Ask Financial Management Expert

Section 1 True/False

1) Before it matures, the price of any bond is always less than its face value.

A. True

B. False

2) A bond will trade at a discount if its coupon rate is less than its yield to maturity.

A. True

B. False

3) If you value a stock using a range of stock valuation methods and these valuations indicate a stock price that is greater than its actual market price, it is most likely that the stock is under-valued.

A. True

B. False

4) Stocks have both diversifiable risk and undiversifiable risk, but only diversifiable risk is rewarded with higher expected returns.

A. True

B. False

5) When we combine stocks in a portfolio, the amount of risk that is eliminated depends on the degree to which the stocks face common risks and move together.

A. True

B. False

Section 2 Multiple Choice Questions

Please select the best answer for each question.

1. Which of the following would be best considered to be an agency conflict problem in the behavior of the following financial managers?

A) Bill chooses to pursue a risky investment for the company's funds because his compensation will substantially rise if it succeeds.

B) Sue instructs her staff to skip safety inspections in one of the company's factories, knowing that it will likely fail the inspection and incur significant costs to fix.

C) James ignores an opportunity for his company to invest in a new drug to fight Alzheimer's disease, judging the drug's chances of succeeding as low.

D) Michael chooses to enhance his firm's reputation at some cost to its shareholders by sponsoring a team of athletes for the Olympics.

2) Which of the following statements regarding bonds and their terms is FALSE?

A) The internal rate of return (IRR) of an investment in a zero-coupon bond is the rate of return that investors will earn on their money if they buy a default-free bond at its current price and hold it to maturity.

B) The yield to maturity of a bond is the discount rate that sets the future value (FV) of the promised bond payments equal to the current market price of the bond.

C) Financial professionals also use the term spot interest rates to refer to the default-free zero-coupon yields.

D) When we calculate a bond's yield to maturity by solving the formula,

Price of an n-period bond = + + ... + ,

the yield we compute will be a rate per coupon interval.

3) The Sisyphean Company has a bond outstanding with a face value of $1000 that reaches maturity in 5 years. The bond certificate indicates that the stated coupon rate for this bond is 8.1% and that the coupon payments are to be made semiannually.

Assuming the appropriate YTM on the Sisyphean bond is 10.6%, then this bond will trade at ________.

A) a premium

B) a discount

C) par

D) none of the above

4) A $1000 bond with a coupon rate of 6.2% paid semiannually has eight years to maturity and a yield to maturity of 8.3%. If interest rates rise and the yield to maturity increases to 8.6%, what will happen to the price of the bond?

A) The price of the bond will fall by $18.93.

B) The price of the bond will fall by $15.78.

C) The price of the bond will rise by $15.78.

D) The price of the bond will not change.

5) On a particular date, FedEx has a stock price of $89.27 and an EPS of $7.11. Its competitor, UPS, had an EPS of $0.38. What would be the expected price of UPS stock on this date, if estimated using the method of comparables?

A) $4.77

B) $7.16

C) $9.54

D) $10.50

6) The above screen shot from Google Finance shows basic stock information for PepsiCo. If you owned of PepsiCo for the period shown, how much would you have earned in dividend payments?

A) $480.00

B) $658.44

C) $584.80

D) $688.00

7) You expect KT industries (KTI) will have earnings per share of $5 this year and expect that they will pay out $1.25 of these earnings to shareholders in the form of a dividend. KTI's return on new investments is 13% and their equity cost of capital is 15%. The expected growth rate for KTI's dividends is closest to ________.

A) 11.3%

B) 9.8%

C) 5.9%

D) 3.9%

8) Which of the following statements is FALSE?

A) A firm's weighted average cost of capital, denoted rwacc, is the cost of capital that reflects the risk of the overall business, which is the combined risk of the firm's equity and debt.

B) Intuitively, the difference between the discounted free cash flow model and the dividend-discount model is that in the divided-discount model, a firm's cash and debt are included indirectly through the effect of interest income and expenses on earnings in the dividend-discount model.

C) We interpret rwacc as the expected return a firm must pay to investors to compensate them for the risk of holding the firm's debt and equity together.

D) When using the discounted free cash flow model, we should use a firm's equity cost of capital.

9) Which of the following statements is FALSE?

A) Stock returns will tend to move together if they are affected similarly by economic events.

B) Stocks in the same industry tend to have more highly correlated returns than stocks in different industries.

C) Almost all of the correlations between stocks are negative, illustrating the general tendency of stocks to move together.

D) With a positive amount invested in each stock, the more the stocks move together and the higher their covariance or correlation, the more volatile the portfolio will be.

10) Assume General Motors has a weighted average cost of capital of 9%. GM is considering investing in a new plant that will save the company $20 million over each of the first two years, and then $10 million each year thereafter. If the investment is $100 million, what is the net present value (NPV) of the project?

A) $25.8 million

B) $31.6 million

C) $28.7 million

D) $27.3 million

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92742388

Have any Question?


Related Questions in Financial Management

Assignment problems1 on the day harry was born his parents

Assignment Problems 1. On the day Harry was born, his parents put $1600 into an investment account that promises to pay a fixed interest rate of 5 percent per year. How much money will Harry have in this account when he ...

1 activities of a company that require the spending of cash

1) Activities of a company that require the spending of cash are known as: A) Uses of cash. B) Cash on hand. C) Cash receipts. D) Sources of cash. E) Cash collections. 2) Relationships determined from a firm's financial ...

Module discussion forumto prepare for this discussion

Module : Discussion Forum To prepare for this discussion, review "Basics of Speechwriting" and "Basics of Giving a Speech" in textbook Chapter 15. Then watch this video of Apple founder and CEO Steve Jobs giving the 2005 ...

Launching a new product linefor this portfolio project

Launching a New Product Line For this Portfolio Project Option, you will act as an employee in a large company that develops and distributes men's and women's personal care products. The company has developed a new produ ...

Question 1 discuss valuing bonds and how interest rates

Question : 1) Discuss valuing bonds and how interest rates affect their value. Also consider the importance of the yield-to-maturity (YTM). 2) Discuss common stocks and preferred stocks. Also, which common stock valuatio ...

Introductionlast week you determined the root causes of the

Introduction Last week, you determined the root cause(s) of the problem you are trying to resolve for your final paper. As a reminder, the decision you are working on is the one that you selected in week two. This week, ...

You have owned and operated a successful brick-and-mortar

You have owned and operated a successful brick-and-mortar business for several years. Due to increased competition from other retailers, you have decided to expand your operations to sell your products via the Internet. ...

You will be conducting an interview with a market research

You will be conducting an interview with a market research professional or a company representative. Use the results of your research to make specific recommendations on how market research can be applied to the Marketpl ...

Question 1 what is marketing research what are the two

Question 1: What is marketing research? What are the two primary types of research? Question 2: What factors influence marketing research? Question 3: The role of statistics in business decision-making? Assignment : Sele ...

Chapter 74 for commercial banks what is meant by a managed

Chapter 7 4. For commercial banks, what is meant by a managed liability? What role do liquid assets play on the balance sheet of commercial banks? What role do money market instruments play in the asset and liability man ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As