Quiz 1-5 PDF

WEEK 1 Question 1 Which of the following appears to be the most appropriate goal for corporate management? a. minimizing the company\'s liabilities. b. maximizing the current profits of the company. c. maximizing the company\'s market share. d. maximizing market value of the company\'s sha...

WEEK 1 Question 1 Which of the following appears to be the most appropriate goal for corporate management? a. minimizing the company\'s liabilities. b. maximizing the current profits of the company. c. maximizing the company\'s market share. d. maximizing market value of the company\'s shares. Question 2 When publicly traded corporations need to raise additional funds through stock issues, they rely on the: a. primary market. b. secondary market to existing shareholders (i.e seasoned equity offering). c. centralized NASDAQ exchange. d. tertiary market. Question 3 Which one of the following is least liquid? a. foreign currency b. real estate c. Canadian Government Treasury bonds d. Savings deposit Question 4 The legal \"life\" of a corporation is: a. equal to the life of the board of directors. b. permanent, as long as shareholders don\'t change. c. permanent, regardless of current ownership. d. coincident with that of its CEO. Question 5 Long-term financing decisions commonly occur in the: a. money markets. b. option markets. c. capital markets. d. secondary markets. Question 6 An example of a firm\'s financing decision would include: a. whether or not to increase the price of its products. b. the issuance of ten-year versus twenty-year bonds. c. acquisition of a competitive firm. d. how much to pay for a specific asset. Question 7 A board of directors is elected as a representative of the corporation\'s: a. stakeholders. b. customers c. top management. d. shareholders. Question 8 The term \"corporate stakeholder\" typically refers to: a. the management and board of directors of the firm. b. a company\'s customers. c. the equity holders of the firm. d. anyone with a financial interest in the firm. Question 9 Which of the following statements best distinguishes the difference between real and financial assets? a. real assets have less value than financial assets. b. financial assets represent claims to income that are generated by real assets. c. real assets are tangible; financial assets are not. d. financial assets appreciate in value; real assets depreciate in value. Question 10 \"Double taxation\" refers to: a. the fact that marginal tax rates are doubled for corporations. b. all partners paying equal taxes on profits. c. corporations paying taxes on both dividends and retained earnings. d. paying taxes on profits at the corporate level and on dividends at the personal level. Question 11 A financial manager facing a capital budgeting decision must decide whether to: a. use primary markets or secondary markets. b. use the money market or capital market. c. issue stock or debt securities. d. buy new machinery or repair the old. Question 12 Which of the following functions does not require financial markets? a. provision of liquidity b. provision of pricing information c. transporting of cash across time d. risk reduction by investment in diversified portfolios Question 13 When a corporation fails, the maximum that can be lost by an investor protected by limited liability is: a. the amount necessary to pay the corporation\'s debts. b. the amount of the initial investment. c. the amount of the investor\'s personal wealth. d. the amount of the profit on the investment. Question 14 A firm decides to pay for a small investment project through a \$1 million increase in short-term bank loans. This is best described as an example of a(n): a. capital market decision b. capital budgeting decision. c. investment decision. d. financing decision. Question 15 When the management of a business is conducted by individuals other than the owners, the business is more likely to be a: a. general partner. b. partnership. c. sole proprietorship. d. corporation. Question 16 The term \"capital structure\" refers to: a. the manner in which a firm obtains its long-term sources of funding. b. the length of time needed to repay debt. c. which specific assets the firm should invest in. d. whether the firm invests in capital budgeting projects. Question 17 The overall goal of capital budgeting projects should be to: a. increase the firm\'s outstanding shares of stock. b. increase the firm\'s sales. c. increase the wealth of the firm\'s shareholders. d. decrease the firm\'s reliance upon debt. Question 18 In which of the following organizations would the existence of agency problems be least likely? a. a partnership b. a corporation c. a sole proprietorship d. a closely held corporation Question 19 For small firms, shareholders and management may be one and the same. But for large companies, separation of ownership and management is: a. a liability. b. a practical necessity. c. not a necessity d. a fraudulent move. Question 20 A company can pay for its expansion in all the following ways except: a. by selling stock certificates for a new subsidiary. b. by using the earnings generated from its sale of obsolete equipment. c. by purchasing bonds in the secondary market. d. by persuading a director\'s mother to make a personal loan to the company. WEEK 2 Question 1 Calculate the average collection period for Dots Inc. if its average accounts receivables were \$550 in the year in which the firm generated \$3,000 of sales? a. 61 days b. 60 days c. 67 days d. 73 days Question 2 What are the annual sales for a firm with \$400,000 in debt, a total debt ratio of.4, and an asset turnover of 3? a. \$1,200,000 b. \$333,333 c. \$1,800,000 d. \$3,000,000 Question 3 By how much must a firm reduce its assets in order to improve ROA from 10% to 12% if the firm\'s operating profit margin is 5% on sales of \$4 million? (Use the value in dollars). a. \$333,333 b. \$400,000 c. \$516,167 d. \$240,000 Question 4 What is the market price of a share of stock for a firm with 100,000 shares outstanding, a book value of equity of \$3,000,000, and a market-to-book ratio of 3? a. \$105 b. \$10 c. \$90 d. \$30 Question 5 A firm\'s quick ratio of.49 suggests the firm:  a.  has been overstating the value of its inventory. b.  should reduce its holdings of cash and/or marketable securities. c.  faces a potentially serious liquidity crisis. d.  has a low level of current liabilities. Question 6 An asset\'s liquidity measures its:  a.  potential for generating a profit. b.  proportion of debt financing. c.  ease and cost of being converted to cash. d.  cash requirements. Question 7 Which of the following actions could improve a firm\'s current ratio if it is now less than 1.0?  a.  buying inventory on credit. b.  paying accounts payable with cash. c.  converting marketable securities to cash. d.  selling inventory at cost. Question 8 An asset turnover ratio of 1.75 can be interpreted as:  a.  \$1.75 in sales are generated by every \$1 of assets. b.  \$1.75 in additional assets are generated by every \$1 of sales. c.  \$1 in sales are used to generate \$1.75 in assets. d.  \$1.75 in assets are used to generate \$1 of sales. Question 9 The inventory turnover ratio compares:  a.  average assets to average inventory. b.  average receivables to average inventory. c.  cost of goods sold to average inventory. d.  current assets to average inventory. Question 10 Which one of the following will increase a firm\'s times interest earned ratio?  a.  a decrease in net income. b.  an increase in debt. c.  a decrease in cost of goods sold. d.  an increase in interest expense. Question 11 The current ratio is a good proxy for a firm\'s:  a.  profitability. b.  degree of leverage. c.  liquidity. d.  efficiency. Question 12 Which of these indicates that a firm is efficient?  a.  a low asset turnover. b.  a high inventory turnover. c.  a high day\'s sales in inventories. d.  a high average collection period. WEEK 3 Question 1 Under which of the following conditions will a future value calculated with simple interest exceed a future value calculated with compound interest at the same rate? a. this is not possible with positive interest rates. b. the interest rate is very high. c. the compounding is annually. d. the investment period is very long. Question 2 The concept of compound interest refers to: a. payment of interest on previously earned interest. b. earning interest on the original investment. c. determining the APR of the investment. d. investing for a multiyear period of time. Question 3 ABC Bank offers a return of 9% on a savings account for five years using simple interest while XYZ Bank offers a return of 9% for five years using compound interest. An investor should choose a. the compound interest option only if interest is compounded monthly. b. the simple interest option only if interest is compounded monthly. c. the simple interest option because both have the same basic interest rate. d. the compound interest option because both have the same basic interest rate. e. the compound interest option because it provides a higher overall return. Question 4 When an investment pays only simple interest, this means: a. the interest rate is lower than on comparable investments. b. interest is earned only on the original investment. c. the future value of the investment will be low. d. the earned interest is nontaxable to the investor. Question 5 When an investment pays only simple interest, this means: a. interest is earned only on the original investment. b. the future value of the investment will be low. c. the interest rate is lower than on comparable investments. d. the earned interest is nontaxable to the investor. Question 6 Given a set future value, which of the following will contribute to a lower present value? a. less frequent discounting b. higher discount rate c. lower discount factor d. fewer time periods Question 7 As interest rates fall, present values a. stay the same. b. cannot be determined; need compounding frequency. c. increase. d. decrease. Question 8 The interest earned on both the original investment and the accumulated interest, over time is called a. compound interest. b. simple interest. c. growth rate. d. cost of capital. Question 9 You invested \$2,000 at 5 percent compounded annually. Determine how much interest was earned in the fifth year. (Round your answer to two decimals). a. 552.56 b. 121.55 c. 2552.56 d. 100.00 Question 10 Earl has invested \$12,000 in a security that pays 2% annual simple interest. How much interest does he earn in the 3rd year? a. 240 b. 720 c. 12735 d. 250 Question 11 Assume the total expense for your current year in college equals \$20,000. How much would your parents have needed to invest 21 years ago in an account paying 8% compounded annually to cover this amount? a. \$3,973.11 b. \$952.38 c. \$1,028.57 d. \$1,600.00 Question 12 Franklin needs to have \$1,000 in 8 years. If his investment earns 5 percent compounded annually, how much must he invest today? (Round your answer to two decimals.) a. 1,477.46 b. 676.84 c. 714.29 d. 1400 WEEK 4 Question 1 If interest is paid m times per year, then the per-period interest rate equals the: a. compound interest rate times m. b. effective annual rate divided by m. c. annual percentage rate divided by m. d. effective annual rate. Question 2 Your bank offers two options: Account A compounds semi-annually while account B compounds monthly. If both accounts have the same effective annual rate of interest, you should choose a. account A as it offers a higher APR. b. account A because it is compounded less often. c. account B because it is compounded more often. d. either since you would be indifferent between the two. Question 3 A stream of equal cash payments lasting forever is termed as: a. an annuity due. b. a perpetuity. c. an installment plan. d. an annuity. Question 4 Which one of the following will increase the present value of an annuity? a. lowering the payment amount b. lowering the discount rate c. reducing the cash flow amount d. decreasing the number of payments Question 5 Other things being equal, the more frequent the compounding period, the: a. lower the annual percentage rate. b. higher the annual percentage rate. c. higher the effective annual interest rate. d. lower the effective annual interest rate. Question 6 For a given quoted rate, the effective annual rate \_\_\_\_\_\_ as the compounding frequency increases. a. increases b. There is no connection between the effective annual rate and the quoted rate. c. does not change d. decreases Question 7 The present value of a perpetuity can be determined by: a. dividing the payment by the interest rate. b. dividing the interest rate by the payment. c. multiplying the payment by the interest rate. d. multiplying the payment by the number of payments to be made. Question 8 Lucy has just obtained a five-year fixed-rate mortgage to buy her first home. The mortgage is amortized over 30 years. Which of the following statements is most correct? a. Lucy\'s payments will increase as the term of the mortgage increases. b. Lucy\'s payments will decrease as the term of the mortgage increases. c. Lucy\'s payments won\'t change for the next 30 years. d. Lucy\'s payments won\'t change for the next 5 years. Question 9 After reading the fine print in your credit card agreement, you find that the \"low\" interest rate is actually an 18% APR, or 1.5% per month. What is the effective annual rate? a. 19.56% b. 4.35% c. 129.75% d. 628.76% Question 10 How much will accumulate in an account with an initial deposit of \$100, and which earns 10% interest compounded quarterly for 3 years? a. \$107.69 b. \$133.10 c. \$148.21 d. \$134.49 Question 11 What is the effective annual interest rate on a 9% APR automobile loan that has monthly payments? a. 9.38% b. 12.66% c. 9.00% d. 1.81% Question 12 What is the present value of \$1000 to be deposited in two years into an account paying 8%, compounded semiannually for 2 years? a. \$854.80 b. \$1000.00 c. \$1169.90 d. \$1166.40 WEEK 5 Question 1 An investor buys a 5-year \$1,000, 9% coupon bond for \$975, holds it for 1 year, and then sells the bond for \$985. What was the investor\'s rate of return? a. 10.15% b. 9.00% c. 9.23% d. 10.26% Question 2 You purchased a 6% annual coupon bond at par and sold it one year later for \$1,015.16. What was your rate of return on this investment if the face value at maturity was \$1,000? a. 7.52% b. 7.40% c. 4.48% d. 6.00% Question 3 A bond is priced at \$1,100, has 10 years remaining until maturity, and has a 10% coupon, paid semiannually. What is the amount of the next interest payment? a. \$50 b. \$100 c. \$110 d. \$55 Question 4 How much does the \$1,000 to be received upon a bond\'s maturity in 4 years add to the bond\'s price if the appropriate discount rate is 6%? a. \$1000 b. \$792.09 c. \$250.00 d. \$790.31 Question 5 Which one of the following bond values will change when interest rates change? a. the coupon payment b. the expected cash flows c. the maturity value d. the present value Question 6 As the coupon rate of a bond increases, the bond\'s: a. face value increases. b. maturity date is extended. c. current price decreases. d. interest payments increase. Question 7 Periodic receipts of interest by the bondholder are known as: a. a zero-coupon. b. the default premium. c. the coupon rate. d. coupon payments. Question 8 An investor holds two bonds, one with 5 years until maturity and the other with 20 years until maturity. Which of the following is more likely if interest rates suddenly increase by 2%? a. the 5-year bond will decrease more in price. b. the 20-year bond will decrease more in price. c. neither bond will decrease in price, but their yields will increase. d. both bonds will decrease in price similarly. Question 9 A bond\'s par value can also be called its: a. market value. b. face value. c. coupon payment. d. present value. Question 10 The purpose of a floating-rate bond is to: a. avoid making interest payments until maturity. b. offer rates that adjust to current market conditions. c. shift the yield curve. d. save interest expense for corporate issuers Question 11 The current yield of a bond can be calculated by: a. multiplying the price by the coupon rate. b. dividing the price by the par value. c. dividing the price by the annual coupon payments. d. dividing the annual coupon payments by the price. Question 12 Which of the following would not be associated with a zero-coupon bond? a. yield to maturity b. current yield c. discount bond d. interest-rate risk