Question Details

   Question 1 		
 	If you expect NoDiv Corporation to sell for $75 per share in three years while paying no dividends along the way, if your required rate of return is 16% per year, how much is the stock worth today? 				
	 
 
	$42.68 
 
	$48.05 
 
	$51.10 
 
	$74.64 
				
   Question 2 		
 	A compound annuity involves depositing or investing a single sum of money and allowing it to compound for a certain number of years. 				
	 
 
True
 
False
				
   Question 3 		
 	A mortgage bond is secured by a lien on real property. 				
	 
 
True
 
False
				
   Question 4 		
 	Perpetuity is an investment that continues forever but pays a different dollar amount each year. 				
	 
 
True
 
False
				
   Question 5 		
 	The required rate of return for an asset is equal to the risk-free rate plus a risk premium. 				
	 
 
True
 
False





	
				
   Question 6 		
 	The T-bill return is used in the CAPM model as the risk free rate. 				
	 
 
True
 
False
				
   Question 7 		
 	The present value of a future sum of money increases as the number of years before the payment is received increases. 				
	 
 
True
 
False
				
   Question 8 		
 	Yanti Corp. preferred stock has a 5% stated dividend percentage, and a $100 par value. What is the value of the stock if your required rate of return is 6% per year? 				
	 
 
	$83.33 
 
	$100 
 
	$120 
 
	$3,000 
				
   Question 9 		
 	Which of the following statements is true? 				
	 
 
	The value of a bond is inversely related to changes in investors' present required rate of return. 
 
	If interest rates decrease, the value of a bond will decrease. 
 
	If interest rates increase, the value of a bond will increase. 
 
	None of the above. 
				
   Question 10 		
 	If a bond sells for its par value, the coupon interest rate and yield to maturity are equal. 				
	 
 
True
 
False


	
				
   Question 11 		
 	The restrictive provisions contained in the bond indenture protect the common stockholders. 				
	 
 
True
 
False
				
   Question 12 		
 	Which of the following is the slope of the security market line? 				
	 
 
	security market line
 
	one 
 
	it varies depending on risk 
 
	beta
				
   Question 13 		
 	The expected rate of return on a share of common stock whose dividends are growing at a constant rate (g) is which of the following, where D1 is the next dividend and Vc is the current value of the stock? 				
	 
 
	(D1 + g)/Vc 
 
	D1/Vc 
 
	D1/g 
 
	none of the above 
				
   Question 14 		
 	The value of a bond investment, which provides fixed interest payments, will increase when discounted at a 12% rate rather than at a 7% rate. 				
	 
 
True
 
False
				
   Question 15 		
 	The Elvisalive Corporation, makers of Elvis memorabilia, has a beta of 2.75. The return on the market portfolio is 14% and the risk free rate is 4%. According to CAPM, what is the required rate of return on Elvisalive stock? 				
	  
	27.5% 
 
	31.5% 
 
	11% 
 
	10% 
				
   Question 16 		
 	Cumulative preferred stock: 				
	 
 
	requires dividends in arrears to be carried over into the next period 
 
	has a right to vote cumulatively 
 
	has a claim to dividends before bonds 
 
	all of the above 
				
   Question 17 		
 	The present value of an annuity increases as the discount rate increases. 				
	 
 
True
 
False
				
   Question 18 		
 	Hughen Industries' common stock has an expected return of 12.4% and a beta of 1.2. If the expected risk free return is 4%, what is the expected return for the market? 				
	 
 
	7.0% 
 
	8.4% 
 
	10.6% 
 
	11.0% 
				
   Question 19 		
 	The less risky the bond (or the higher the bond rating) the lower the yield to maturity on the bond, all other things being equal. 				
	 
 
True
 
False
				
   Question 20 		
 	The present value interest factor is the inverse of the future value interest factor. 				
	 
 
True
 
False



	
				
   Question 21 		
 	The expected cash flow of an investment takes the condition of the economy into consideration. 				
	 
 
True
 
False
				
   Question 22 		
 	Which of the following has a beta of one? 				
	 
 
	a risk free asset 
 
	the market 
 
	all assets have a beta greater than one 
 
	all assets have a beta less than one 
				
   Question 23 		
 	The correct relationship for a premium bond is yield to maturity > coupon rate > current yield. 				
	 
 
True
 
False
				
   Question 24 		
 	Zero coupon bonds sell at a discount to their face value prior to their maturity. 				
	 
 
True
 
False
				
   Question 25 		
 	Consider the following four types of payments that could be made by a normal operating firm: interest, common dividends, income taxes, and preferred dividends. Compared to the other payments mentioned, where would you rank common dividend payments? 				
	 
 
	First. 
 
	Second. 
 
	Third. 
 
	Fourth. 


		
				
   Question 26 		
 	The return on the market portfolio is currently 13%. Battmobile Corporation stockholders require a rate of return of 21% and the stock has a beta of 3.5. According to CAPM, determine the riskfree rate. 				
	 
 
	9.8% 
 
	11.2% 
 
	3.20% 
 
	2.29% 
				
   Question 27 		
 	Which of the following should investors consider when determining their required rate of return? 				
	 
 
	The risk of the investment. 
 
	Their opportunity cost of funds. 
 
	The risk-free rate of return. 
 
	All of the above. 
				
   Question 28 		
 	Which of the following features, or benefits, belong to a firm's common stockholders? 				
	 
 
	Limited liability. 
 
	Ownership of the firm. 
 
	Voting rights. 
 
	All of the above. 
				
   Question 29 		
 	What is the yield to maturity of a 16-year bond that pays a coupon rate of 8% per year, has a $1,000 par value, and is currently priced at $916? Round your answer to the nearest whole percent and assume semi-annual coupon payments. 				
	 
 
	18% 
 
	11% 
 
	9% 
 
	7.5% 

		
				
   Question 30 		
 	Convertibility is a common feature of common stock; it allows the common stockholders to convert their common shares into preferred shares or into bonds. 				
	 
 
True
 
False
				
   Question 31 		
 	What is the value of a bond that has a par value of $1,000, a coupon of $80 (annually), and matures in 11 years? Assume a required rate of return of 11%, and round your answer to the nearest $10. 				
	 
 
	$320 
 
	$500 
 
	$810 
 
	$790 
				
   Question 32 		
 	We can use the present value of an annuity formula to calculate constant annual loan payments. 				
	 
 
True
 
False
				
   Question 33 		
 	The total amount of interest earned on a lump sum investment will exactly double if the amount of time is exactly doubled, everything else equal. 				
	 
 
True
 
False
				
   Question 34 		
 	Finance theory suggests that the current market value of a bond is based upon which of the following? 				
	 
 
	The future value of interest paid on a bond. 
 
	The sum total of principal and interest paid on a bond. 
 
	The sum of the present value of the bond's interest payments and the present value of the principal. 
 
	The present value of a bond's par value plus the future value of the bond's present value. 
				
   Question 35 		
 	Unlike market value, the intrinsic value of an asset is estimated independently of risk. 				
	 
 
True
 
False
				
   Question 36 		
 	By investing in different securities, an investor can lower his exposure to risk. 				
	 
 
True
 
False
				
   Question 37 		
 	Most preferred stocks have a feature that requires all past unpaid preferred dividend payments be paid before any common stock dividends can be paid. What is the name of this feature? 				
	 
 
	Participating 
 
	Cumulative 
 
	Provisional 
 
	Convertible 
				
   Question 38 		
 	You borrow $25,000 to be repaid in 12 monthly installments of $2,292.00. The annual interest rate is closest to: 				
	 
 
	1.5 percent. 
 
	12 percent. 
 
	18 percent. 
 
	24 percent. 
				
   Question 39 		
 	Podunk Communications bonds mature in 6 1/2 years with a par value of $1,000. They pay a coupon rate of 9% with semi-annual payments. If the required rate of return on these bonds is 11% what is the bond's value? 				
	  
	$1,026.73 
 
	$973.76 
 
	$1,022.74 
 
	$908.83 
				
   Question 40 		
 	Who bears the greatest risk of loss of value if a firm should fail? 				
	  
	Bondholders. 
 
	Preferred stockholders. 
 
	Common stockholders. 
 
	All of the above bear equal risk of loss. 
				
   Question 41 		
 	Preferred stock is similar to a bond in the following way: 				
	  
	preferred stock always contains a maturity date 
 
	both investments provide a stated income stream 
 
	both contain a growth factor similar to common stock 
 
	both provide interest payments 
				
   Question 42 		
 	If the interest rate is zero: 				
	  
	PV = FVn 
 
	PV = FV x n 
 
	FV = PV 
 
	FV = PV/en 
				
   Question 43 		
 	The security market line reflects an individual investor's attitude toward risk. 				
	  
True
 
False
				
   Question 44 		
 	Preferred stock is similar to common stock in the following way: 				
	  
	neither preferred stock nor common stock contain a maturity date 
 
	both investments provide a specifically stated cash flow each period 
 
	both contain a dividend growth factor 
 
	both provide interest payments 
		
				
   Question 45 		
 	Bond prices are inversely related to market interest rates. 				
	  
True
 
False
				
   Question 46 		
 	What is diversifying among different kinds of assets known as? 				
	  
	Portfolio funding. 
 
	Capital asset classification. 
 
	Asset allocation. 
 
	Multi-diversification. 
				
   Question 47 		
 	The formula for compound future value is: 				
	  
	FVn = PV(1+i)n 
 
	FVn = (1+i)/PV 
 
	FVn = PV/(1+i)n 
 
	FVn = PV(1+i)-n 
				
   Question 48 		
 	To evaluate or compare investment proposals, we must adjust the value of all cash flows to a common date. 				
	  
True
 
False
				
   Question 49 		
 	The present value of a $100 perpetuity discounted at 5% is $2,000. 				
	  
True
 
False
				
   Question 50 		
 	If you put $1,000 in a savings account with a 5% nominal rate of interest compounded quarterly, what will the investment be worth in 6 years (round to the nearest dollar)? 				
	  
	$1,003 
 
	$1,132 
 
	$1,228 
 
	$1,347