Industries Inc. stock for $18.35 and sold it 2 years later for $21.45 after receiving a $0.50 dividend. What was her Effective Annual Rate (EAR)?

9.37%

Tony is offering Phil two repayment plans for a long overdue loan. Offer 1 is a visit from an enforcer and the debt is due in full at once. Offer 2 is to pay back $4,000 at the end of each year at 15% interest rate until the loan principal is paid off. Phil owes Tony $20,000. How long will it take for Phil to pay off the loan if he takes Offer 2?

9.92 years

The current price on a 60-inch flat panel LCD HD television is $1,200. Big screen HD television prices have dropped at an average rate of 12% per year in recent years. If you expect this trend to continue, how much will this style of television cost in two years?

929

Stock a, B, C, and D have standard deviation 's, respectively of 20%, 5%, 10%, and 15%. Which one is the riskist?

A

In regards to the fact that the pricing of stocks is more difficult than the pricing of bonds, which of the following statements below is false?

A stocks final sale is fixed in time on it's maturity date

________ is the name given to the processes surrounding recognition of the principal-agent problem and ways to align agents with the interests of the principals.

Agency theory

Which of the following is NOT a form of perpetuity

All

Which of the following statements is true about variance?

All

A bond may be issued by ________.

All of these

Amortization tables are useful for each of the following reasons EXCEPT ________.

All of these are useful purposes of an amortization table.

You wish to die versify you're single security portfolio in a way that will maximize your reduction in risk. Which of the following securities should you add your profile?

Alpha company stock that has a correlation coefficient of -.25 with your current security

________ are the forums where buyers and sellers of financial assets and commodities meet

Financial markets

The goal of diversification is to eliminate

Firm specific risk

Which of the following statements is false?

In accrual-based accounting, revenue is recorded at the time of sale if the revenue has been received in cash.

You just entered into a $150,000 30-year home mortgage at an annual interest rate of 4.25% making monthly payments of $737.91. Suppose you add an additional payment of $295.97 each month to the $737.91 house payment making your total monthly payments equal to $1,033.88. This extra amount is applied against the principal of the original loan. How long will it take you to pay off your loan of $150,000?

It will take about 204 months

You just entered into a $150,000 30-year home mortgage at an annual interest rate of 4.25% making monthly payments of $737.91. Suppose you add an additional payment of $295.97 each month to the $737.91 house payment making your total monthly payments equal to $1,033.88. This extra amount is applied against the principal of the original loan. How long will it take you to pay off your loan of $150,000?

It will take about 204 months.

Which of the following statements is false?

Long-term assets are accounts that will normally be turned into cash over the course of the operating or business cycle of the firm, and current liabilities are the accounts that will come due for payment over the operating or business cycle.

The common objective of borrowing and leaning is to

Make all parties better off

Which of the following is not a definition of beta

Measure of risk that can be avoided

Which of the following statements is true?

Net Working Capital (NWC) = Current Assets - Current Liabilities

Which of the following statements below is false?

No stock has multiple classes with unequal voting rights

Which of the following statements is true?

Operating Cash Flow = EBIT + Depreciation - Taxes

What is the EAR if the APR is 10.52% and compounding is daily?

Slightly above 11.09%

What is the EAR if the APR is 5% and compounding is quarterly?

Slightly above 5.09%

Stock a has a beta of .98 and a standard deviation of returns of 35%. Stock B has a beta of 1.15 and a standard deviation of returns of 23%. Which stock has more total risk?

Stock a

Stocks are different from bonds because

Stocks, unlike bonds, represent residual ownership

A manufacturer of Virtual Reality headsets has seen sales increase from 25,000 units per year to 100,000 units per year in 8 years. What has been the firm's average annual rate of increase in the number of television sets sold? Use the Rule of 72 to determine your answer.

The average annual rate of change has been between 18% and 19%.

Suppose you deposit money in a certificate of deposit (CD) at a bank. Which of the following statements is TRUE?

The bank is technically renting money from you with a promise to repay that money with interest.

Which of the following statements is TRUE?

The capital market is the term for the market for longer-term financial assets such as stocks and bonds

A two-year investment of $3500 is made today at an annual interest rate of 5.75%. Which of the following statements is TRUE?

The future value would be greater if the interest rate was higher.

Which of the following is false?

The payment of cash dividends to shareholders is a deductible expense for the company

The constant growth dividend model requires that

The return rate r is greater than the growth rate g of the dividend stream

If you invest $3,650 today, how much money will you have in 4 years?

This question cannot be answered because it is missing an annual rate of return.

Which of the following statements is true?

Three fundamental issues separate net income and cash flow: accrual-based accounting, noncash expense items, and interest expense.

______ belong to money market securities.

Treasury bills

Professor Gaston, your History teacher, borrows money at a rate of 6% per year from the Valley State Bank for a tuition loan for her son. You have $1,200 deposited into your checking account at the same bank earning a rate of 0.5% per year. Which of the following statements is TRUE?

You benefit from earning interest on your deposit, safety for your funds, and having a recognizable means for paying for your financial obligations without having to hold cash.

A series of equal periodic finite cash flows that occur at the beginning of the period are known as a/an ________.

annuity date

The ________ is the regular interest payment of the bond.

coupon

The ________ is the annual coupon payment divided by the current price of the bond, and is not always an accurate indicator.

current yeild

Bonds are bought and sold in _____ markets.

debt

The terms ________ and ________ mean the same thing.

diversifiable risk; unsystematic risk

Which of the following is an ADVANTAGE of a sole proprietorship?

ease of start up

The typical payments on a consumer loan are made at ________.

end of each month

Stocks are bought and sold in ________ markets.

equity

The phrase "price to rent money" is sometimes used to refer to ________.

interests rates

Which of the following is NOT an ADVANTAGE of a sole proprietorship?

limited liability

A bond is a ________ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates in the future.

long-term debt

The ________ is the expiration date of the bond.

maturity date

Financial assets that will mature within a year are bought and sold in the ________ market.

money

The question "How long will I have to wait to reach a certain future value?" is best answered by which form of the TVM equation?

n = ln (FV/PV) / ln (1+r)

Diversification is most effective when security returns are _________.

neg. correlated

The ________ is the market of first sale in which companies first sell their authorized shares to the public.

primary market

The problem of motivating one party to act in the best interest of another party is known as the ________.

principle agent problem

In agency theory, the owners of the business are referred to as ________, and the managers are referred to as ________.

principles, agents

The question "At what rate is my money growing over time?" is best answered by which form of the TVM equation?

r = (FV/PV)1/n - 1

The sale of "used" securities, where the financial asset is being traded from one individual to another and the proceeds do not go to the original issuer of the security, is said to take place in the ________ market.

secondary

In ________, current prices already reflect the price history and volume of the stock as well as all available public information.

semi-strong-form efficient markets

Most U.S. corporate and government bonds choose to make ________ coupon payments.

semiannual

Which of the following classifications of securities had the largest range of annual returns, historically speaking?

small company stock

A negative cash flow to owners indicates that a firm has ________.

sold additional shares of stock

"Junk" bonds are a street name for ________ grade bonds.

speculative

Stocks are different from bonds because ________.

stocks, unlike bonds, represent residual ownership

To find operating cash flow for the business for the year, add depreciation expense to EBIT and then ________.

subtract the taxes

The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes. Next, interest expense is subtracted to find the ________ for the period.

taxable income

The difference between the price and the par value of a zero-coupon bond represents ________.

the accumulated interest over the life of the bond

Monthly interest on a loan is equal to ________.

the beginning balance times the monthly interest rate

As the rating of a bond increases (for example, from A, to AA, to AAA), it generally means that ________.

the credit rating increases, the default risk decreases, and the required rate of return decreases

The movement of money from lender to borrower and back again is known as ________.

the cycle of money

Cash flow is

the increase or decrease in cash for the period

Stimulus Industries Inc. has 2017 total current assets of $14,871,000. Last year the total current assets were equal to $12,462,000. The change in total current assets is a ________ of cash in the amount of ________.

use; $2,409,000

In ________, current prices reflect the price history and trading volume of the stock. It is of no use to chart historical stock prices to predict future stock prices such that you can identify mispriced stocks and routinely outperform the market

weak-form efficient markets

Assume that you are willing to postpone consumption today and buy a certificate of deposit (CD) at your local bank. Your reward for postponing consumption implies that at the end of the year ________.

you will be able to buy more goods or services