16. A 20-year bond with annual coupon payments is currently selling at $1,040. If the coupon rate is 6%, what is the current yield?

Select one:

a. 5.77%

b. $60

c. 4%

d. 6%

17. Decreases in inventory levels increase the cash flow of the firm

True or false

18. Stock A has a standard deviation of 10% and stock B has a standard deviation of 16%. Both stocks have a correlation coefficient of zero and the same expected return of 8%. If the two stocks are combined equally in a portfolio, what would be the portfolio standard deviation?

Select one:

a. 8%

b. 13%

c. 9.43%

d. 11.36%

19. If a stock requires an annual return of 10% and pays an annual dividend of $2 per share forever, then the current share price is $10.

True or false

20. The returns on the stock of COSTA Corp. over the last 4 years are as follows: 2016: +10%, 2017: -8%, 2018: +12%, and 2019: -5%. What was the realized annual return?

Select one:

a. +2.25%

b. +1.87%

c. -1.57%

d. None of THESE

e. +4.29%

21. Which of the following statements is true?

Select one:

a. All of THESE

b. A protective covenant is, for example, the collateral on a bonds issue to back up the loan.

c. An indenture is a written agreement between a borrower and lender establishing the terms of a loan.

d. The yields on preferred shares are usually lower than those from bonds.

22. Which of the following statements is not true?

Select one:

a. The bid price is the price you can buy a bond.

b. A bond selling at 102.5% of par value is equal to $1,025.

c. The par value of a bond is the face value and is equal to $1,000.

d. All of THESE are true

23. An example of systematic risk is a pandemic.

True or False

24. The value of a firm is the sum of the cash flows that is expected to produce and that will be distributed to shareholders and credit-holders.

True or false

25. Olivia Red-Eagle is considering investing part of her savings in BCE shares, which have an expected return of 18%. The risk-free rate is 6% and the rate of return of the market portfolio is 12%. What is the beta of BCE stock?

Select one:

a. 1.0

b. 1.5

c. 2.5

d. 2.0

e. None of THESE

26. A company recently acquired an equipment with a useful life of 5 years. It has an initial cost of $1 million and expected annual cost of $50,000 on years 1 to 5. The tax rate is 25% and the discount rate is 15%. The equipment will be depreciated using the straight line method. What is the annual depreciation tax shield?

Select one:

a. None of THESE

b. $200,000

c. $150,000

d. $50,000

27. Which of the following statements is true?

Select one:

a. The stock price of a company should increase after announcing a project with an IRR greater than the discount rate.

b. All of THESE

c. The stock price of a company should increase after announcing a positive net present value project.

d. The stock price of a company should increase after announcing a project with positive net present value of growth opportunities.

28. Unsystematic risk of common stocks ____________________.

Select one:

a. contributes more to the risk of the market portfolio than high systematic risk

b. should have negative effect on their expected return according to the CAPM

c. should have positive effect on their expected return according to the CAPM

d. should have no effect on their expected return according to the CAPM

29. If a stock price increased from $100 to $250 in a period of 5 years, then the 5-year holding period return was 150%.

True or false

30. Assume you invested $1,000 in stock of XYZ two years ago. If the percent returns were +15% and -20%, in the first and second year, respectively, then your 2-year holding period return was $920.

True or false