QUESTION 70

1. You're the purchasing manager for a large trucking company, worried about a spike in oil prices come January 15 when you typically buy your diesel fuel.You estimate you'll need 200,000 barrels.The spot price is $60/barrel.Which of the following will hedge your risk of oil prices rising between now and then?

Enter into a forward contract today to purchase 200,000 gallons of diesel on January 15 from the counterparty at $61/barrel.

Enter into a forward contract today to sell 200,000 gallons of diesel on January 15 to the counterparty at $61/barrel.

Enter into a forward contract today to purchase 200,000 barrels of diesel on January 15 from the counterparty at whatever the market price is then.

Enter into a forward contract today to sell 200,000 barrels of diesel on January 15 to the counterparty at whatever the market price is then.

1 points

QUESTION 71

1. A company starts with $1 billion in assets, $400 million in owners' equity & $600 million in debt.It borrows $100 million from its bank to keep as cash.What does this do to its balance sheet?

Increases assets and increases leverage ratio

Increases assets and decreases leverage ratio

Unchanged assets and increases leverage ratio

Unchanged assets and unchanged leverage ratio

Decrease assets and decrease leverage ratio

1 points

QUESTION 72

1. A company's Book Value is $75 million.Last year it produced an (after-tax) ROE of 20%.If its dividend pay-out ratio is 40%, its Retained Earnings were:

$6 million

$9 million

$15 million

$30 million

1 points

QUESTION 73

1. S.I.D. Asset Management initiated an open-end and a closed-end mutual fund a few years ago.If you want to invest in the funds today, you:

must purchase shares of each fund in the secondary (stock) market

may purchase shares of each fund in either the primary (from the investment company) market or the secondary (stock) market

must purchase shares of the open-end fund in the secondary (stock) market, and shares of the closed-end fund in the primary (from the investment company) market

must purchase shares of the open-end fund in the primary (from the investment company) market, and shares of the closed-end fund in the secondary (stock) market

1 points

QUESTION 74

1. Consider a five-year annuity, with an annual cash flow of $2,500 and a 2.5% rate of discount/yield.If the maturity is raised to six years, all else the same, its price:

decreases

increases

does not change

1 points

QUESTION 75

1. Suppose a company's After-Tax Profits are $200,000.It pays out $225,000 in dividends.What are its Retained Earnings?

$25,000

$25,000

$0

an impossible situation!

requires more information to answer question

1 points

QUESTION 76

1. Suppose a company increases the price of its product and demand hardly declines.Which of the following will increase?

profit margin

return-on-equity

taxes

all the above

1 points

QUESTION 77

1. Ouch Medical Supplies produced the following numbers this year:

Revenue 1,050,000

Operating Cost 480,000

Interest Expense 20,000

Tax 220,000

Dividend Distribution 330,000

Its profits equal:

570,000

550,000

330,000

0

1 points

QUESTION 78

1. Compared to a U.S. Treasury bond with the same maturity, a corporate bond has:

more credit risk and higher yield

less credit risk and higher yield

more credit risk and lower yield

less credit risk and lower yield

1 points

QUESTION 79

1. Which of the following is afalsestatement?

Brokers are paid a fee for their agent services; dealers earn the bid-asked spread as principals in transactions.

The more complex a security (which reduces the number of interested investors), the wider the bid-asked spread

The less volatile the price of a security, the wider the bid-asked spread.

Dealers bear the risk of price change during the search process; the customer bears

the risk as the broker searches.

none of these

1 points

QUESTION 80

1. Calculation of which of the following metrics require knowledge of the company's share price?Choose two

return-on-equity

dividend yield

dividend-payout ratio

ratio of market-to-book value

leverage ratio

2 points

QUESTION 81

1. Consider the following income statement for Larry & Harry Drug Stores:

Revenue 90 mm

Variable costs 48 mm

Interest on debt 6 mm

Depreciation0 mm

Its tax rate is 25% and the book value of its equity is 150mm.What is L&H's coverage ratio?

0.18

5.25

6

7

8

15

1 points

QUESTION 82

1. Two firms, A and B, have positive profit margins.B's fixed costs as a percentage of total costs exceeds A's percentage.Assume both firms experience an equal percentage increase in revenue.Which firm will enjoy a greater percentage increase in profit as a result?

A

B

They will be equal

1 points

QUESTION 83

1. On Monday PBC (Peanut Butter & Chocolate) Candy Company's entire balance sheet comprised real assets of $500 million and cash of $50 million.It had no debt (nor preferred shares).On Tuesday PBS established a line of credit for $100 million with BBB (Big Bad Bank).On Wednesday morning PBC drew down $20 million from its credit line and kept it in cash for later use.Which of the following is correct regarding PBC Wednesday afternoon?

Debt of $100 million and assets of $550 million

Debt of $100 million and assets of $650 million

Debt of $20 million and assets of $570 million

Debt of $20 million and assets of $650 million

Debt of $20 million and assets of $630 million

1 points

QUESTION 84

1. You open a deposit with Capital ("What Can I Take Out OfYourWallet") Bank.The bank uses most of your money to make a loan to Jungle Jim's Gym.Which of the following is correct?Choose Two

The deposit is your asset

The loan is your asset

The loan is the bank's liability

The loan is the bank's asset

The deposit is your liability

2 points

QUESTION 85

1. Which of the following pairs are correctly classified as variable costs and fixed costs, respectively?

rent - fixed; depreciation - variable

depreciation - fixed; debt interest - variable

depreciation - fixed; materials - variable

materials - fixed; factory labor - variable

debt interest - fixed;advertising/marketing - variable

1 points

QUESTION 86

1. Which of the following are correct regarding the frequency of compounding?Choose two

The more frequent, the less that needs to be invested now in order to achieve a given future cash flow

The more frequent, the more that needs to be invested now in order to achieve a given future cash flow

The more frequent, the greater the present value of a fixed future cash flow

The more frequent, the lower the present value of a fixed future cash flow

2 points

QUESTION 87

1. Which of the following isfalse?

A Treasury note is a liability of the U.S. Treasury

A Federal Reserve Note is a liability of the Federal Reserve

A Treasury bond is a liability of the U.S. Treasury

A dollar bill is an asset of the Federal Reserve

A dollar bill is a liability of the Federal Reserve

1 points

QUESTION 88

1. A company had the following results for the year:

It achieved revenue of $2,500,000

It incurred operating expenses of $2,750,000

It spent $200,000 on a new piece of equipment

It borrowed $450,000 to fill the shortfall

How would you describe the company's results?

profit of $200,000

profit of $50,000

no profit, no loss

loss of $50,000

loss of $250,000

loss of $450,000

1 points

QUESTION 89

1. If actual GDP is growing more rapidly than Potential GDP, then:

The GDP Gap is becoming wider and the unemployment rate is probably increasing

The GDP Gap is becoming wider and the unemployment rate is probably decreasing

The GDP Gap is becoming narrower and the unemployment rate is probably increasing

The GDP Gap is becoming narrower and the unemployment rate is probably decreasing

1 points

QUESTION 90

1. A Eurodollar deposit is:

a deposit denominated in euros at a US bank

a deposit denominated in dollars at a bank "outside" the US

a deposit denominated in dollars in the US by a European company

an agreement to exchange euros for dollars at a specific exchange rate

a deposit issued by banks in order to make loans to Europeans

1 points

QUESTION 91

1. "An S Corporation may be a shareholder in a C Corporation."

"A C Corporation may be a shareholder in an S Corporation."

Which statement is true?

the first only

the second only

both

neither

1 points

QUESTION 92

1. You own a company whose profits tax rate is 20% and fixed assets depreciate over 10 years.Which would be the best change for your company?

lower tax rate and faster depreciation

lower tax rate and slower depreciation

higher tax rate and faster depreciation

higher tax rate and slower depreciation

1 points

QUESTION 93

1. If banks suddenly start to pay interest on all demand deposits, their interest rate margin would:

become larger

become smaller

be unaffected

1 points

QUESTION 94

1. How would you characterize a Holding Company?

A company that "holds" only assets, no liabilities

A company which has no "operational" assets on its balance sheet, just other operating companies

A company that is not organized as a corporation

A company that holds grudges against another company