Article : Financial Management By Joshua Iversen

1. The applicability of beta depends on a firm's

A. future plans.

B. standard deviation.

C. growth rate.

D. historical returns.

2. Suppose a firm has an EBIT of $1,400,000 and finances its assets with $6,000,000 of debt at 6 percent interest and 300,000 shares of stock selling at $12.50 a share.

To lessen the risk associated with this financial leverage, the firm is thinking about reducing its debt by $3,000,000 by selling more stock. The firm is in the 35 percent tax bracket.

The change in the capital structure won't have any effect on the firm's operations, thus EBIT will remain at $1,400,000. What's the change in the firm's EPS from this change in capital structure?

A. EPS rises by $0.28 per share

B. EPS falls by $0.36 per share

C. EPS rises by $0.54 per share

D. EPS falls by $0.78 per share

3. Modern portfolio theory demonstrates how

A. stock price movements are correlated.

B. there is an optimal portfolio that minimizes risk.

C. to measure risk-vs-reward.

D. total risk is measured.

4. How long is the useful life of a fixed asset?

A. In excess of two years

B. In excess of one year

C. Not more than 10 years

D. Less than one year

5. What annual rate of return is earned on a $4,000 investment when it grows to $8,200 in 5 years?

A. 12.22 percent

B. 15.44 percent

C. 13.58 percent

D. 14.34 percent

6. Which one of the following is a feature of an efficient market?

A. Information restricted to certain well-connected participants

B. Low trading or transaction costs

C. Few buyers and sellers

D. Prohibitively high barriers to entry

7. What characteristic of a bond determines the dollar amount of interest paid to bondholders?

A. Bid

B. Par value

C. Yield to maturity

D. Coupon rate

8. Which one of these is a common approach to assessing a stock's relative value?

A. Constant-growth rate

B. Variable-growth rate

C. Price-earnings (P/E) ratio

D. Dividend discount model

9. An 8 percent corporate coupon bond is callable in seven years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what's the price paid to the bondholder if the issuer calls the bond?

A. $1,080

B. $920

C. $1,040

D. $1,160

10. To analyze performance meaningfully, what must ratio results be interpreted against?

A. The discount rate

B. A standard or benchmark

C. ROE

D. The time value of money (TVM

11. A treasury bond bought at the beginning of the year for $1,064 pays $48 in interest payments during the year, ending the year valued at $1,095. What was the percent return?

A. 6.86

B. 4.88

C. 7.42

D. 8.44

12. What happens when a firm issues debt to finance its assets?

A. The firm's capital structure doesn't change.

B. Debt holders are entitled to receive the same amount of dividends as stockholders.

C. It gives the debt holders first claim to a fixed amount of its cash flows.

D. Stockholders surrender their rights to dividends but not capital gains

13. A three-year Treasury security currently earns 2.11 percent. Over the next three years, the real risk-free rate is expected to be 1.2 percent per year, and the inflation premium is expected to be 0.60 percent per year. What's the maturity risk premium on the three-year Treasury security?

A. 1.44 percent

B. 0.31 percent

C. 0.44 percent

D. 2.71 percent

14. Tasty Snacks, Inc.'s, 2015 income statement shows an EBIT of $1,440,200, interest expense of $150,000, and taxes of $345,020. The firm has no preferred stock outstanding and 200,000 shares of common stock outstanding. Calculate the company's 2015 earnings per share.

A. $3.89

B. $5.84

C. $4.73

D. $3.27

15. Why do bond prices with lower coupons have a greater risk of declining in price in response to rising interest rates?

A. Reinvestment rate risk

B. Interest rate risk

C. Market risk

D. Default risk

16. You own $12,000 of stock in Company A. The stock has a beta of 2.8. You also own $7,500 of stock in Company B, which has a beta of 1.3, and $4,500 of stock in Company C, which has a beta of 0.3. What's the beta of your portfolio?

A. 1.68

B. 1.86

C. 1.98

D. 0.84

17. A deposit of $1,460 earns the following interest rates: 7 percent in year one, 6.5 percent in year two, 6 percent in year three, and 5 percent in year four. What would be the future value for year four?

A. $1,885.55

B. $1,925.37

C. $1,825.48

D. $1,851.75

18. The process of earning interest both on the original deposit and on the earlier interest payments is called

A. compounding.

B. discounting.

C. APR.

D. future value.

19. Year-to-date, Company A has earned a 5.90 percent return. During the same period, Company B has earned 8.65 percent, and Company C has earned 14.30 percent. What's your portfolio return if you have a portfolio made up of the following?

45 percent Company A

35 percent Company B

20 percent Company C

A. 13.41

B. 8.54

C. 5.42

D. 9.38

20. What's the present value of a $150 payment made every year forever at an interest rate of 7.3 percent?

A. $2,055

B. $1,984

C. $2,175

D. $2,227