FIN/571 Wk 1 – Practice: Wk 1 Practice Questions
FIN/571 Wk 1 – Practice: Wk 1 Practice Questions
Ethical decision making by management has a payoff for shareholders in terms of:
- improved capital structure.
- enhanced firm reputation value.
- increased managerial benefits.
- higher current dividend payments.
In the case of a limited liability partnership, ________ has/have limited liability.
- only some of partners
- only the managing partner
- all of the partners
- none of the partners
Which one of these is a disadvantage of the corporate form of business?
- Access to capital
- Unlimited personal liability for owners
- Limited firm life
- Legal requirements
Which one of these statements is correct?
- Financial managers have a fiduciary duty to stockholders.
- Financial managers are concerned only with funds that flow to investors.
- The chief financial officer generally reports directly to the corporate treasurer.
- The corporate controller is primarily responsible for overseeing a firm’s cash functions.
When the management of a business is conducted by individuals other than the owners, the business is most likely to be a:
- sole proprietorship.
- general partner.
In a firm having both a treasurer and a controller, which of the following would most likely be handled by the controller?
- Internal auditing
- Credit management
- Banking relationships
Which one of the following must be correct for a bond currently selling at a premium?
- Its coupon rate is variable.
- Its current yield is lower than its coupon rate.
- Its yield to maturity is higher than its coupon rate.
- Its coupon rate is lower than the current market rate on similar bonds.
Many investors may be drawn to municipal bonds because of the bonds’:
- speculative grade ratings.
- high coupon payments.
- long periods until maturity.
- income exemption from federal taxes.
The current yield tends to understate a bond’s total return when the bond sells for a discount because:
- increases in interest rates will increase the current yield.
- the bond’s price will increase each year.
- current yields show only nominal returns.
- the bond may have a higher face value.
An investor buys a 10-year annual coupon bond at a yield of 8.7% and sells it 2 years later when it still yields 8.7%. What is his rate of return over this period?
- Can’t say without knowing the coupon.
Rosita purchased a bond for $989 that had a 7% coupon and semiannual interest payments. She sold the bond after 6 months and earned a total return of 4.8% on this investment. At what price, did she sell the bond?
Investors who purchase bonds having lower credit ratings should expect:
- lower yields to maturity.
- higher default possibilities.
- lower coupon payments.
- higher purchase prices.
What nominal return would an investor need to receive if he desires a real return of 4% and the rate of inflation is 5%?
Your broker suggests that you can make consistent, excess profits by purchasing stocks on the 20th of the month and selling them on the last day of the month. If this is true, then:
- the market is only semi strong-form efficient.
- the market violates even weak-form efficiency.
- insiders will be the only investors to profit.
- prices follow a random walk.
If the dividend yield for year 1 is expected to be 5% based on a stock price of $25, what will the year 4 dividend be if dividends grow annually at a constant rate of 6%?
A firm’s liquidation value is the amount:
- necessary to repurchase all outstanding shares of common stock.
- realized from selling all assets and paying off all creditors.
- a purchaser would pay to acquire all of the firm’s assets.
- shown on the balance sheet as total owners’ equity.
Reinvesting earnings into a firm will not increase the stock price unless:
- the new paradigm of stock pricing is maintained.
- true depreciation is less than reported depreciation.
- the firm’s dividends are growing also.
- the return on the new investments exceeds the firm’s required return.
Evidence that newly issued stocks tend to underperform the market over the following years:
- is a natural result of risk aversion.
- is exactly what you would expect in an efficient market.
- is inconsistent with the semi-strong form of the efficient market hypothesis.
- is evidence against the random walk hypothesis.
What can be expected to happen when stocks having the same expected risk do not have the same expected return?
- At least one of the stocks becomes temporarily mispriced.
- This is a common occurrence indicating that one stock has more PVGO.
- This cannot happen if the shares are traded in an auction market.
- The expected risk levels will change until the expected returns are equal.
It is possible to ignore cash dividends that occur very far into the future when using a dividend discount model because those dividends:
- will most likely be paid to a different investor.
- will most likely not be paid.
- have an insignificant present value.
- have a minimal, if any, potential rate of growth.