1. Superior profits can be made by investing in companies :

a. that are fortunate and able

b. that have a good potential to unseat industry leaders.

c. with capable management

d. active in a broad array of growth industries

2. When an investor sells a common stock short:

a. he/she expects to lose if the price goes down

b. he/ she stands to gain if the stock goes up in price.

c. He/ she expects to repurchase the shares later at a lower price/

d. he/she expects to gain if the price goes up

3. from the standpoint of taxes, investors will benefit from:

a. deferring taxes to the future if tax rates will be higher in the future.

b. realizing greater gains via stock repurchases as opposed to receiving the same gains as dividends

c. selling appreciated shares to meet cash needs instead of borrowing against them.

4. if a company has a P/E ratio of 14, required rate of return of 12% and dividend yield of 3.5%, what is the rate of return growth due to capital appreciation?

a. 15.50%

b. 8.50%

c. 7.00%

d. 2.00%

5. A company currently has a debt – equity ratio of 1.25. Common shareholder’s equity is $4,000,000, consisting of 1.5 million shares outstanding with a current price of $28/ share. Part of the company’s debt currently outstanding is $1,000,000 of convertible bonds. Each $ 1,000 par value bond can be converted into 50 common shares at any time during the next three years. The coupon rate on the bonds is 6 percent with interest paid annually. If all convertible bonds are covered, the company’s debt-capital ratio is closed to:

a. 42.6% b. 44.4% c. 80.0 % d. 90.0%