1) Common-sized balance sheets A) show data for companies in the same industry. B) show data for companies with approximately the same amount of assets. C) show each balance sheet account as a percentage of total sales. D) show each balance sheet account as a percentage of total assets.

2)Smith Corporation has earned a return on capital invested of 10% for the past two years, but an investment analyst reviewing the company has stated the company is not creating shareholder value. This may be due to the fact that A) the risk free rate of interest is 3%. B) the corporation's inventory turnover is high. C) investors' required rate of return is 8%. D) investors' required rate of return is 12%.

3) All of the following measure liquidity EXCEPT A) current ratio. B) inventory turnover. C) acid-test ratio. D) operating return on assets.

4) Baker Corp. is required by a debt agreement to maintain a current ratio of at least 2.5, and Baker's current ratio now is 3. Baker wants to purchase additional inventory for its upcoming Christmas season, and will pay for the inventory with short-term debt. How much inventory can Baker purchase without violating its debt agreement if their total current assets equal $15 million? A) $0.50 million B) $1.67 million C) $4.50 million D) $6.00 million

5) Jones, Inc. has a current ratio equal to 1.40. Which of the following transactions will increase the company's current ratio? A) The company collects $500,000 of its accounts receivable. B) The company sells $1 million of inventory on credit. C) The company pays back $50,000 of its long-term debt. D) The company writes a $30,000 check to pay off some existing accounts payable.

6) For a retailer with inventory to sell, the acid-test ratio will be A) less than the current ratio, thus providing a more stringent measure of liquidity. B) greater than the current ratio, thus providing a more stringent measure of liquidity. C) greater than the current ratio, thus providing a less stringent measure of liquidity. D) unimportant because it doesn't include inventory. 2

7) Given an accounts receivable turnover of 10 and annual credit sales of $900,000, the average collection period is A) 18.25 days. B) 36.50 days. C) 90 days. D) 40.56 days.

8) TransSystems Inc. has a total equity of $560,000; sales of $2,250,000; total assets of $995,000; and current liabilities of $310,000. What is TransSystems Inc.'s debt ratio? A) 55.4% B) 43.7% C) 31.2% D) 66.7%

9) Rural Hydroponics has total equity of $560,000; sales of $2,250,000; current assets of $700,000; and total liabilities of $435,000. What is Rural Hydroponics' total asset turnover? A) 4.02 B) 3.21 C) 2.26 D) 5.51

10) A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio? A) liquidity B) leverage C) efficiency D) profitability

11) WPM, Inc. has current assets of $8,000,000, current liabilities of $4,000,000, inventory of $1,320,000, and sales of $12,000,000. What is the acid test ratio? A) 2.0 B) 1.67 C) 0.22 D) 0.1

12) The present value of $1,000 to be received in 5 years is ________ if the discount rate is 12.78%. A) $368 B) $494 C) $548 D) $687

13) At what rate must $287.50 be compounded annually for it to grow to $650.01 in 14 years? A) 6 percent B) 5 percent C) 7 percent D) 8 percent 3

14) What is the present value of $11,463 to be received 7 years from today? Assume a discount rate of 3.5% compounded annually and round to the nearest $1. A) $5,790 B) $6,508 C) $7,210 D) $9,010

15) Biff deposited $9,000 in a bank account, and 10 years later he closes out the account, which is worth $18,000. What annual rate of interest has he earned over the 10 years? A) 6.45% B) 7.18% C) 9.10% D) 10.0%

16) Two sisters each open IRAs in 2011 and plan to invest $3,000 per year for the next 30 years. Mary makes her first deposit on January 1, 2011, and will make all future deposits on the first day of the year. Jane makes her first deposit on December 31, 2011, and will continue to make her annual deposits on the last day of each year. At the end of 30 years, the difference in the value of the IRAs (rounded to the nearest dollar), assuming an interest rate of 7% per year, will be A) $19,837. B) $12,456. C) $6,300. D) $210.

17) You have the choice of two equally risk annuities, each paying $5,000 per year for 8 years. One is an annuity due and the other is an ordinary annuity. If you are going to be receiving the annuity payments, which annuity would you choose to maximize your wealth? A) the annuity due B) the ordinary annuity C) Since we don't know the interest rate, we can't find the value of the annuities and hence we cannot tell which one is better. D) either one because they have the same present value

18) D'Anthony borrowed $50,000 today that he must repay in 15 annual end-of-year installments of $5,000. What annual interest rate is D'Anthony paying on his loan? A) 2.22% B) 3.33% C) 5.56% D) 33.33%

19) You deposit $5,000 per year at the end of each of the next 25 years into an account that pays 8% compounded annually. How much could you withdraw at the end of each of the 20 years following your last deposit if all withdrawals are the same dollar amount? (The twenty-fifth and last deposit is made at the beginning of the 20-year period. The first withdrawal is made at the end of the first year in the 20-year 4 period.) A) $18,276 B) $27,832 C) $37,230 D) $43,289

20) You charged $1,000 on your credit card for Christmas presents. Your credit card company charges you 26% annual interest, compounded monthly. If you make the minimum payments of $25 per month, how long will it take (to the nearest month) to pay off your balance? A) 94 months B) 79 months C) 54 months D) 40 months

21) Your grandparents deposit $2,000 each year on your birthday, starting the day you are born, in an account that pays 7% interest compounded annually. How much will you have in the account on your 21st birthday, just after your grandparents make their deposit (round to the nearest dollar)? A) $101,802 B) $98,012 C) $86,058 D) $79,640

22) You can buy a $50 savings bond today for $25 and redeem the bond in 10 years for its full face value of $50. You could also put your money in a money market account that pays 7% interest per year. Which option is better, assuming they are of equal risk? A) The money market account is better because it pays more interest. B) The money market account is better because it requires a smaller investment. C) The savings bond is better because it earns a higher interest rate. D) The money market and savings bond both earn 7% interest, so they are equal in value.

23) A financial advisor tells you that you can make your child a millionaire if you just start saving early. You decide to put an equal amount each year into an investment account that earns 7.5% interest per year, starting on the day your child is born. How much would you need to invest each year (rounded to the nearest dollar) to accumulate a million for your child by the time he is 35 years old? (Your last deposit will be made on his 34th birthday.) A) $6,525 B) $6,031 C) $7,910 D) $12,500

24) You estimate you'll need $200,000 per year for 25 years starting on your 65th birthday to live on during your retirement. Today is your 50th birthday and you want to make equal deposits into an account paying 9% interest per year, the first deposit today and the last deposit on your 64th birthday. 5 Using an interest rate of 9% compounded per year for all calculations, how much must each deposit be? A) $99,920 B) $85,840 C) $61,385 D) $66,909

25) You own an ordinary annuity contract that will pay you $3,000 per year for 12 years. You need money to pay back a loan in 6 years, and you are afraid if you get the annuity payments annually you will spend the money and not be able to pay back your loan. You decide to sell your annuity for a lump sum of cash to be paid to you five years from today. If the interest rate is 8%, what is the equivalent value of your 12- year annuity if paid in one lump sum five years from today? A) $22,008 B) $33,219 C) $35,876 D) $38,880

26) Your company has received a $50,000 loan from an industrial finance company. The annual payments are $6,202.70. If the company is paying 9 percent interest per year, how many loan payments must the company make? A) 15 B) 13 C) 12 D) 19

27) Charlie wants to retire in 15 years, and he wants to have an annuity of $50,000 a year for 20 years after retirement. Charlie wants to receive the first annuity payment the day he retires. Using an interest rate of 8%, how much must Charlie invest today in order to have his retirement annuity? A) $167,135 B) $200,450 C) $256,890 D) $315,240

28) You have been accepted to study international economy at the European Central Bank (ECB) in Frankfurt. You will need $10,500 every 6 months (beginning today) for the next three years to cover tuition and living expenses. Mom and Dad have agreed to pay for your education, and want to make one deposit today in a bank account earning 6% interest, compounded semiannually. How much must they deposit now so that you can withdraw $10,500 at the beginning of each semester over the next 3 years? A) $54,187 B) $55,797 C) $57,449 D) $58,587

29) You believe in the power of compounding and decide to save $1 per day by avoiding the purchase of a soda. You deposit the $1 at the end of each day in a bank account that pays 8% interest compounded daily. You are going to take a trip in 20 years with the money you have accumulated. How much money will you have in 20 years, assuming 365 days per year? A) $7,500 6 B) $12,438 C) $18,032 D) $22,456

30) Today is your 21st birthday and your bank account balance is $25,000. Your account is earning 6.5% interest compounded quarterly. How much will be in the account on your 50th birthday? A) $159,795 B) $162,183 C) $163,832 D) $164,631

31) If Cathy deposits $12,000 into a bank account that pays 6% interest compounded quarterly, what will the account balance be in seven years? A) 18,001 B) 18,207 C) 19,112 D) 19,344

32) Andre's wonderful parents established a college savings plan for him when he was born. They deposited $50 into the account on the last day of each month. The account has earned 10.9% compounded monthly, tax-free. How much can they withdraw on his 18th birthday to spend on his education? A) $27,560 B) $30,028 C) $33,307 D) $43,730

33) You won the lottery and can receive either (1) $60,000 today, or (2) $10,000 one year from today plus $25,000 two years from today plus $35,000 three years from today. You plan to use the money to pay for your child's college education in 15 years. You should A) take the $60,000 today because of the time value of money regardless of current interest rates. B) take option two because you get $70,000 rather than $60,000 regardless of current interest rates. C) take the $60,000 today only if the current interest rate is at least 16.67% D) take the $60,000 today if you can earn 6.81% per year or more on your investments

34) What is the value on 1/1/13 of the following cash flows? Date Cash Received Amount of Cash 1/1/14 $14,000 1/1/15 $20,000 1/1/16 $30,000 1/1/17 $43,000 1/1/18 $57,000 Use a 7% discount rate, and round your answer to the nearest $10. A) $153,270 B) $128,490 C) $112,350 D) $107,330 7

35) Stock A has the following returns for various states of the economy: State of the Economy Probability Stock A's Return Recession 10% -30% Below Average 20% -2% Average 40% 10% Above Average 20% 18% Boom 10% 40% Stock A's expected return is A) 5.4%. B) 7.2%. C) 8.2%. D) 9.6%

36) Stock W has the following returns for various states of the economy: State of the Economy Probability Stock W's Return Recession 10% -30% Below Average 20% -2% Average 40% 10% Above Average 20% 18% Boom 10% 40% Stock W's standard deviation of returns is A) 10%. B) 14%. C) 17%. D) 20%

37) Assume that you have $330,000 invested in a stock that is returning 11.50%, $170,000 invested in a stock that is returning 22.75%, and $470,000 invested in a stock that is returning 10.25%. What is the expected return of your portfolio? A) 15.6% B) 12.9% C) 18.3% D) 14.8%

38) Changes in the general economy, like changes in interest rates or tax laws represent what type of risk? A) company-unique risk B) market risk C) unsystematic risk D) diversifiable risk 8

39) The category of securities with the highest historical risk premium is A) large company stocks. B) small company stocks. C) government bonds. D) small company corporate bonds.

40) Which of the following statements is MOST correct concerning diversification and risk? A) Risk-averse investors often choose companies from different industries for their portfolios because the correlation of returns is less than if all the companies came from the same industry. B) Risk-averse investors often select portfolios that include only companies from the same industry group because the familiarity reduces the risk. C) Only wealthy investors can diversify their portfolios because a portfolio must contain at least 50 stocks to gain the benefits of diversification. D) Proper diversification generally results in the elimination of risk.

41) An investor currently holds the following portfolio: Amount Invested 8,000 shares of Stock A $16,000 Beta = 1.3 15,000 shares of Stock B $48,000 Beta = 1.8 25,000 shares of Stock C $96,000 Beta = 2.2 The investor is worried that the beta of his portfolio is too high, so he wants to sell some stock C and add stock D, which has a beta of 1.0, to his portfolio. If the investor wants his portfolio to have a beta of 1.72, how much stock C must he replace with stock D? A) $18,000 B) $24,000 C) $31,000 D) $36,000

42) Wendy purchased 800 shares of Genetics Stock at $3 per share on 1/1/12. Wendy sold the shares on 12/31/12 for $3.45. Genetics stock has a beta of 1.9, the risk-free rate of return is 4%, and the market risk premium is 9%. Wendy's holding period return is A) 15.0%. B) 16.5%. C) 17.6%. D) 21.1%.

43) Beta is a statistical measure of A) unsystematic risk. B) total risk. C) the standard deviation. D) the relationship between an investment's returns and the market return. 9

44) If you hold a portfolio made up of the following stocks: Investment Value Beta Stock X $4,000 1.5 Stock Y $5,000 1.0 Stock Z $1,000 .5 What is the beta of the portfolio? A) 1.33 B) 1.24 C) 1.15 D) 1.00

45) The prices for the National Gasworks Corporation for the second quarter of 2012 are given below. The price of the stock on April 1, 2012 was $130. Find the holding period return for an investor who purchased the stock on April 1, 2012 and sold it the last day of June 2012. Month End Price April $125.00 May 138.50 June 132.75 A) -4.2% B) -3.7% C) 2.1% D) 3.7%

46) How can investors reduce the risk associated with an investment portfolio without having to accept a lower expected return? A) Wait until the stock market rises. B) Increase the amount of money invested in the portfolio. C) Purchase a variety of securities; i.e., diversify. D) Purchase stocks that have exceptionally high standard deviations.

47) The risk-free rate of interest is 4% and the market risk premium is 9%. Howard Corporation has a beta of 2.0, and last year generated a return of 16% with a standard deviation of returns of 27%. The required return on Howard Corporation stock is A) 36%. B) 34%. C) 26%. D) 22%