. Q1 You purchased a call option with a striking price of $40 at a price of $3.50. At expiration, the stock price has risen to $45. What is your return on investment?

1. 3.75%
2. 30.0%
3. 12.5%
4. 42.9%

Q 2 The efficient market hypothesis asserts that:

1. Studying historic patterns of stock price movements will generally identify willing investments.
2. It is virtually impossible to consistently pick stocks that perform exceptionally well because all publicly available information is immediately reflected in stock prices.
3. Fundamental analysis performed by individuals often reveals bargains despite the fact that professionals analyze all information as soon as is becomes available.

11. The price of a share of stock today is $25.00. If the total return on the share is estimated at 18%, including a dividend of $1 per year, what is its projected selling price?

1. $27.50
2. $28.50
3. $29.50
4. $30.50

Q 3 Company ABC common stock is currently selling for $25 per share. The security analyst have assigned the following probability distribution to the price of (and rate of return by) the ABC stock one year from now. Assuming that ABC is not expected to pay dividends this year, determine the expected rate of return on ABC stock

Price Rate of Return Probability

$15 -15% 0.25

$20 0% 0.20

$25 +15% 0.30

$30 +25% 0.25

1. 15%
2. 10%
3. 7%
4. 3%

Q4 . For a given accounting period, which of the following is likely to represent primarily variable costs?

a. cost of goods sold

b. general and administrative expenses

c. depreciation expense

d. interest expense

Q 5 For a given accounting period, which of the following is likely to represent primarily fixed costs?

a. cost of goods sold

b. general and administrative expenses

c. depreciation expense

d. interest expense

14. Which of the following are included in an annual report?

a. balance sheet

b. income statement

c. statement of cash flows

d. all of the above

e. none of the above

15. For corporations, the principal-agent relationship usually refers to the relationship between:

a. buyers-sellers

b. owners-managers

c. manager-customer

d. owner-bankers

Q 6 Of the following forms of business organization, which have stockholders with limited liability?

a. proprietorships

b. partnerships

c. corporations

d. limited partnerships

Q7. Which one of the following types of ratios indicates the ability to meet short-term obligations to creditors as they come due?

a. liquidity ratios

b. asset management ratios

c. capital structure ratios

d. profitability ratios

e. market value ratios

Q8. Management of current assets does not involve which one of the following areas?

a. cash and marketable securities

b. accounts receivable

c. inventory

d. plant and equipment

Q9. A firm has fixed operating costs of $150,000, total sales of $1,500,000, and total variable costs of $1,275,000. With this data, the firm's operating breakeven point during the year, in dollars, is

a. $150,000

b. $176,471

c. $1,000,000

d $1,425,000

Q10. The _______________ ratio is computed as earnings before interest and taxes divided by interest expense:

a. net profit margin

b. fixed charge coverage

c. total asset turnover

d. interest coverage