What type of firm has to deal with double taxation when paying out dividends to shareholders Sole proprietorships Partnerships Limited liability company (LLC) Corporation What area of corporate finance deals with what mix of debt and equity should be used to finance the firm Capital budgeting Capital structure Working capital management Corporate governance Assuming shareholders buy stock to gain financially, what should be the goal of financial managers within a corporation Maximize the current share price of the exiting stock Maximize profits Beat the competition Raise the firms ESG rating Through the power of financial markets, the intrinsic value of a company always equals the market value of the company True False Which one of the following is NOT a way that a company can go public IPO SEO Direct listing SPAC Section 2 Time Value of Money (8 Questions) If I deposit $500 in a bank account, today, and earn 3 interest per year, how much will be in the account in 4 years $560 00 $444 24 $562 75 $500 00 If you need $1000 in 3 years, how much would you need to invest, today, if you can earn 8 annually on your investment $793 83 $760 00 $1259 71 $1240 00 You have found an amazing investment earning an interest rate of 30 per year How many years will it take for your initial investment to quintuple (be worth 5X your initial investment) 4 27 6 13 7 44 8 91 You want to endow a scholarship at your alma mater You want the scholarship to pay for a full years tuition every year (tuition this past year was $30,000) Assume tuition will increase at 4 per year If the university earns 8 per year on its investments, and if the first scholarship will be paid in one years time, how much will you need to donate to endow the scholarship $375,000 $565,000 $750,000 $780,000 An annuity security offers 20 yearly payments of $10,000 per year, with the first payment occurring 5 years from today The annual discount rate is 5 What is the price of this security $102,527 $124,622 $164,540 $200,000 An investment pays out $1000 in 5 years, $2000 in 8 years, and $3000 in 11 years The annual interest rate is 5 How much will you have earned from this investment in year 11 right after the final payment Hint you can earn interest on the cash received in earlier years $3891 24 $6000 00 $6655 35 $9362 21 The nominal rate quoted in the market is 9 per annum, and interest is paid every month What is the effective annual rate (EAR) 9 7 5 9 75 9 38 What type of compounding yields the highest effective annual rate (EAR) from the following list Annually Quarterly Monthly Daily Section 3 Market Efficiency and Bond Valuation Which is the only statement that contradicts strong form market efficiency Each year, many mutual fund managers outperform the S P 500 index Company CEOs make abnormal returns on buying and selling their companys stock On average, small stocks have higher returns than large stocks When a company announces better than expected news, its price adjusts instantaneously It is impossible to predict future price movements based on public information Joe bought a stock at $57 per share The price promptly fell to $55 Joe held on to the stock until it again reached $57, and then he sold it once he had eliminated his loss If other investors do the same to establish a trading pattern, this would contradict the strong form EMH the weak form EMH the semistrong form EMH all of the above a and b Gold Mining Inc issues a $1,000 face value bond with a semi annual coupon of 4 , which matures in 10 years The prevailing annual interest rate is 5 What is the price of the bond $851 23 $922 05 $1,000 00 $1,049 24 $1,393 99 Bonds will sell at a discount to par when its coupon rate is greater than the prevailing interest rate its coupon rate is less than the prevailing interest rate its coupon rate is equal to the prevailing interest rate its coupon rate is less than its conversion value it is a really good bond Consider two bonds, A and B Both bonds presently are selling at their par value of $1,000 Each pays interest of $120 annually Bond A will mature in 5 years, while bond B will mature in 6 years If the yields to maturity on the two bonds change from 12 to 14 , both bonds will increase in value but bond A will increase more than bond B both bonds will increase in value but bond B will increase more than bond A both bonds will decrease in value but bond A will decrease more than bond B both bonds will decrease in value but bond B will decrease more than bond A Everything else equal, the the maturity of a bond and the the coupon, the greater the sensitivity of the bond's price to interest rate changes longer higher longer lower shorter higher shorter lower Section 4 Equity Valuation Use the information below to answer questions 20 25 for Reliable Construction (RC) RC Price $82 00 52 Week High $100 00 Dividend $3 75 PE 15 1 Beta 1 11 ROE 11 00 FCFE 5 00 Fraction of Earnings Retained 25 00 7 00 1 50 $91 00 According to the CAPM, what return can we expect for RC What is an appropriate estimate for the RCs growth rate 4 50 6 60 7 61 8 15 11 00 2 75 5 00 5 12 55 00 Using the constant growth dividend model, what should be the trading price of RC $26 42 $79 28 $90 10 $100 00 Using the constant dividend model (no growth), what should be the trading price of RC $3 75 $32 68 $45 88 $49 27 Using the Free Cash Flow Growth Model, what should be the trading price of RC $73 09 $85 12 $91 65 $105 71 Using the Intrinsic Value Model, what should be the trading price of RC (assume that the dividend will stay the same) $64 82 $81 12 $88 05 $91 65 $100 00

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What type of firm has to deal with double taxation when paying out dividends to shareholders? Sole proprietorships Partnerships Limited liability company (LLC) Corporation What

What type of firm has to deal with double taxation when paying out dividends to shareholders?
1. Sole proprietorships
2. Partnerships
3. Limited liability company (LLC)
4. Corporation

What area of corporate finance deals with what mix of debt and equity should be used to finance the firm?
1. Capital budgeting
2. Capital structure
3. Working capital management
4. Corporate governance

Assuming shareholders buy stock to gain financially, what should be the goal of financial managers within a corporation?
1. Maximize the current share price of the exiting stock
2. Maximize profits
3. Beat the competition
4. Raise the firms ESG rating

Through the power of financial markets, the intrinsic value of a company always equals the market value of the company.
1. True
2. False

Which one of the following is NOT a way that a company can go public?
1. IPO
2. SEO
3. Direct listing
4. SPAC

Section 2: Time Value of Money (8 Questions)

If I deposit $500 in a bank account, today, and earn 3% interest per year, how much will be in the account in 4 years?
1. $560.00
2. $444.24
3. $562.75
4. $500.00

If you need $1000 in 3 years, how much would you need to invest, today, if you can earn 8% annually on your investment?
1. $793.83
2. $760.00
3. $1259.71
4. $1240.00

You have found an amazing investment earning an interest rate of 30% per year. How many years will it take for your initial investment to quintuple (be worth 5X your initial investment)?
1. 4.27
2. 6.13
3. 7.44
4. 8.91

You want to endow a scholarship at your alma mater. You want the scholarship to pay for a full years tuition every year (tuition this past year was $30,000). Assume tuition will increase at 4% per year. If the university earns 8% per year on its investments, and if the first scholarship will be paid in one years time, how much will you need to donate to endow the scholarship?

$375,000
$565,000
$750,000
$780,000

An annuity security offers 20 yearly payments of $10,000 per year, with the first payment occurring 5 years from today. The annual discount rate is 5%. What is the price of this security?

$102,527
$124,622
$164,540
$200,000

An investment pays out $1000 in 5 years, $2000 in 8 years, and $3000 in 11 years. The annual interest rate is 5%. How much will you have earned from this investment in year 11 right after the final payment? Hint: you can earn interest on the cash received in earlier years.

$3891.24
$6000.00
$6655.35
$9362.21

The nominal rate quoted in the market is 9% per annum, and interest is paid every month. What is the effective annual rate (EAR)?

9%
7.5%
9.75%
9.38%

What type of compounding yields the highest effective annual rate (EAR) from the following list?
1. Annually
2. Quarterly
3. Monthly
4. Daily

Section 3: Market Efficiency and Bond Valuation

Which is the only statement that contradicts strong-form market efficiency?
Each year, many mutual fund managers outperform the S&P 500 index.
Company CEOs make abnormal returns on buying and selling their companys stock
On average, small stocks have higher returns than large stocks
When a company announces better than expected news, its price adjusts instantaneously.
It is impossible to predict future price movements based on public information.

Joe bought a stock at $57 per share. The price promptly fell to $55. Joe held on to the stock until it again reached $57, and then he sold it once he had eliminated his loss. If other investors do the same to establish a trading pattern, this would contradict _______.
the strong-form EMH
the weak-form EMH
the semistrong-form EMH
all of the above
a and b

Gold Mining Inc. issues a $1,000 face value bond with a semi-annual coupon of 4%, which matures in 10 years. The prevailing annual interest rate is 5%. What is the price of the bond?
1. $851.23
2. $922.05
3. $1,000.00
4. $1,049.24
5. $1,393.99

Bonds will sell at a discount to par when _________.
its coupon rate is greater than the prevailing interest rate
its coupon rate is less than the prevailing interest rate
its coupon rate is equal to the prevailing interest rate
its coupon rate is less than its conversion value
it is a really good bond

Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in 5 years, while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, ________.
1. both bonds will increase in value but bond A will increase more than bond B
2. both bonds will increase in value but bond B will increase more than bond A
3. both bonds will decrease in value but bond A will decrease more than bond B
4. both bonds will decrease in value but bond B will decrease more than bond A

Everything else equal, the __________ the maturity of a bond and the __________ the coupon, the greater the sensitivity of the bond's price to interest rate changes.
longer; higher
longer; lower
shorter; higher
shorter; lower

Section 4: Equity Valuation

Use the information below to answer questions 20-25 for Reliable Construction (RC).