Fnce Final - Mult choice stuff

A coupon bond that pays interest semiannually has a par value of $1,000, matures in 8 years, and has a yield to maturity of 6%. If the coupon rate is 7%, the intrinsic value of the bond today will be __________. A.$1,000 B.$1,062.81 C.$1,081.82 D.$1,100.03

$1,062.81

A preferred share of Coquihalla Corporation will pay a dividend of $8 in the upcoming year and every year thereafter; that is, dividends are not expected to grow. You require a return of 7% on this stock. Using the constant-growth DDM to calculate the intrinsic value, a preferred share of Coquihalla Corporation is worth _________. A.$13.50 B.$45.50 C.$91 D.$114.29

$114.29 (V0 = D1/(k-g) ; V0 = 8.00/.07)

A bond pays a semiannual coupon, and the last coupon was paid 61 days ago. If the annual coupon payment is $75, what is the accrued interest? (Assume 182 days in the 6-month period.) A.$13.21 B.$12.57 C.$15.44 D.$16.32

$12.57

The EBIT of a firm is $300, the tax rate is 35%, the depreciation is $20, capital expenditures are $60, and the increase in net working capital is $30. What is the free cash flow to the firm? A.$85 B.$125 C.$185 D.$305

$125 (FCFF = 300(1 -.35) + 20 -60 -30 = $125 million FCFF = EBIT(1-tc) + Depreciation - Capital Expenditures - Increase in NWC)

Rose Hill Trading Company is expected to have EPS in the upcoming year of $6. The expected ROE is 18%. An appropriate required return on the stock is 14%. If the firm has a plowback ratio of 70%, its intrinsic value should be _________. A.$20.93 B.$69.77 C.$128.57 D.$150

$128.57 ((V0=(6.00(1-.7))/(.14-.18(.7) = 128.5 V0 = D1/(k-g) Where g=roe*b))

A firm is planning on paying its first dividend of $2 three years from today. After that, dividends are expected to grow at 6% per year indefinitely. The stock's required return is 14%. What is the intrinsic value of a share today? A.$25 B.$16.87 C.$19.24 D.$20.99

$19.24 (Intrinsic value at time 2 = $2/(.14-.06) = $25 Intrinsic value today = $25/(1.14)^1=$19.24)

Rose Hill Trading Company is expected to have EPS in the upcoming year of $8. The expected ROE is 18%. An appropriate required return on the stock is 14%. If the firm has a plowback ratio of 70%, its dividend in the upcoming year should be _________. A.$1.12 B.$1.44 C.$2.40 D.$5.60

$2.40 (D1=$8(1-.7)=$2.40 Dividend per share = EPS(dividend payout ratio) = EPS (1-plawback ratio))

A stock is priced at $45 per share. The stock has earnings per share of $3 and a market capitalization rate of 14%. What is the stock's PVGO? A.$23.57 B.$15 C.$19.78 D.$21.34

$23.57 (P = E/k + PVGO)

Ace Ventura, Inc., has expected earnings of $5 per share for next year. The firm's ROE is 15%, and its earnings retention ratio is 40%. If the firm's market capitalization rate is 10%, what is the present value of its growth opportunities? A.$25 B.$50 C.$75 D.$100

$25 (Value with no growth = $5/.10 = $50Growth rate = .4 × 15% = 6%Value with growth = $5 × (1 -.4)/(.10 -.06) = $75PVGO = $75 -50 = $25)

The free cash flow to the firm is reported as $275 million. The interest expense to the firm is $60 million. If the tax rate is 35% and the net debt of the firm increased by $33 million, what is the free cash flow to the equity holders of the firm? A.$269 million B.$296 million C.$305 million D.$327 million

$269 million (FCFE = 275 - 60(1-.35) + 33 = 269 FCFE = FCFF - Interest expense * (1-tc) + Increases in net debt))

You are considering acquiring a common share of Sahali Shopping Center Corporation that you would like to hold for 1 year. You expect to receive both $1.25 in dividends and $35 from the sale of the share at the end of the year. The maximum price you would pay for a share today is __________ if you wanted to earn a 12% return. A.$31.25 B.$32.37 C.$38.47 D.$41.32

$32.37 (Vo=(1.25+35.00)/(1+.12))

You buy a TIPS at issue at par for $1,000. The bond has a 3% coupon. Inflation turns out to be 2%, 3%, and 4% over the next 3years. The total annual coupon income you will receive in year 3 is _________. A.$30 B.$33 C.$32.80 D.$30.90

$32.80

One year U.S. interest rates are 5%, and European interest rates are 7%. The spot euro direct exchange rate quote is 1.32, and the 1-year forward rate direct quote is 1.35. If you can borrow either $1 million or €1 million to start with, what would be your dollar profits from interest arbitrage based on these data? A.$94,322 B.$55,345 C.$44,318 D.$33,595

$44,318 (This is called covered interest arbitrage; the steps are outlined below:According to interest rate parity, the forward rate should be (1.05/1.07 ) × $1.32 = $1.30; since the rate is $1.35, you should borrow dollars.1.Borrow $1 million; in 1 year you owe $1 million × 1.05 = $1,050,000.2.Sell dollars and buy euro spot: $1,000,000/$1.32 = €757,575.76.3.Invest in euro securities and earn 7.00%: €757,575.76 × 1.07 = €810,606.06.4.Cover $1,050,000 owed in 1 year by selling euro forward:€810,606.06 × $1.35 = $1,094,318.18Repay $1,050,000 and net $1,094,318.18 -$1,050,000 = $44,318.18.)

A zero-coupon bond has a yield to maturity of 5% and a par value of $1,000. If the bond matures in 16 years, it should sell for a price of__________ today. A.$458.11 B.$641.11 C.$89.11 D.$1,100.11

$458.11

An importer of televisions from Japan has a contract to purchase a shipment of televisions for 2 million yen. The spot rate increases from 105 yen per dollar to 108 yen per dollar. What is the importer's gain or loss? A.$529 gain B.$529 loss C.$619 gain D.$619 loss

$529 gain (Original cost = 2,000,000/105 = $19,048New cost = 2,000,000/108 = $18,519Change = 19,048 -18,519 = 529)

Assuming semiannual compounding, a 20-year zero coupon bond with a par value of $1,000 and a required return of 12% would be priced at_________. A.$97.22 B.$104.49 C.$364.08 D.$32.14

$97.22

Suppose that in 2012 the expected dividends of the stocks in a broad market index equaled $240 million when the discount rate was 8% and the expected growth rate of the dividends equaled 6%. Using the constant-growth formula for valuation, if interest rates increase to 9%, the value of the market will change by _____. A.-10% B.-20% C.-25% D.-33%

-33% (Vo=D1/(k-g); D1=240, k=8%, g=6%, v0=8000, (8000-12000)/12000=-33%)

Eagle Brand Arrowheads has expected earnings of $1.25 per share and a market capitalization rate of 12%. Earnings are expected to grow at 5% per year indefinitely. The firm has a 40% plowback ratio. By how much does the firm's ROE exceed the market capitalization rate? A.0.5% B.1% C.1.5% D.2%

0.5% (ROE = g/b= .05/.4 = 12.5%; kis given as 12%, so ROE -k= .5%; P0/E1 = (1-b) / (k-ROE*b) = (1-b) / (k-g))

If the direct quote for the exchange rate for the U.S. dollar versus the Canadian dollar is .98, what is the indirect quote? A.1.98 B.1.02 C.0.02 D.1.05

1.02 (The indirect quote is the reciprocal of the direct quote:(1/0.98)=1.02)

A firm has current assets that could be sold for their book value of $10 million. The book value of its fixed assets is $60 million, but they could be sold for $95 million today. The firm has total debt at a book value of $40 million, but interest rate changes have increased the value of the debt to a current market value of $50 million. This firm's market-to-book ratio is ________. A.1.83 B.1.5 C.1.35 D.1.46

1.83 (Picture on ch13 q11 for process)

Suppose a U.S. investor wants to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest, and the current exchange rate is $1.40/₤.How many shares can the investor purchase? A.140 B.100 C.71.43 D.none of these options

100 (7000/1.4 = 5000/50 = 100)

The market capitalization rate on the stock of Aberdeen Wholesale Company is 10%. Its expected ROE is 12%, and its expected EPS is $5. If the firm's plowback ratio is 50%, its P/E ratio will be _________. A.8.33 B.12.5 C.19.23 D.24.15

12.5 (Dividend payout ratio = 1 -.5 = .5Expected dividend = .5 × $5 = $2.50Growth rate = .5 × 12% = 6%Value = $2.50/(.10 -.06) = $62.50P/E = $62.50/$5 = 12.5; P0/E1 = (1-b)/(k-(ROE*b)))

The market capitalization rate on the stock of Aberdeen Wholesale Company is 10%. Its expected ROE is 12%, and its expected EPS is $5. If the firm's plowback ratio is 60%, its P/E ratio will be _________. A.7.14 B.14.29 C.16.67 D.22.22

14.29 (P0/E1 = (1-b) / (k-(ROE*b)))

Westsyde Tool Company is expected to pay a dividend of $1.50 in the upcoming year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. Analysts expect the price of Westsyde Tool Company shares to be $29 a year from now. The beta of Westsyde Tool Company's stock is 1.2. Using the CAPM, an appropriate required return on Westsyde Tool Company's stock is _________. A.8% B.10.8% C.15.6% D.16.8%

15.6% (k = .06 + 1.20(.14−.06) = .156K=Rf+Beta (Rm-Rf)Where Beta is the sensitivity of a security's return to the market's return Rf is risk free rate, Rm is market return)

Brevik Builders has an expected ROE of 25%. Its dividend growth rate will be __________ if it follows a policy of paying 30% of earnings in the form of dividends. A.5% B.15% C.17.5% D.45%

17.5% (g=.25(1-.3)=.175; g=ROE*b)

You are a U.S. investor who purchased British securities for 3,500 pounds 1 year ago when the British pound cost $1.35. No dividends were paid on the British securities in the past year. Your total return based on U.S. dollars was __________ if the value of the securities is now 4,200 pounds and the pound is worth $1.15. A.-3.8% B.2.2% C.5.6% D.15%

2.2% (r = (4.2/3.5(*1.15/1.35)-1 = 0.022))

The quoted interest rate on a 3-month Canadian security is 2%. The current exchange rate is C$1 = US$.68. The 3-month forward rate is C$1 = US$.70. The APR (denominated in US$) that a U.S. investor can earn by investing in the Canadian security is __________. A.5% B.7.25% C.20% D.22.43%

20% (Assume initial investment amount is $1($1/0.68)(1+2%) (0.70)=$1.05(1.05-1)/1=5% rate of return (3 months)APR=5%x(12/3)=20% (one year rate of return))

Suppose a U.S. investor wants to invest in a British firm currently selling for ₤50 per share. The investor has $7,000 to invest, and the current exchange rate is $1.40/₤.After 1 year, the exchange rate is $1.60/₤ and the share price is ₤55. What is the dollar-denominated return? A.25.7% B.16% C.14.3% D.9.3%

25.7% (₤55 × 100 × 1.60 = $8,800 (8,800/7,000) -1 = 1.257 -1 = 25.7%)

Bonds of Zello Corporation with a par value of $1,000 sell for $960, mature in five years and have a 7% annual coupon rate paid semiannually. Calculate yield to maturity.

3.993% (semiannually) (n=10; PV=-960; FV=1000; PMT=35, then compute i)

Bonds of Zello Corporation with a par value of $1,000 sellfor $960, mature in five years and have a 7% annual coupon rate paid semiannually. What is the Horizon yield (also called realized compound return) for an investor with a three year holding period and a reinvestment rate of 6% over the period. At the end of three years the 7% coupon bonds with two years remaining will sell to yield 7%.

4.166% (semiannual) (Look at explanation on ch10 calc)

An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. What is the current yield on this bond? A.4.8% B.4.85% C.9.6% D.9.%

4.85%

A callable bond pays annual interest of $60, has a par value of $1,000, matures in 20 years but is callable in 10 years at a price of $1,100, and has a value today of $1055.84. The yield to call on this bond is _________. A.6% B.6.58% C..2% D.8%

6%

A coupon bond that pays interest of $60 annually has a par value of $1,000, matures in 5 years, and is selling today at a $924.5. The current yield on this bond is _________. A.6% B.6.49% C.6.3% D.%

6.49%

Bonds of Zello Corporation with a par value of $1,000 sell for $960, mature in five years and have a 7% annual coupon rate paid semiannually. Calculate yield.

7.29% (Current yield = Coupon/Price = $70/$960 = 0.0729 = 7.29%)

A coupon bond that pays interest of $60 annually has a par value of $1,000, matures in 5 years, and is selling today at an $84.52 discount from par value. The yield to maturity on this bond is _________. A.6% B..23% C.8.12% D.9.45%

8.12%

A firm has PVGO of 0 and a market capitalization rate of 12%. What is the firm's P/E ratio? A.12 B.8.33 C.10.25 D.18.55

8.33 (P =E/k + PVGO=E/k + 0; P/E = 1/.12 = 8.33)

A coupon bond that pays interest of 4% annually has a par value of $1,000, matures in 5 years, and is selling today at $812. The actual yield to maturity on this bond is _________. A..2% B.8.8% C.9.1% D.9.6%

8.8%

The present exchange rate is C$1 = US$.77. The 1-year futures rate is C$1 = US$.73. The yield on a 1-year U.S. bill is 4%. A yield of __________ on a 1-year Canadian bill will make investors indifferent between investing in the U.S. bill and the Canadian bill. A.9.7% B.2.9% C.2.8% D.2%

9.7% ([1+i(us)]/[1+i(ca)]=F1/E0[1+4%]/[1+i(ca)]=0.73/0.77i(ca)=9.7%)

Consider the liquidity preference theory of the term structure of interest rates. On average, one would expect investors to require _________. A.a higher yield on short-term bonds than on long-term bonds B.a higher yield on long-term bonds than on short-term bonds C.the same yield on both short-term bonds and long-term bonds D.none of these options (The liquidity preference theory cannot be used to make any of the other statements.)

A higher yield on long-term bonds than on short-term bonds

The average duration of unemployment is _________. A.a leading economic indicator B.a coincidental economic indicator C.a lagging economic indicator D.both a coincidental indicator and a lagging indicator

A lagging economic indicator

Limiting your investments to the top six countries in the world in terms of market capitalization may make sense for _________ investor but probably does not make sense for ________ investor. A.an active; a passive B.a passive; an active C.a security selection expert; a market timer D.a fundamental; a technical

A passive; an active

Corruption is _________ risk variable. A.a firm-specific B.a political C.a financial D.an economic

A political

You would typically find all but which one of the following in a bond contract? A.a dividend restriction clause B.a sinking fund clause C.a requirement to subordinate any new debt issued D.a price-earnings ratio

A price-earnings ratio

Inclusion of international equities in a U.S. investor's portfolio has historically produced ___________________. A.a substantially reduced portfolio variance B.a slightly reduced portfolio variance C.a substantially poorer portfolio variance D.a slightly poorer portfolio variance

A substantially reduced portfolio variance

Which one of the following allows you to purchase the stock of a specific foreign company? A.WEBS B.MSCI C.ADR D.EAF

ADR

The annual inflation rate is ______ risk variable. A.a firm-specific B.a political C.a financial D.an economic

An economic

According to the liquidity preference theory of the term structure of interest rates, an increase in the yield on long-term corporate bonds versus short-term bonds could be due to _______. A.declining liquidity premiums B.an expectation of an upcoming recession C.a decline in future inflation expectations D.an increase in expected interest rate volatility

An increase in expected interest rate volatility

You find that the exchange rate quote for the yen is 121 yen per dollar. This is an example of ________ quote. You also find that the euro is worth $1.33. This second quote is an example of _______ quote. A.a direct; an indirect B.an indirect; a direct C.a foreign; a U.S. D.a U.S.; a foreign

An indirect; a direct

An example of a highly cyclical industry is the _________. A.automobile industry B.tobacco industry C.pharmaceutical industry D.utility industry

Automobile industry

Bonds rated _____ or better by Standard & Poor's are considered investment grade. A.AA B.BBB C.BB D.CCC

BBB

If economic conditions are such that very slow growth is expected in the foreseeable future, one would want to invest in industries with __________ sensitivity to economic conditions. A.below-average B.average C.above-average D.Since growth is expected to be slow, sensitivity to economic conditions is not an issue.

Below-average

Which one of the following is equal to the ratio of common shareholders' equity to common shares outstanding? A. book value per share B. liquidation value per share C. market value per share D. Tobin's q

Book value per share

Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in 5 years, while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, _________. A.both bonds will increase in value but bond A will increase more than bond B B.both bonds will increase in value but bond B will increase more than bond A C.both bonds will decrease in value but bond A will decrease more than bond B D.both bonds will decrease in value but bond B will decrease more than bond A

Both bonds will decrease in value but bond B will decrease more than bond A

Which one of the following describes the amount by which government spending exceeds government revenues? A.balance of trade B.budget deficit C.gross domestic product D.output gap

Budget deficit

A __________ bond gives the issuer an option to retire the bond before maturity at a specific price after a specific date. A.callable B.coupon C.puttable D.Treasury

Callable

_______ bonds represent a novel way of obtaining insurance from capital markets against specified disasters. A.Asset-backed bonds B.TIPS C.Catastrophe D.Pay-in-kind

Catastrophe

At what point in the industry life cycle are inefficiencies in competitors most likely to be removed? A.start-up stage B.consolidation stage C.maturity stage D.relative decline stage

Consolidation stage

Pharmaceuticals, food, and other necessities would be good performers during the ____ stage of the business cycle. A.peak B.contraction C.trough D.expansion

Contraction

In an era of particularly low interest rates, which of the following bonds is most likely to be called? A.zero-coupon bonds B.coupon bonds selling at a discount C.coupon bonds selling at a premium D.floating-rate bonds

Coupon bonds selling at a premium

Floating-rate bonds have a __________ that is adjusted with current market interest rates. A.maturity date B.coupon payment date C.coupon rate D.dividend yield

Coupon rate

The goal of supply-side policies is to _______. A.increase government involvement in the economy B.create an environment where workers and owners of capital have the maximum incentive and ability to produce and develop goods C.maximize tax revenues of the government D.focus more on wealth redistribution policies

Create an environment where workers and owners of capital have the maximum incentive and ability to produce and develop goods

The __________ of a bond is computed as the ratio of the annual coupon payment to the market price. A.nominal yield B.current yield C.yield to maturity D.yield to call

Current yield

Consider the expectations theory of the term structure of interest rates. If the yield curve is downward-sloping, this indicates that investors expect short-term interest rates to __________ in the future. A.increase B.decrease C.not change D.change in an unpredictable manner

Decrease

If interest rates increase, business investment expenditures are likely to __________ and consumer durable expenditures are likely to _________. A.increase; increase B.increase; decrease C.decrease; increase D.decrease; decrease

Decrease; decrease

Of the following, which is the most commonly used international index? A.DJIA B.EAFE C.Russell 2000 D.S&P 500

EAFE

A firm cuts its dividend payout ratio. As a result, you know that the firm's _______. A.return on assets will increase B.earnings retention ratio will increase C.earnings growth rate will fall D.stock price will fall

Earnings retention ratio will increase

Which countries typically have higher information ratios A.developed B.EAFE C.emerging D.North American

Emerging

Bonds issued in the currency of the issuer's country but sold in other national markets are called _____________. A.Eurobonds B.Yankee bonds C.Samurai bonds D.foreign bonds

Eurobonds

Which of the following is not an example of fiscal policy? A.Social Security spending B.Medicare spending C.Fed purchases of Treasury securities D.changes in the tax rate

Fed purchases of Treasury securities

Which one of the following is probably the most direct and immediate way to stimulate or slow the economy, although it is not very useful for fine-tuning economic performance? A.fiscal policy B.monetary policy C. supply-side policy D. rising minimum wages

Fiscal policy

Which one of the following stocks represents industries with below-average sensitivity to the state of the economy? A.financials B.technology C.food and beverage D.cyclicals

Food and beverage

Stock prices are _____ measures of firm value. A. backward-looking B.forward-looking C. coincident D. lagging

Forward-looking

The market value of all final goods and services produced during a given time period is called ______. A.GDP B.industrial production C.capacity utilization D.factory orders

GDP

The constant-growth dividend discount model (DDM) can be used only when the ___________. A.growth rate is less than or equal to the required return B.growth rate is greater than or equal to the required return C.growth rate is less than the required return D.growth rate is greater than the required return

Growth rate is less than the required return

Firms with higher expected growth rates tend to have P/E ratios that are ___________ the P/E ratios of firms with lower expected growth rates. A.higher than B.equal to C.lower than D.There is not necessarily any linkage between risk and P/E ratios.

Higher than

P/E ratios tend to be _______ when inflation is ______. A.higher; higher B.lower; lower C.higher; lower D.they are unrelated

Higher; lower

Sinking funds are commonly viewed as protecting the _______ of the bond. A.issuer B.underwriter C.holder D.dealer

Holder

Suppose that U.S. equity markets represent about 35% of total global equity markets and that the typical U.S. investor has about 95% of her portfolio invested only in U.S. equities. This is an example of _________. A.home-country bias B.excessive diversification C.active management D.passive management

Home-country bias

A firm that has an ROE of 12% is considering cutting its dividend payout. The stockholders of the firm desire a dividend yield of 4% and a capital gain yield of 9%. Given this information, which of the following statements is (are) correct? I. All else equal, the firm's growth rate will accelerate after the payout change. II. All else equal, the firm's stock price will go up after the payout change. III.All else equal, the firm'sP/E ratio will increase after the payout change. A.I only B.I and II only C.II and III only D.I, II, and III

I only

Assume that the Federal Reserve increases the money supply. This will cause: I. Interest rates to decrease II. Consumption and investment to decrease III.Inflation to fall A.I only B.I and II only C.II and III only D.I, II, and III

I only

To earn a high rating from the bond rating agencies, a company would want to have: I. A low times-interest-earned ratio II. A low debt-to-equity ratio III.A high quick ratio A.I only B.II and III only C.I and III only D.I, II, and III

II and III only

The expansion of the money supply at a rate that exceeds the increase in goods and services will likely result in ___________. A.expanding economy B.increased inflation C.interest rate declines D.lower GDP

Increased inflation

The variation in the betas of emerging markets suggests that ____________. A.emerging markets are more uniform than developed markets B.beta does not hold in international markets C.international diversification may reduce portfolio risk D.riskier emerging markets have uniformly lower betas

International diversification may reduce portfolio risk

You can be sure that a bond will sell at a premium to par when _________. A.its coupon rate is greater than its yield to maturity B.its coupon rate is less than its yield to maturity C.its coupon rate is equal to its yield to maturity D.its coupon rate is less than its conversion value

Its coupon rate is greater than its yield to maturity

The bonds of Elbow Grease Dishwashing Company have received a rating of C by Moody's. The C rating indicates that the bonds are_________. A.high grade B.intermediate grade C.investment grade D.junk bonds

Junk bonds

Generally speaking, countries with ______ capitalization of equities ________. A.larger; have higher GDP B.smaller; are wealthier C.larger; have smaller GDP D.larger; are higher-growth countries

Larger; have higher GDP

The stock price index and contracts and orders for nondefense capital goods are _________. A.leading economic indicators B.coincidental economic indicators C.lagging economic indicators D.leading and coincidental indicators, respectively

Leading economic indicators

Value stocks are more likely to have a PEG ratio _____. A.less than 1 B.equal to 1 C.greater than 1 D.less than zero

Less than 1 (PEG=(price per share/earnings per share)/Annual EPS growthIf the ratio is <1, the stock is under valuedIf the ratio is =1, the stock is fairly valuedIf the ratio is >1, the stock is overly valued)

_________ is the amount of money per common share that could be realized by breaking up the firm, selling its assets, repaying its debt, and distributing the remainder to shareholders. A.Book value per share B.Liquidation value per share C.Market value per share D.Tobin's q

Liquidation value per share

An increase in the value of the yen against the U.S. dollar can cause the Japanese automaker Toyota to either _____________ on its U.S. sales. A.lose market share or reduce its profit margin B.gain market share or reduce its profit margin C.lose market share or increase its profit margin D.gain market share or increase its profit margin

Lose market share or reduce its profit margin

A firm in the early stages of its industry life cycle will likely have _________. A.low dividend payout rates B.low rates of investment C.low rates of return on investment D.low R&D spending

Low dividend payout rates

Which one of the following is a common term for the market consensus value of the required return on a stock? A.dividend payout ratio B.intrinsic value C.market capitalization rate D.plowback ratio

Market capitalization rate

Cash cows are typically found in the _________ stage of the industry life cycle. A.start-up B.consolidation C.maturity D.relative decline

Maturity

The classification system used to classify firms into industries is now called the _____ code. A.SIC B.NAICS C.ISO 57 D.ISM

NAICS

New-economy companies generally have higher _______ than old-economy companies. A.book value per share B.P/E multiples C.profits D.asset values

P/E multiples

Which one of the following country risks includes the possibility of expropriation of assets, changes in tax policy, and restrictions on foreign exchange transactions? A.default risk B.foreign exchange risk C.market risk D.political risk

Political Risk

A big increase in government spending is an example of a _________. A.positive demand shock B.positive supply shock C.negative demand shock D.negative supply shock

Positive demand shock

A __________ bond gives the bondholder the right to cash in the bond before maturity at a specific price after a specific date. A.callable B.coupon C.puttable D.Treasury

Puttable

__________ are examples of synthetically created zero-coupon bonds. A.COLTS B.OPOSSMS C.STRIPS D.ARMs

STRIPS

An investment strategy that entails shifting the portfolio into industry sectors that are expected to outperform others based on macroeconomic forecasts is termed______________. A.sector rotation B.contraction/expansion analysis C.life-cycle analysis D.business-cycle shifting

Sector rotation

A mortgage bond is _______. A.secured by other securities held by the firm B.secured by equipment owned by the firm C.secured by property owned by the firm D.unsecured

Secured by property owned by the firm

Which of the following possible provisions of a bond indenture is designed to ease the burden of principal repayment by spreading it out over several years? A.callable feature B.convertible feature C.subordination clause D.sinking fund

Sinking fund

If the currency of your country is depreciating, this should __________ exports and __________ imports. A.stimulate; stimulate B.stimulate; discourage C.discourage; stimulate D.discourage; discourage

Stimulate;discourage

In macroeconomic terms, an increase in the price of imported oil or a decrease in the availability of oil is an example of a _________. A.demand shock B.supply shock C.monetary shock D.refinery shock

Supply shock

Whenever OPEC attempts to influence the price of oil by significantly altering production, economists refer to this type of event as a ______________. A.demand shock B.equilibrium event C.expanding commodity event D.supply shock

Supply shock

Inflation-indexed Treasury securities are commonly called ____. A.PIKs B.CARs C.TIPS D.STRIPS

TIPS

_____ has the highest market capitalization of listed corporations among developed markets. A.The United States B.Japan C.TheUnited Kingdom D.Switzerland

The United States

If a firm If a firm increases its plowback ratio, this will probably result in _______ P/E ratio. A.a higher B.a lower C.an unchanged D.The answer cannot be determined from the information given.

The answer cannot be determined from the information given (Po/E1 = (1-b)/(k-(ROE*b)); numerator, b increases, P/E decreases; denominator, b increases, P/E increases, so the result can not be determined.)

A U.S. insurance firm must pay €75,000 in 6 months. The spot exchange rate is $1.32 per euro, and in 6 months the exchange rate is expected to be $1.35. The 6-month forward rate is currently $1.36 per euro. If the insurer's goal is to limit its risk, should the insurer hedge this transaction? If so how? A.The insurer need not hedge because the expected exchange rate move will be favorable. B.The insurer should hedge by buying the euro forward even though this will cost more than the expected cost of not hedging. C.The insurer should hedge by selling the euro forward because this will cost less than the expected cost of not hedging. D.The insurer should hedge by buying the euro forward even though this will cost less than the expected cost of not hedging.

The insurer should hedge by buying the euro forward even though this will cost more than the expected cost of not hedging

If a stock is correctly priced, then you know that ____________. A.the dividend payout ratio is optimal B.the stock's required return is equal to the growth rate in earnings and dividends C.the sum of the stock's expected capital gain and dividend yield is equal to the stock's required rate of return D.the present value of growth opportunities is equal to the value of assets in place

The sum of the stock's expected capital gain and dividend yield is equal to the stock's required rate of return

An analyst starts by examining the broad economic environment and then considers the implications of the economy on the industry in which the firm operates. Finally, the firm's position within the industry is examined. This is called __________ analysis. A.bottom-up B.outside-inside C.top-down D.upside-down

Top-down

Capital goods industries such as industrial equipment, transportation, and construction would be good investments during the _____ stage of the business cycle. A.peak B.contraction C.trough D.expansion

Trough

A top-down analysis of a firm's prospects starts with an analysis of the ____. A.firm's position in its industry B.U.S. economy or even the global economy C.industry D.specific firm under consideration

U.S. economy or even the global economy

A debenture is _________. A.secured by other securities held by the firm B.secured by equipment owned by the firm C.secured by property owned by the firm D.unsecured

Unsecured

You want to earn a return of 10% on each of two stocks, A and B. Each of the stocks is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends is 6% for stock A and 5% for stock B. Using the constant-growth DDM, the intrinsic value of stock A _________. A.will be higher than the intrinsic value of stock B B.will be the same as the intrinsic value of stock B C.will be less than the intrinsic value of stock B D.The answer cannot be determined from the information given.

Will be higher than the intrinsic value of stock B (Vo=D1/(k-g); Stock A's value is 4/(10%-6%)=100, Stock B's value is 4/(10%-5%)=80)

The proper formula for interest rate parity is ___________. A. [1 + rf(foreign)]/[1 + rf(US)] = F1/E0 B. [1 + rf(US)]/[1 + rf(foreign)] = E0/F1 C. [1 + rf(US)]/[1 + rf(foreign)] = F0/E0 D. [1 + rf(foreign)]/[1 + rf(foreign)] = F0/E1

[1 + rf(US)]/[1 + rf(foreign)] = F0/E0

Everything else equal, which variable is negatively related to the intrinsic value of a company? A.D1 B.D0 C.g D.k

k

A fund has assets denominated in euros and liabilities in yen due in 6 months. The 6-month forward rate for the euro is $1.36 per euro, and the 6-month forward rate for the yen is 121 yen per dollar. The 6-month forward rate for the euro versus the yen should be ________ per euro. A.×88.97 B.×145.34 C.×154.67 D.×164.56

x164.56 (($1.36/€)(×121/$) = ×164.56/€)