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