1. A share purchased six months ago for GHS 2.50 now sells at GHS 3.00. The return is _____
   1. 17% B) 25% C) 20%

1. 4. 23%
   5. 5%
2. Last year you purchased a share for GHS 50. You have received a dividend of GHS 0.75. The share now sells at GHS 2.70. Your holding period return is
   1. 7.50%
   2. 11.00% C) 11.50% D) 12.00%

E) 13.50%

The following information is to be used to answer questions 3-5

You are given information about the returns for shares of company A and B

Year	Return (A)	Return (B)
1	10%	-10%
2	13%	15%
3	21%	0%
4	24%	22%
5	25%	18%
6	22%	24%

3. The mean of returns of shares A and B respectively are
   1. 21.2%; 18.5% B) 18.6%; 12.5% C) 19.2%; 11.5% D) 19.8%; 13.2% E) 11.5%; 19.2%
4. The standard deviation of returns for A and B are respectively
   1. 6.2%; 10.5% B) 5.8%; 13.5% C) 6.2%; 12.8% D) 6.2%; 13.5%

E) 6.5%; 14.5%

5. Beta is a measure ___________ risk.
   1. total
   2. non-systematic
   3. market
   4. fundamental
   5. diversifiable
6. A security that has a beta greater than 1 is______

1. defensive
2. riskier than the average share
3. lending
4. borrowing
5. relative

7. A firm unexpectedly decreases its dividend payment and its stock price falls. The information content effects of this decision at least partially explains the fall in the stock price since
   1. An unexpected decrease in dividends means management is signaling that the firm has no positive NPV projects in which to invest
   2. Investors will always react unfavorably to changes in dividends
   3. Investors react to the change as new information regarding expected future dividends
   4. This unexpected decrease may likely be viewed as an attempt by management to manipulate the stock price
   5. Unexpected changes in dividends will not affect stock prices if the firm has a written dividend policy
8. If a firm wishes to have enough funds to satisfy its capital budgeting needs and to maintain a target debt-to-equity ratio it would likely be best to follow a policy of paying__________
   1. an extra dividend
   2. a special dividend
   3. a liquidating dividend
   4. a relative dividend
   5. a residual dividend
9. BDJ has 31,000 shares of stock outstanding with a market price of GHS 15 per share. If net income for the year is GHS 15,500,000 and the retention rate is 80%, what is the dividend per share on BDJ Ltds share.
   1. GHS 68
   2. GHS 83
   3. GHS 100 D) GHS 125 E) GHS 189
10. The interest shield of a firm
    1. Is the tax benefit a firm derives from paying interest
    2. Will decrease as the corporate income tax rate is increased
    3. Is the yield-to-maturity on a firms bonds multiplied by the market value of bonds outstanding and by the firms tax rate
    4. Is equal to the coupon interest rate of the firms debt
    5. Will be positive at all levels of EBIT
11. When choosing a capital structure, the objective of the firm should be to A) Choose the one that maximizes the current value of the firms bonds
    2. Choose the one that minimizes the value of the firm
    3. Choose the one that minimizes the firms Weighted Average Cost of Capital (WAC
    4. Choose the one that results in the largest interest tax shield
    5. Choose any capital structure since capital structure is always irrelevant

Use the following information to answer the next four questions. All values are market values. Ignore the tax effects.

	Current Capital Structure		Proposed Capital Structure
Assets	GHS 1500 million		GHS 1500 million
Debt	GHS 0		GHS 600 million
Equity	GHS 1500 million		GHS 900 million
Share Price	GHS 2500		GHS 2250
Shares Outstanding	600,000		?
Bond Interest Rate	8%		8%
Coupon Rate	8%		8%
	Recession	Expected		Expansion
Earnings Before Interest and Tax (EBIT)	GHS 200 million	GHS 280 million		GHS 350 million

12. How many shares will be outstanding under the proposed capital structure?

A) 100,000 B) 200,000 C) 300,000 D) 400,000

E) 500,000

13. What is the Earnings per Share (EPS) under the current capital structure if there is a recession?

A) GHS 333 B) GHS 417 C) GHS 500 D) GHS 625

E) GHS 750

14. What is the EPS during an expansion for the proposed capital structure?

A) GHS 417 B) GHS 500 C) GHS 583 D) GHS 600 E) GHS 755

15. What is the Return on Equity (ROE) for the proposed capital structure if the expected state occurs? A) 16.7% B) 18.2% C) 20.0% D) 22.4% E) 23.3%