QUESTION 17

1. Discounting a cash flow of $100,000 to be paid in five years at a monthly compounded rate produces a price of $94,500.Which of the following is correct?
2. a) $100,000 is the present value, $94,500 is the future value
3. b) $100,000 is the future value, $94,500 is the present value
4. c) $100,000 is the future value, $5,500 is the present value
5. d) $5,500 is the future value, $94,500 is the present value

3 points

QUESTION 18

1. Consider a 20-year bond.If the yield required by investors increases, its price:
2. a) falls
3. b) rises
4. c) is unchanged
5. d) rises if it is a premium bond, falls if it is a discount bond

3 points

QUESTION 19

1. Which of the following is true of bonds issued by corporations but not by the U.S. Treasury?
2. a) They may default
3. b) They pay coupons
4. c) They may be priced at a discount
5. d) Their prices may change

3 points

QUESTION 20

1. A cash flow of $1,000 promised by the U.S. Treasury to be paid in two years is priced at $985 today.What must be the cash flow promised by company ABC to be paid in two years in order to have the same price today?
2. a) less than $985
3. b) between $985 & $1,000
4. c) $1,000
5. d) more than $1,000

3 points

QUESTION 21

1. Consider a bond with a Coupon of 25 and Face Value 1,000.If its price is 1020, the yield-to-maturity must be:
2. a) above 2.5%
3. b) 2.5%
4. c) below 2.5%

3 points

QUESTION 22

1. Suppose a company's revenue suddenly drops.Who among the following is most at risk of not being paid?
2. a) wages to employees
3. b) rent to landlord
4. c) interest to banks
5. d) dividends to owners

3 points

QUESTION 23

1. If the risk-free rate increases, which of the following are possible outcomes for a company's interest rate (or the discount rate applied to its future cash flows)?
2. a) increases
3. b) decreases
4. c) remains the same
5. d) all the above

3 points

QUESTION 24

1. The U.S. Treasury just issued a 20-year bond at par.Is it possible for Jaqueline Wigs, Inc. to issue a 20-year bond at par?
2. a) Yes, if its coupon rate is high enough above that of the Treasury's
3. b) Yes, if its coupon rate is low enough below that of the Treasury's
4. c) Of course, because its yield-to-maturity is lower than that of the Treasury
5. d) Of course not, dummy!

3 points

QUESTION 25

1. A business begins with $1,000,000 from its owners.It intends to reach a leverage ratio of 3.How much does it expect to borrow?
2. a) $4,000,000
3. b) $3,000,000
4. c) $2,000,000
5. d) $1,000,000

3 points

QUESTION 26

1. $1 million is invested at 6% for 10 years.How much additional proceeds is earned if the rate is compounded semi-annually compared to simple interest?
2. a) $600,000
3. b) $190,848
4. c) $1,806,111
5. d) $806,111
6. e) $206,111

3 points

QUESTION 27

1. A company intends to raise funds by issuing a security with the following promised cash flows:$150,000 in 3 years$500,000 in 5 yearsHow much money will it raise if the discount rate for both cash flows is 5% (annual compounding)?
2. a)$509,292
3. b)$521,339
4. c)$619,048
5. d)$650,000

3 points

QUESTION 28

1. Consider a single cash flow of 100 in five years.If the futurity is shortened to four years, holding interest/discount rates constant:
2. a) its price rises
3. b) its price falls
4. c) its price is unchanged
5. d) none of the above

3 points

QUESTION 29

1. If two securities promise the same cash flow at a specific future date, the one with the higher price must have _______ rate of discount:
2. a) a higher
3. b) a lower
4. c) the same

3 points

QUESTION 30

1. Company X produced a 20% ROE in 2019.Company Y made the same amount of profits as X, but had significantly more Owners' Equity.Compared to that of X, Y's ROE was:
2. a) equal
3. b) higher
4. c) lower

3 points

QUESTION 31

1. When a firm with fixed costs achieves a percentage increase in revenue due to more sales, the resulting percentage change in profit is typically ___________ the percentage change in revenue:
2. a) greater than
3. b) less than
4. c) equal to

3 points

QUESTION 32

1. A ten-year annuity pays $100 each year.The market discounts it at a yield of 5%.Which of the following changes will cause its present value to increase?Choose two, 2 points each.
2. a) An increase in its maturity to eleven years
3. b) An increase in yield to 6%
4. c) An increase in cash flow to $110

4 points

QUESTION 33

1. A company's balance sheet shows $225 million in real assets (equipment, trucks, material) and $25 million in cash.Owners' equity equals $125 million.Its debt must be:
2. a) $75 million
3. b) $100 million
4. c) $125 million
5. d) $150 million

3 points

QUESTION 34

1. Which of the following is true?
2. a) Both common and preferred share dividends are paid from profits, not from revenue.
3. b) Both common and preferred share dividends are paid from revenue, not from profits.
4. c) Common share dividends are paid from profits, preferred from revenue.
5. d) Common share dividends are paid from revenue, preferred from profits.

3 points

QUESTION 35

1. It would be difficult for a company to maintain both a high profit margin and high turnover ratio without substantial:
2. a) leverage
3. b) depreciable assets
4. c) barriers to entry
5. d) number of shares outstanding
6. e) cash on the balance sheet

3 points

QUESTION 36

1. Jack & The Beanstalk Restaurant chain earned $125 million before tax profits in 2019.It paid 20% in tax.During the year it owned assets of $4 billion and had $3.25 billion in debt.Its (after-tax) ROE for the year was:
2. a) 16.67%
3. b) 13.33%
4. c) 3.125%
5. d) 3.08%
6. e) 2.5%

3 points

QUESTION 37

1. Because of its risk characteristics compared to ordinary preferred stock, cumulative preferred (of the same firm) should present a ______ expected return:
2. a) higher
3. b) lower
4. c) same

3 points

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