1. Your friend Bernie says that he has an investment opportunity for you that will make you 7% each year with no risk. This is a violation of what? a. Peltzman Effect b. Zero-risk bias c. Efficient market hypothesis d. Attribution theory

2. Which of the following has on average the highest return? a. Money market accounts b. Large-cap stocks c. Corporate bonds d. Small-cap stocks

3. You learn that for your credit score you will pay an interest rate of 13% over 4 years on a car loan. If you can afford a car payment of $200 per month at what price can you buy a car? a. $1,534.10 b. $12,504.56 c. $9,931.36 d. $7,455.04

4. You inherit a trust fund of $10,000 that earns 5% per year. How much will it be worth in 10 years when you are allowed to take possession of it? a. $6,139.13 b. $16,105.10 c. $16,288.94 d. $6,209.21

5. If you save $100 every month for 30 years at what annual interest rate will you end up a millionaire? a. 16.56% b. 1.38% c. -1.36% d. 30.69%

6. Which one of the following transactions will increase the liquidity of a firm? a. Cash purchase of new production equipment b. Cash payment of an account payable c. Cash purchase of inventory d. Cash sale of inventory

7. An increase in the profit margin of a firm indicates which of the following? a. The firms stock price has increased b. The managers are selling off portions of the firm c. More of each dollar in sales in passed to stockholders d. The firms net income has increased

8. You would like to borrow money three years from now to build a new building. In preparation for applying for that loan, you are in the process of developing target ratios for your firm. Which set of ratios represents the best target mix considering that you want to obtain outside financing in the relatively near future? a. Times interest earned = 1.7; debt-equity ratio = 1.3 b. Cash coverage ratio = 0.4; debt-equity ratio = 0.9 c. Times interest earned = 1.9; debt-equity ratio = 1.2 d. Cash coverage ratio = 2.1; debt-equity ratio = 0.6 9. A 5.5% coupon bond matures in seven years, pays interest semiannually, and has a yield to maturity of 6.23%. What is the current market price of the bond? a. $342.65 b. $350.51 c. $959.09 d. $959.58

10. A bond pays a weekly coupon. This bond has a yield to maturity of 15% and matures in 17 years. At what coupon rate will this bond have a market price of $875? a. 0.249% b. 6.47% c. $64.66 d. 12.97%

11. Healthy Foods just paid its annual dividend of $1.45 a share. The firm recently announced that all future dividends will be increased by 2.8 percent annually. What is one share of this stock worth to you if you require a 14 percent rate of return? a. $12.56 b. $12.95 c. $13.31 d. $13.68 .

12. Which of the following best describes the two dimensions of liquidity? a. Amount of money you can get immediately and the amount of time required to get a good price b. Amount of money you can get immediately and the distance you must travel to get a good price c. The distance you need to travel to get a good price and the cost of completing the deal d. The amount of time required to get a good price and the cost of completing the deal

13. Finance can land you in jail. Insider trading is defined as trading on a. Material, non-public information b. Material, public information c. The pattern of stock prices d. Psychically acquired information

14. The Draiman, Inc. currently has $3,600 in cash. The company owes $41,800 to suppliers for merchandise and $21,500 to the bank for a long-term loan. Customers owe The Draiman $18,000 for their purchases. The inventory has a book value of $53,300 and an estimated market value of $61,200. If the store compiled a balance sheet as of today, what would be the book value of the current assets? a. $46,800 b. $55,000 c. $64,700 d. $74,900

15. Which one of the following indicates that a firm has generated sufficient internal cash flow to finance its entire operations for the period? a. Positive cash flow from assets b. Negative cash flow to stockholders c. Positive cash flow to stockholders d. Negative cash flow to creditors

16. Which one of the following relates to a negative change in net working capital? a. Increase in current liabilities with no change in current assets for the period b. Increase in the firms profitability and overall performance for the period c. Increase in inventory level for the period d. Increase in total fixed assets with no change in net fixed assets for the period

17. High Tower Pharmacy pays out a fixed percentage of its net income to its shareholders in the form of annual dividends. Given this, the percentage shown on a common-size income statement for the dividend account will: a. Remain constant over time b. Be equal to the dividend amount divided by the net income c. Vary in direct relation to the net profit percentage d. Vary in direct relation to changes in the sales level

18. Swan Lake Marina is expected to pay an annual dividend of $1.58 next year. The stock is selling for $18.53 a share and has a total return of 12 percent. What is the dividend growth rate? a. 2.82% b. 3.03% c. 3.28% d. 3.47%

19. Diamond Enterprises is considering a project that will produce cash inflows of $238,000 a year for three years followed by $149,000 in year 4. What is the NPV and internal rate of return if the initial cost of the project is $749,000 and the discount rate is 13%? a. NPV of -$421,692 and IRR of -36.77% b. NPV of -$95,661 and IRR of 6.32% c. NPV of $111,375 and IRR of 6.32% d. NPV of $1,402,339 and IRR of Error 5

20. The Shoe Box is considering adding a new line of winter footwear to its product lineup. Which of the following are relevant cash flows for this project? I. Decreased revenue from products currently being offered if this new footwear is added to the lineup II. Revenue from the new line of footwear III. Money spent to date looking for a new product line to add to the store's offerings IV. Cost of new counters to display the new line of footwear a. I, II, and III only b. I, II, and IV only c. I, III, and IV only d. II, III, and IV only

21. Investors are compensated based on which of the following? I. Market risk premium II. Portfolio standard deviation III. Portfolio beta IV. Risk-free rate a. I, II, and III only b. I, II, and IV only c. I, III, and IV only d. II, III, and IV only FINA 301 OLB J.Brooks 2015 Summer Page 5

22. Which one of the following statements is true regarding the period 1926-2011? a. U.S. Treasury bills had a positive average real rate of return b. Bonds had an average rate of return that exceeded the average return on stocks c. The inflation rate was just as volatile as the return on long-term bonds d. The risk-free rate of return remained constant over the time period

23. In which of the following situations should you use the arithmetic average rate of return? a. When the set of returns includes only the risk-free rates b. When there are between 10 and 15 periods of time c. When the time series of returns has a very narrow frequency distribution d. None of the above

24. Which of the following accurately describes the benefits of diversification when moving from one to many securities in a portfolio? a. Increasing benefit at an increasing rate b. Increasing benefit at a decreasing rate c. Decreasing benefit at an increasing rate d. Decreasing benefit at a decreasing rate

25. Which of the following statements is false? a. Increasing cash holdings allows firms access to additional strategic options b. Increasing cash holdings leads to additional uncompensated capital costs c. Increasing cash holdings gives management better incentives d. Increasing cash holdings lets you dominate a market quickly in downturns