1.Which one of the following commences on the day inventory is purchased and ends on the day the payment for that inventory is collected? Assume all sales and purchases are on credit.
- Inventory period
- Accounts receivable period
- Accounts payable period
- Operating cycle
- Cash cycle
2.Which one of the following describes systemic risk?
- Risk that affects a large number of assets
- An individual security's total risk
- Diversifiable risk
- Asset specific risk
- Risk unique to a firm's management
3.Which one of the following terms best refers to the practice of investing in a variety of diverse assets as a means of reducing risk?
- Systematic
- Unsystematic
- Diversification
- Security market line
- Capital asset pricing model
4.Which one of the following is the slope of the security market line?
- Risk-free rate
- Market risk premium
- Beta coefficient
- Risk premium on an individual asset
- Market rate of return4.
5.Standard deviation measures _____ risk while beta measures _____ risk.
- systematic; unsystematic
- unsystematic; systematic
- total; unsystematic
- total; systematic
- asset-specific; market
6.Northern Wear stock has an expected return of 14.6 percent. Given the information below, what is the expected return on this stock if the economy is normal?
- 13 percent
- 16 percent
- 18 percent
- 21 percent
- 23 percent
7.Which one of the following terms refers to a bond's rate of return that is required by the market place?
- Coupon rate
- Yield to maturity
- Dirty yield
- Call yield
- Discount rate
8.You want to create a $48,000 portfolio that consists of three stocks and has an expected return of 14.5 percent. Currently, you own $16,700 of stock A and $24,200 of stock B. The expected return for stock A is 18.7 percent, and for stock B it is 11.2 percent. What is the expected rate of return for stock C?
- 13.67 percent
- 14.14 percent
- 15.38 percent
- 15.87 percent
- 16.11 percent
9.The written agreement that contains the specific details related to a bond issue is called the bond:
- indenture.
- debenture.
- document.
- registration statement.
- issue paper.
10.Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt can be described as a:
- note.
- bearer form bond.
- debenture.
- registered form bond.
- call protected bond.
11.A stock has a beta of 1.68, the expected return on the market is 14.72, and the risk-free rate is 4.65. What must the expected return on this stock be?
- 15.67 percent
- 16.75 percent
- 17.10 percent
- 18.46 percent
- 21.57 percent
12.A call provision grants the bond issuer the:
- right to contact each bondholder to determine if he or she would like to extend the term of his or her bonds.
- option to exchange the bonds for equity securities.
- right to automatically extend the bond's maturity date.
- right to repurchase the bonds on the open market prior to maturity.
- option of repurchasing the bonds prior to maturity at a pre-specified price.
13.What is the net present value of a project with the following cash flows if the discount rate is 14 percent?
- $742.50
- $801.68
- $823.92
- $899.46
- $901.15
14.T.L.C., Inc. is considering an investment with an initial cost of $175,000 that would be depreciated straight line to a zero book value over the life of the project. The cash inflows generated by the project are estimated at $76,000 for the first two years and $30,000 for the following two years. What is the internal rate of return?
- 9.27 percent
- 9.98 percent
- 10.62 percent
- 10.79 percent
- 11.58 percent
15.Western Electric has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 14.2 percent. The firm has 6,000 shares of 7 percent preferred stock outstanding at a price of $48 a share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $350,000 and currently sells for 102 percent of face. The yield-to-maturity on the debt is 8.49 percent. What is the firm's weighted average cost of capital if the tax rate is 34 percent?
- 12.69 percent
- 13.44 percent
- 14.19 percent
- 14.47 percent
- 14.92 percent