FINC6317LRMBAFINANCE

RAYSANT
QUIZ2(WEEK2)

1.Theyieldtomaturityonabondistherate:
A.
computedasannualinterestdividedbythebond'smarketprice.
B.
aninvestorearnsifthebondissoldpriortothematuritydate.
C.
ofannualinterestinitiallyofferedwhenthebondwasissued.
D.
ofreturncurrentlyrequiredbythemarket.
E.
ofannualinterestpaidonthebond.

2.Adiscountbondhasacouponratethat:
A.
exceedsitscurrentyield.
B.
islessthanthebond'syieldtomaturity.
C.
exceedsbothitscurrentyieldanditsyieldtomaturity.
D.
equalsitscurrentyield.
E.
equalsitscurrentyieldprovidedthebondpaysinterestannually.

3.Thewritten,legallybindingagreementbetweenacorporateborroweranditslendersdetailingallof
thetermsofabondissueiscalledthe:
A.
indenture.
B.
covenant.
C.
termsoftrade.
D.
putprovision.
E.
callprovision.

4.Interestrateriskincreaseswith:
A.
bothincreasesintimetomaturityandcouponrates.
B.
increasesintimetomaturityanddecreasesincouponrates.
C.
increasesincouponratesanddecreasesinmarketrates.
D.
decreasesinmarketratesandincreasesintimetomaturity.
E.
bothdecreasesincouponratesandmarketrates.

5.Thepartofanindenturethatprotecttheinterestsofthelenderbylimitingcertainactionsthata
companymighttakeduringthetermoftheloanarecalled:
A.
deferredcallprovisions.
B.
sinkingfundsprovisions.
C.
protectivecovenants.
D.
trusteerelationships.
E.
bondratings.

6.Interestratesorratesofreturnoninvestmentsthathavebeenadjustedfortheeffectsofinflation
arecalled_____rates.
A.
real
B.
nominal
C.
effective
D.
stripped

E.
coupon

7.Therelationshipbetweennominalinterestratesondefaultfree,purediscountsecuritiesandthe
timetomaturityiscalledthe:
A.
liquidityeffect.
B.
Fishereffect.
C.
termstructureofinterestrates.
D.
inflationpremium.
E.
interestrateriskpremium.

8.The_____premiumisthatportionofanominalinterestrateorbondyieldthatrepresents
compensationforthepossibilityofnonpaymentbythebondissuer.
A.
interestraterisk
B.
taxability
C.
liquidity
D.
inflation
E.
defaultrisk

9.Allelseconstant,abondwillsellat_____whentheyieldtomaturityis_____thecouponrate.
A.
atpar;lessthan
B.
apremium;equalto
C.
atpar;higherthan
D.
adiscount;higherthan
E.
apremium;higherthan

10.Abondhasacouponrateof6percentandmaturesintenyears.Thenextsemiannualinterest
paymentwillbepaidonemonthfromnow.Whichoneofthefollowingdoyouknowwithcertainty
concerningthisbond?
A.
Thebondsellsatadiscount.
B.
Thebondsellsatapremium.
C.
Thedirtypriceishigherthanthecleanprice.
D.
Thecleanpriceishigherthanthedirtyprice.
E.
Themarketpriceexceedstheparvalue.

11.Whichoneofthefollowingstatementsiscorrectconcerninginterestrateriskasitrelatestobonds,
allelseequal?
A.
Theshorterthetimetomaturity,thegreatertheinterestraterisk.
B.
Thehigherthecoupon,thegreatertheinterestraterisk.
C.
Forabondsellingatpar,thereisnointerestraterisk.
D.
Thegreaterthenumberofsemiannualinterestpayments,thegreatertheinterestraterisk.
E.
Thelowertheamountofeachinterestpayment,thelowertheinterestraterisk.

12.Whichoneofthefollowingstatementsconcerningbondratingsiscorrect?
A.
Moody'sisthesoleproviderofbondratings.
B.
Bondratingsonlyassessthepossibilityofdefault.
C.
InvestmentgradebondsincludeonlythosebondsreceivinganAorhigherrating.
D.
Bondratingsconsiderthepotentialpricevolatilityofabond.

E.
A"fallenangel"isabondthatfellfromanAratingorabovetoaBBBrating.

13.Whichoneofthesebondsissubjecttothegreatestinterestraterisk?
A.
5year,zerocouponbond
B.
5yearbondwitha4.5percentcouponrate
C.
5yearbondwitha5percentcouponrate
D.
10year,zerocouponbond
E.
10year,5percentcouponbond

14.heRoseShoppeoffers10year,8percentcouponbondswithsemiannualpaymentsandayieldto
maturityof8.24percent.Whatisthemarketpriceofa$1,000facevaluebond?
A.
$990.32
B.
$983.86
C.
$1,108.16
D.
$1,521.75
E.
$591.04

15.ATreasurybondmaturesin17years,paysinterestsemiannually,andcarriesacouponrateof3.5
percent.Howmuchareyouwillingtopayfora$1,000facevaluebondifyoudesirearateofreturnof
4.25percent?
A.
$701.67
B.
$909.86
C.
$554.64
D.
$946.96
E.
$1,330.50

16.ThebondsissuedbyNorth&Southbearacouponrateof7.5percent,payablesemiannually.The
bondsmaturein6.5years,sellatpar,andhavea$1,000facevalue.Whatistheyieldtomaturity?
A.
7.59%
B.
7.86%
C.
7.50%
D.
7.42%
E.
15.00%

17.AGeneralCo.bondhasacouponrateof7percentandpaysinterestannually.Thefacevalueis
$1,000andthecurrentmarketpriceis$1,020.50.Thebondmaturesin20years.Whatistheyieldto
maturity?
A.
6.59%
B.
6.81%
C.
7.00%
D.
7.04%
E.
7.12%

18.Gugenheimoffersa15yearcouponbondwithsemiannualpayments.Theyieldtomaturityis5.85
percentandthebondssellat94percentofpar.Whatisthecouponrate?
A.
3.09%
B.
2.62%
C.
2.22%


D.
5.24%
E.
5.61%

19.A$1,000facevaluebondhasacurrentmarketpriceof$867.32,acouponrateof6percent,ayield
tomaturityof7.34percent,andsemiannualinterestpayments.Howmanyyearsisituntilthisbond
matures?
A.
16years
B.
18years
C.
24years
D.
30years
E.
36years

20.A12year,5percentcouponbondwithafacevalueof$1,000paysinterestsemiannually.Whatis
thepercentagechangeinthepriceofthisbondifthemarketyieldrisesto6percentfromitscurrent
levelof4.5percent?
A.
12.49%
B.
12.49%
C.
12.38%
D.
14.13%
E.
14.13%

21.TheDoolittlebondshaveafacevalueof$1,000,acurrentmarketpriceof$1,048.50,acouponrate
of4.6percent,compoundedsemiannually.Whatisthecurrentyieldonthesebonds?
A.
4.51%
B.
4.39%
C.
4.42%
D.
4.60%
E.
4.64%

22.ThebondsofferedbyLeo'sPumpsarecallablein4yearsataquotedpriceof102.Whatisthe
amountofthecallpremiumona$1,000parvaluebond?
A.
$2.00
B.
$8.00
C.
$20.00
D.
$23.33
E.
$43.49

23.A$5,000facevaluezerocouponbondisquotedatapriceof46.874.Whatistheamountyouwould
paytopurchasethisbondtoday?
A.
$4,687.40
B.
$46.87
C.
$2,343.70
D.
$234.37
E.
$468.74


24.AU.S.Treasurybondhasafacevalueof$10,000,acouponrateof4percentcompounded
semiannually,ayieldtomaturityof4.15percent,and18yearsuntilmaturity.Whatisthecleanprice
quoteofthisbond?
A.
99.9585
B.
97.6480
C.
98.0091
D.
100.0415
E.
98.1112

25.A$1,000facevaluebondhasabidquoteof101.123andabidaskspreadof.205.Whatpricemust
youpaytopurchasethisbond?Ignoreanyaccruedinterestortradingcosts.
A.
$1,011.23
B.
$1,001.33
C.
$1,009.18
D.
$1,013.28
E.
$1,026.56

26.Abondthatpaysinterestannuallyyieldsarateofreturnof7.25percent.Theinflationrateforthe
sameperiodis2.31percent.Whatistheactualrealrateofreturnonthisbond?
A.
4.79%
B.
4.87%
C.
4.83%
D.
4.94%
E.
4.91%

27.A25yearzerocouponbondwithafacevalueof$1,000isissuedataninitialpriceof$463.34.What
istheimplicitinterest,indollars,forthefirstyearofthebond'slife?Assumesemiannualinterest.
A.
$14.44
B.
$37.00
C.
$14.48
D.
$21.47
E.
$31.25

28.Assumeataxablebondyields8.25percentandacomparablemunicipalbondyields6.85percent.At
whattaxratewouldaninvestorbeindifferentbetweenthebonds?
A.
18.31%
B.
16.97%
C.
20.44%
D.
12.41%
E.
15.65%

29.ToyWorldbondshaveafacevalueof$1,000,maturein13years,payinterestsemiannually,and
haveacouponrateof6.5percent.Thenextinterestpaymentwillbepaidfourmonthsfromtoday.
Whatisthedirtypriceofthisbondifthemarketrateofreturnis6.3percent?
A.
$1,028.40
B.
$1,021.18
C.
$1,017.57


D.
$1,027.76
E.
$1,039.24

30.Thetotalreturnonastockisequalto:
A.
theannualdividenddividedbythecurrentstockprice.
B.
thedifferencebetweenthecapitalgainsyieldandthedividendyield.
C.
thecapitalgainsyieldplusthedividendyield.
D.
(1+Dividendyield)(1+Inflationrate).
E.
(1+Capitalgainsyield)(1+Dividendyield).

31.Accordingtofinanceprofessionals,whichoneofthesefactorshasthebiggestimpactonafirm'sPE
ratio?
A.
Accountingpracticesofthefirm
B.
Risklevelofthefirm
C.
Sizeofthefirm
D.
Growthopportunities
E.
Ageofthefirm

32.TheEV/EBITDAratiohasanadvantageoverthePEratioinsituationswherecomparisonsarebeing
madeoffirmsthatvarybasedontheir:
A.
methodofdepreciation.
B.
rateofgrowth.
C.
degreeofleverage.
D.
levelofcash.
E.
saleslevel.

33.Thefreecashflowmodel,ascomparedtoothermodels,tendstobemosthelpfulwhenvaluinga
shareofstockin:
A.
afirmthatpaysdividendsthatincreaseataconstantrateofgrowth.
B.
variousfirmshavingsimilargrowthopportunities.
C.
anondividendpayingfirmthathasexternalfinancingneeds.
D.
afirmthatplanstoloweritsdividendgrowthrateinthefuture.
E.
afirmthatpaysafixedannualdividend.

34.Multipleclassesofstockareprimarilycreatedto:
A.
allowcertainshareholderstoretaincontrolofafirm.
B.
replacecashdividendswithsharerepurchases.
C.
allowcommonstocktohavecumulativeprivileges.
D.
eliminatepreemptiverights.
E.
ensureallshareholdershaveequalrights.

35.Therateatwhichastock'spriceisexpectedtoappreciate(ordepreciate)iscalledthe_____yield.
A.
current
B.
capitalgains
C.
dividend
D.
total

E.
earnings

36.Thevotingprocedurewherebyshareholdersmaycastalloftheirvotesforonememberoftheboard
iscalled_____voting.
A.
democratic
B.
deferred
C.
straight
D.
cumulative
E.
proxy

37.Thevotingprocedurewhereashareholdergrantsauthoritytoanotherindividualtovotehis/her
sharesiscalled_____voting.
A.
proxy
B.
deferred
C.
straight
D.
cumulative
E.
democratic

38.Themarketinwhichnewsecuritiesareoriginallysoldtoinvestorsiscalledthe_____market.
A.
dealer
B.
auction
C.
overthecounter
D.
secondary
E.
primary

39.Amarketparticipantwhobuysandsellssecuritiesfrominventoryiscalleda:
A.
broker.
B.
trader.
C.
principal.
D.
capitalist.
E.
dealer.

40.Anagentwhoarrangessecuritytransactionsamonginvestorswithoutmaintaininganinventoryis
calleda:
A.
broker.
B.
trader.
C.
capitalist.
D.
principal.
E.
dealer.

41.Whatistheprimaryroleofadesignatedmarketmaker(DMM)?
A.
Providingatwosidedmarket
B.
Actingasafloorbroker
C.
Functioningasasupplementaryliquidityprovider
D.
Actingasaonesidedtrader
E.
Handlingonlyelectronictrades


42.Adealerwillbuyatthe____priceandsellatthe_____price.
A.
bid;bid
B.
ask;ask
C.
ask;bid
D.
bid;ask
E.
spread;spread

43.Asecuritiesmarketprimarilycomprisedofdealerswhobuyandsellfortheirowninventoriesis
generallyreferredtoasa(n)______market.
A.
overthecounter
B.
auction
C.
broker
D.
regional
E.
tradingfloor

44.Corporatedividends:
A.
areasourceoftaxfreeincomeforindividualinvestors.
B.
reducethetaxableincomeofthepayer.
C.
areonly70percenttaxabletocorporateshareholders.
D.
arepaidoutofpretaxincomeandthusaretaxedatthepersonallevel.
E.
aretaxedatthepersonalleveleventhoughtheyarepaidfromaftertaxincome.

45.Astockquoteshowsalastpriceof32.13,aP/Eof17,andanetchangeof.23.Basedonthis
information,whichoneofthefollowingstatementsiscorrect?
A.
Theclosingpriceontheprevioustradingdaywas$.23lowerthantoday'sclosingprice.
B.
Adealercanpurchasethestockfor$.23lessthananinvestorcan.
C.
Theearningspersharedecreasedby$.23asharethisyear.
D.
Theearningspersharehaveincreasedby17percentthisyear.
E.
Theearningspershareareequalto1/17thof$32.13.

46.Astockreportcontainsthefollowinginformation:P/E21.4,closingprice28.16,dividend1.10,net
chg.06,andanaskof28.22300.Whichoneofthefollowingstatementsiscorrectgiventhis
information?
A.
Thestockpricehasincreasedby6percentthusfarthisyear.
B.
Theclosingpriceontheprevioustradingdaywas$28.10.
C.
Theearningspershareareapproximately$2.
D.
Thedividendyieldis21.4percent.
E.
Thebidaskspreadis$.300.

47.Blascojustpaidanannualdividendof$1.24ashare.Whatisoneshareofthisstockworthtoyouif
thedividendsincreaseby2percentannuallyandyourequirearateofreturnof12percent?
A.
$12.40
B.
$10.33
C.
$10.54
D.
$12.65
E.
$11.07


48.TheELLcommonstockpaysanannualdividendof$1.90ashareandiscommittedtomaintaininga
constantdividend.Howmuchareyouwillingtopayforoneshareofthisstockifyourrequiredreturnis
11percent?
A.
$15.56
B.
$16.67
C.
$17.27
D.
$18.88
E.
$20.00

49.TheVinyardrecentlypaida$2.38annualdividendonitscommonstock.Thisdividendincreasesat
1.75percentperyearandcurrentlysellsfor$40.15ashare.Whatistherateofreturn?
A.
9.62%
B.
9.53%
C.
8.50%
D.
7.78%
E.
11.28%

50.Sharesofacommonstockofferanexpectedtotalreturnof12percent.Whatisthedividendyieldif
thedividendincreasesby3percentannually?
A.
15.00%
B.
3.00%
C.
9.00%
D.
8.74%
E.
15.36%

51.WislowBrotherscommonstocksellsfor$28.20ashareandpaysanannualdividendthatincreases
by1.5percentannually.Themarketrateofreturnonthisstockis11.3percent.Whatistheamountof
thelastdividendpaid?
A.
$2.68
B.
$2.72
C.
$2.84
D.
$2.78
E.
$2.87

52.ErnstElectricalincreasesitsannualdividendby2.2percentannually.Thestockcommandsamarket
rateofreturnof15percentandsellsfor$26.60ashare.Whatistheexpectedamountofthenext
dividend?
A.
$3.33
B.
$3.47
C.
$3.18
D.
$3.21
E.
$3.40

53.Lester'sDinerjustpaidanannualdividendof$.24ashareandplansonincreasingthisamountby2
percentannually.WhatistheexpecteddividendforYear6?
A.
$.30
B.
$.33


C.
$.24
D.
$.27
E.
$.35

54.JJCompanieswillpayanannualdividendof$2.10ashareonitscommonstocknextyear.Lastweek,
thecompanypaidadividendof$2ashare.Thecompanyadherestoaconstantrateofgrowthdividend
policy.Whatwilloneshareofthisstockbeworthtenyearsfromnowiftheapplicablediscountrateis9
percent?
A.
$85.52
B.
$81.44
C.
$34.21
D.
$41.16
E.
$52.50

55.Wilton'sMarketjustannounceditsnextannualdividendwillbe$1.50asharewithfuturedividends
increasingby1.8percentannually.Howmuchwilloneshareofthisstockbeworthfiveyearsfromnow
iftherequiredreturnis15.5percent?
A.
$11.76
B.
$11.97
C.
$14.14
D.
$12.19
E.
$13.79

56.SharesofABBOstockarecurrentlysellingfor$29.06ashare.Thelastannualdividendpaidwas
$1.50ashareanddividendsincreaseataconstantrate.Ifthemarketrateofreturnis10percent,what
isthedividendgrowthrate?
A.
5.32%
B.
4.60%
C.
4.81%
D.
5.05%
E.
4.45%

57.XanExisanewfirmthatjustpaidanannualdividendof$1ashare.Thefirmplanstoincreaseits
dividendby20percentayearforthenextfouryearsandthendecreasethegrowthrateto5percent
annually.Iftherequiredrateofreturnis10.25percent,whatisoneshareofthisstockworthtoday?
A.
$33.04
B.
$38.19
C.
$41.05
D.
$31.19
E.
$34.81

58.Mario'sisgoingtopay$1,$2.50,and$5ashareoverthenextthreeyears,respectively.Afterthat,
thecompanyplanstopayannualdividendsof$1.25pershareindefinitely.Ifyourrequiredreturnis13
percent,howmuchareyouwillingtopayforonesharetoday?
A.
$13.87
B.
$10.87
C.
$11.67


D.
$12.97
E.
$13.67

59.DilleInc.paysnodividendatthepresenttime.InYears2and3,thefirmwillpayannualdividendsof
$3ashare.Afterthat,itwillpayaconstant$1asharedividendindefinitely.Whatisthisstockworthata
requiredreturnof15percent?
A.
$9.91
B.
$7.81
C.
$8.62
D.
$7.50
E.
$11.40

60.Lastweek,RailwayCaboosespaiditsannualdividendof$1.20ashare.Thecompanyhasbeen
reducingitsdividendsby6percenteachyear.Whatisoneshareofstockworthatarequiredreturnof
14percent?
A.
$8.06
B.
$5.64
C.
$10.80
D.
$14.10
E.
$15.90

61.ALPInc.hasdecidedtoissuepreferredstockwithanannualdividendof$4ashare.Similarstocks
arecurrentlyyielding11percent.Whatpriceshouldthefirmexpecttoreceiveforeachnewshare
issued?
A.
$36.36
B.
$40.00
C.
$14.92
D.
$44.65
E.
$18.97

62.ThepreferredstockofEasternShorespaysanannualdividendof$6.50andsellsfor$42.19ashare.
Whatisthedividendyield?
A.
2.74%
B.
15.41%
C.
6.50%
D.
6.49%
E.
14.17%

63.Whatisthemaximumpriceaninvestorshouldpayforthecommonstockofafirmthathasno
growthopportunitiesbutpaysanannualdividendof$1.85?Themarketrateofreturnonsimilar
securitiesis14.5percent.
A.
$9.52
B.
$10.88
C.
$12.76
D.
$17.00
E.
$21.18


64.JanleaCo.hadtotalnetearningsof$127,000thispastyearandpaidout30percentofthose
earningsindividends.Thereare100,000sharesofstockoutstandingatacurrentmarketpriceof$11.62
ashare.Ifthedividendgrowthrateis5.6percent,whatistherequiredrateofreturn?
A.
14.27%
B.
6.56%
C.
8.88%
D.
24.40%
E.
15.60%

65.Snider'sHardwoodsadherestoa40percentdividendpayoutpolicyandhasareturnonassetsof
11.3percent.Thefirm'sdebtequityratiois.45.Whatisthefirm'srateofgrowth?
A.
6.78%
B.
7.39%
C.
9.83%
D.
6.55%
E.
4.10%

66.FeltwaterFurniturehas120,000sharesofstockoutstanding.Thefirmexpectstoearnnetincomeof
$325,000nextyearwithannualincreasesof3percentperyearthereafter.Thefirmalsoexpectstopay
out75percentofitsnetincomeindividendsandsharerepurchases.Therequiredreturnis14percent.
Whatisitsshareprice?
A.
$6.16
B.
$18.47
C.
$11.08
D.
$21.09
E.
$24.63

67.TallTreeTimberhasnetincomeof$167,000fortheyearwith60,000sharesofstockoutstanding.
BigTreesisasimilarfirmwithsimilargrowthopportunitiesandithas75,000sharesofstockoutstanding
withamarketpriceof$32.20ashareandearningspershareof$1.60.Whatistheestimatedvalueof
TallTreeTimber?
A.
$1,603,210
B.
$3,360,875
C.
$6,440,000
D.
$2,087,500
E.
$4,008,325

68.DuncanStreetMillsisanallequityfirmwith28,000sharesofstockoutstanding.Thefirmexpects
salesof$400,000nextyear.Salesareexpectedtogrowby5percentforthefollowingtwoyearsand
thenlevelofftoaconstant3percentgrowthrate.Netcashflowvariesindirectproportiontosalesand
iscurrentlyequalto15percentofsales.Therequiredreturnforthisfirmis16percent.Whatisthe
estimatedcurrentvalueofoneshareofstock?
A.
$17.02
B.
$16.21
C.
$16.94
D.
$18.76
E.
$17.34

69.WestsideMotorshasexpectedearningsaftertaxesforYear4of$122,000andhas25,000
outstandingshares.Thecurrentvalueofthefirm'searningsforthenextfouryears,Years1through4,is
$391,600.ThecomparablePEforthefirmis8.2.Whatistheestimatedvalueofoneshareofthisstockif
therequiredrateofreturnis15percent?
A.
$54.15
B.
$52.09
C.
$55.68
D.
$61.60
E.
$57.87

70.KhloeownstenpercentofKLKClothingwhichhasatotalof112,000sharesofstockoutstanding.
Eachsharereceivesonevoteforeachopenseatontheboard.Thenextelectionwillselectfournew
directors.Themarketpricepershareis$48.HowmuchdoesKhloeneedtospend,ifany,toguarantee
herelectiontotheboardifthefirmhasacumulativevotingpolicy?
A.
$537,648
B.
$1,075,248
C.
$770,448
D.
$990,648
E.
$621,248