1. What is another way to define market efficiency?

A. book value = market value 

B. market value = intrinsic value

C. book value = intrinsic value

D. liquidation value = book value

2. What is likely to happen if bond prices decrease?

A. the yield to maturity increases.

B. the yield to maturity decreases.

C. the coupon rate decreases.

D. the coupon rate increases.

3. You have a total of 200, $1,000 10 year bonds which pay 6% interest on a semiannual basis where the market commands 8% interest. What is the present value of these bonds?

4. Which of the following is NOT considered a basic stockholder right?

A. liquidation

B. receive dividends

C. preemption

D. redemption

5. How are bonds similar to preferred stock?

A. Dividend payments to preferred shareholders (much like bond interest payments to bondholders) are tax deductible.

B. Investors can sue the firm if preferred dividend payments are not paid (much like bondholders can sue for non-payment of interest payments).

C. Preferred stock is not like bonds in any way.

D. Preferred stockholders receive a dividend payment (much like interest payments to bondholders) that is usually fixed.

6. Which form of investment would yield the greatest risk of loss if a Company were to fail?

A. common stockholders

B. bondholders

C. preferred stockholders

D. All of the above bear equal risk of loss

7. Which of the following describes a primary difference between preferred stock and common stock?

A. Common stockholders sometimes have their ability to vote withheld

B. Common stockholders have equal right to liquidation as preferred stockholders

C. Preferred stockholders are always paid dividends before common stockholders

D. None of the above

8. Select one of the features sometimes made available to preferred stockholders which is provided as an incentive to encourage investors to select one company's preferred stock over another company's

A. convertible

B. provisional

C. nontransferable

D. noncumulative

9. You are provided the following data:

The risk free rate of return is 2.5%

The market risk premium is 8%.

Dividends are expected to grow at 6% annually for the foreseeable future

Present tax rate is 35%

Beta of 2.2

Standard deviation of returns of 28%.

Using the capital asset pricing model, what is the cost of retained earnings?

A. 19.6%

B. 20.1%

C. 17.7%

D.16.2%