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1. (TCO 8) Company insiders cannot earn excess profits based
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1. (TCO 8) Company insiders cannot earn excess profits based on the knowledge they have related to their employer if the financial markets are: (Points : 4)
weak form efficient.
strong form efficient.
semistrong form efficient.
efficient at any level.
aware that the trader is an insider.
2. (TCO 5) Royal Petroleum Co. can buy a piece of equipment that can be financed with debt at an aftertax cost of 8 percent and common equity at a cost of 20 percent. Assume debt and common equity each represent 50 percent of the firm's capital structure. What is the weighted average cost of capital? (Points : 4)
between 4% and 10%
between 11 and 12%
between 12 and 13%
exactly 14%
more than 14%
3. (TCO 5, 6 and 7) An issue of common stock's most recent dividend is $3.75. Its growth rate is eight percent. What is its price if the market's rate of return is 16 percent? (Points : 4)
$25.01
$46.88
$50.63
none of these
6. (TCO 4) A project has the following cash flows. What is the internal rate of return?
Year 0 1 2 3
Cash flow $195,600 $99,800 $87,600 $75,300
(Points : 4)
less than 5%
between 5 and 15%
between 15 and 18%
more than 21%
8. (TCO 5, 6 and 7) The six percent preferred stock of FKH Manufacturing is selling for $62 a share. What is the firm's cost of preferred stock, if the tax rate is 34 percent and the par value per share is $100? (Points : 4)
5.98%
7.06%
8.05%
9.68%
10.10%
14. (TCO 2) The Yellow Box has the following estimated quarterly sales for next year. The accounts receivable period is 45 days. What is the expected accounts receivable balance at the end of the third quarter? Assume each month has 30 days.
Q1 Q2 Q3 Q4
Sales $1,200 $1,400 $1,800 $1,700
(Points : 4)
$600
$750
$900
$1,050
$1,200
4. (TCO 3) Regional Bank offers you an APR of 19 percent compounded semiannually, and Local Bank offers you an EAR of 19.50 percent for a new automobile loan. You should choose ______________ because its _______ is lower. (Points : 4)
Regional Bank, APR
Local Bank, EAR
Regional Bank, EAR
Local Bank, APR
5. (TCO 3) You deposited $11,000 in your bank account today. Which of the following will decrease the future value of your deposit, assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all that apply: (Points : 4)
a decrease in the interest rate
increasing the initial amount of your deposit
increasing the frequency of the interest payments
decreasing the length of the investment period
6. (TCO 3) Thirteen years from now, you will be inheriting $30,000. What is this inheritance worth to you today, if you can earn four percent interest compounded annually? (Points : 4)
$18,017.22
$20,741.87
$23,190.98
$26,359.88
$28,846.15
7. (TCO 3) The new home that you want to buy costs $249,500. You plan to make a cash down payment of 20 percent and finance the balance over 10 years at 6.75 percent. What will be the amount of your monthly mortgage payment? (Points : 4)
$2,291.89
$2,809.10
$3,287.46
$3,412.67
$4,145.68
8. (TCO 3) John borrowed $5,500 four years ago at an annual interest rate of 10 percent. The loan term is seven years. Since he borrowed the money, Sonny has been making annual payments of $550 to the bank. Which type of loan does John have? (Points : 4)
interestonly
pure discount
compounded
amortized
complex
9. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond, if the YTM is 11 percent? Assume annual payments. (Points : 4)
$1080
$1085
$925
$1000
12. (TCO 3) What is the approximate yield to maturity for a sevenyear bond that pays 11 percent interest on a $1000 face value annually if the bond sells for $952? (Points : 4)
10.5%
10.6%
11.5%
12.1%
14. (TCO 8) Two years ago, MorningStar Company issued seven percent, 25year bonds and Track, Inc. issued seven percent, 10year bonds. Since their time of issue, interest rates have increased. Which of the following statements is true of each firm's bond prices in the market, assuming they have equal risk? (Points : 4)
Track's decreased more than Morningstar's
Morningstar's increased more than Track's
Morningstar's decreased more than Track's
They are both priced the same
3. (TCO 6) Company A has a bond outstanding with $90 annual interest payment, a market price of $820, and a maturity date in five years. Assume the par value to be $1,000. What is the bond’s yield to maturity? (Points : 4)
9%
14%
11%
Cannot be determined
None of the above
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