Question Details

FIN 540 FINAL EXAM
  Question 1 
 Which of the following statements concerning the MM extension with growth is NOT
 
CORRECT?
 
 
 
. Question 2 . 
 Which of the following is NOT a real option? 
 
 
. Question 3 
 Which of the following statements is CORRECT?
 
 
. Question 4 
 
 Which of the following statements about pension plans if any, is incorrect?

 
. Question 5 
 Which of the following statements about project risk analysis in not-for-profit firms is incorrect?

 
. Question 6 
 
 Which of the following is true of the EOQ model?  Note that the optimal order quantity, Q, will be called EOQ.
 
 
. Question 7 
 Which of the following statements is CORRECT?
  
 
. Question 8  
 Which one of the following is an example of a “flexibility” option?
 
 
 
. Question 9 
 Which of the following are NOT ways risk management can be used to increase the value of a firm?
 

 
. Question 10 
 Which of the following statements concerning capital structure theory is NOT CORRECT?
 
 
 
. Question 11 
  For markets to be in equilibrium (that is, for there to be no strong pressure for prices to depart from their current levels), 
 
 
. Question 12 
 Which of the following is NOT a potential problem with beta and its estimation?
  
 
. Question 13 
  Which of the following statements is most CORRECT? 
 
. Question 14 
 Which of the following would cause average inventory holdings to decrease, other things held constant?
 
. Question 15 
 In a portfolio of three different stocks, which of the following could NOT
 
be true? 
 
. Question 16 
 Which of the following are the factors for the Fama-French model?
 
 
. Question 17 
 Which is the best measure of risk for an asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?
 

. Question 18 
 The major contribution of the Miller model is that it demonstrates that 
 
 
. Question 19 
 Which of the following statements is CORRECT? 
 
. Question 20 
 Which of the following statements concerning the MM extension with growth is NOT CORRECT?
 
. Question 21 
 Stock A- beta is 1.5 and Stock B- beta is 0.5.  Which of the following statements must be true about these securities?  (Assume market equilibrium.)
 

 
 Question 22 
 Which of the following statements about defined contribution plans is incorrect?
 
 
 
. Question 23 
 Which of the following statements about pension plan portfolio performance is incorrect?
 

. Question 24 
 A firm- credit policy consists of which of the following items?
 
 
. Question 25 
 Which of the following is not correct?

 
. Question 26 
 Which of the following statements concerning the MM extension with growth is NOT CORRECT?
 
 
 
. Question 27 
Which of the following will NOT increase the value of a real option?
 
 
. Question 28 
  You have the following data on three stocks:
 
 
 
                 Stock     Standard Deviation     Beta
 
                   A            0.15              0.79
 
                   B            0.25              0.61
 
                   C            0.20              1.29
 
 
 
As a risk minimizer, you would choose Stock       if it is to be held in isolation and Stock       if it is to be held as part of a well-diversified portfolio.
 
 
. Question 29 
 Which one of the following aspects of banks is considered most relevant to businesses when choosing a bank?
 

. Question 30 
 A swap is a method used to reduce financial risk.  Which of the following statements about swaps, if any, is NOT CORRECT?
 
 
 
. Question 31 
  Calculate the required rate of return for Mercury, Inc., assuming that (1) investors expect a 4.0% rate of inflation in the future, (2) the real risk-free rate is 3.0%, (3) the market risk premium is 5.0%, (4) Mercury has a beta of 1.00, and (5) its realized rate of return has averaged 15.0% over the last 5 years.

 
. Question 32 
 Coverall Carpets Inc. is planning to borrow $12,000 from the bank.  The bank offers the choice of a 12 percent discount interest loan or a 10.19 percent add-on, one-year installment loan, payable in 4 equal quarterly payments.  What is the effective rate of interest on the 12 percent discounted loan?
 
 
 Question 33 
 Viking Farms harvests crops in roughly 90-day cycles based on a 360-day year. The firm receives payment from its harvests sometime after shipment.  Due in part to the firm's rapid growth, it has been borrowing to finance its harvests using 90-day bank notes on which the firm pays 12 percent discount interest.  If the firm requires $60,000 in proceeds from each note, what must be the face value of each note?
 
  Question 34 
  You hold a diversified portfolio consisting of a $5,000 investment in each of 20 different common stocks.  The portfolio beta is equal to 1.12.  You have decided to sell a lead mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a steel company stock (b = 2.00).  What is the new beta of the portfolio?
 
 
. Question 35 
 XYZ Company needs to borrow $200,000 from its bank.  The bank has offered the company a 12-month installment loan (monthly payments) with 9 percent add-on interest.  What is the effective annual rate (EAR) of this loan?
 

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