BU340 Managerial Finance

 

BU340 Managerial Finance

Ashworth College

BU340 Financial Management I Assignment 04

ASSIGNMENT 04

BU340 Financial Management I

Directions:  Be sure to save an electronic copy of your answer before submitting it to Ashworth College for grading. Unless otherwise stated, answer in complete sentences, and be sure to use correct English, spelling, and grammar.

 

Respond to the items below.

 

Part A: Given the following cash inflow at the end of each year, what is the future value of this cash flow at 6%, 9%, and 15% interest rates at the end of the seventh year?

 

Year 1                             $15,000

Year 2                             $20,000

Year 3                             $30,000

Years 4 through 6                    $0

Year 7                          $150,000

 

Part B: County Ranch Insurance Company wants to offer a guaranteed annuity in units of $500, payable at the end of each year for 25 years. The company has a strong investment record and can consistently earn 7% on its investments after taxes. If the company wants to make 1% on this contract, what price should it set on it? Use 6% as the discount rate. Assume that it is an ordinary annuity and that the price is the same as present value.

 

Part C: A local government is about to run a lottery but does not want to be involved in the payoff if a winner picks an annuity payoff. The government contracts with a trust to pay the lump-sum payout to the trust and have the trust (probably a local bank) pay the annual payments. The first winner of the lottery chooses the annuity and will receive $150,000 a year for the next 25 years. The local government will give the trust $2,000,000 to pay for this annuity. What investment rate must the trust earn to break even on this arrangement?

 

Part D: Your dreams of becoming rich have just come true. You have won the State of Tranquility's Lottery. The State offers you two payment plans for the $5,000,000 advertised jackpot. You can take annual payments of $250,000 for the next 20 years or $2,867,480 today.

 

a.       If your investment rate over the next 20 years is 8%, which payoff will you choose?

 

b.      If your investment rate over the next 20 years is 5%, which payoff will you choose?

 

c.       At what investment rate will the annuity stream of $250,000 be the same as the lump sum payment of $2,867,480?

   

 

BU340 Financial Management I Assignment 08

ASSIGNMENT 08

BU340 Financial Management I

Directions:  Be sure to save an electronic copy of your answer before submitting it to Ashworth College for grading. Unless otherwise stated, answer in complete sentences, and be sure to use correct English, spelling, and grammar.

 

Respond to the items below.

 

Part A: Moore Company is about to issue a bond with semiannual coupon payments, a coupon rate of 8%, and par value of $1,000. The yield-to-maturity for this bond is 10%.

 

a.   What is the price of the bond if the bond matures in 5, 10, 15, or 20 years?

 

b.   What do you notice about the price of the bond in relationship to the maturity of the bond?

 

Part B: The Crescent Corporation just paid a dividend of $2 per share and is expected to continue paying the same amount each year for the next 4 years. If you have a required rate of return of 13%, plan to hold the stock for 4 years, and are confident that it will sell for $30 at the end of 4 years, how much should you offer to buy it at today?

 

Part C: Use the information in the following table to answer the questions below.

 

State of Economy	Probability of State	Return on A in State	Return on B in State	Return on C in State
Boom	.35	0.040	0.210	0.300
Normal	.50	0.040	0.080	0.200
Recession	.15	0.040	-0.010	-0.260

 

a.   What is the expected return of each asset?

 

b.   What is the variance of each asset?

 

c.   What is the standard deviation of each asset?

 

 

 

BU340 Managerial Finance I Assignment 03

1. Cyber Security Systems had sales of 3,000 units at $50 per unit last year. The marketing manager projects a 20 percent increase in units volume sales this year with a 10 percent price increase. Returned merchandise will represent 6 percent of total sales. What is your net dollar sales projection for this year?

2. Delsing Plumbing Company has beginning inventory of 14,000 units, will sell 50,000 units for the month, and desires to reduce ending inventory to 40 percent of beginning inventory. How many units should Delsing produce?


3. At the end of January, Higgins Data Systems had an inventory of 600 units, which cost $16 per unit to produce. During February the company produced 850 units at a cost of $19 per unit. If the firm sold 1,100 in February, what was its cost of goods sold (assume LIFO inventory accounting)?


4.. Victoria's Apparel has forecast credits sales for the fourth quarter of the year as:
September (actual) ……………… $50,000
Fourth Quarter
October …………………………………. $40,000
November ……………………………… $35,000
December ………………………………..$60,000
Experience has shown that 20 percent of sales receipts are collected in the month of sale, 70 percent in the following month, and 10 percent are never collected. Prepare a schedule of cash receipts for Victoria's Apparel covering the fourth quarter (October through December).


5. The Manning Company has financial statements as shown below, which are representative of the company's historical average. The firm is expecting a 20 percent increase in sales next year, and management is concerned about the company's need for external funds. The increase is sale is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization. In the existing store. Among liabilities, only current liabilities vary directly with sales. Using the percent-of-sales method, determine whether the company has external financing needs, or a surplus of funds.
Income Statement
Sales $200,000
Expenses 158,000
Earnings before interest and taxes $42,000
Interest 7,000
Earnings before taxes $35,000
Taxes $15,000
Earnings after taxes $20,000
Dividends $6,000

Balance Sheet
Assets
Cash $5,000
Accounts receivable 40,000
Inventory 75,000
Current assets $120,000
Fixed assets 80,000
Total assets 200,000

Liabilities and Stockholders' Equity
Accounts payable 25,000
Accrued wages 1,000
Accrued taxes 2,000
Current liabilities 28,000
Notes payable 7,000
Long-term debt 15,000
Common Stock 120,000
Retained earnings 30,000
Total liabilities and stockholders' equity 200,000

 

BU340 Managerial Finance

BU340 Managerial Finance I

Directions: Be sure to make an electronic copy of your answer before submitting it to Ashworth College for grading. Unless otherwise stated, answer in complete sentences, and be sure to use correct English spelling and grammar. Sources must be cited in APA format. Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length; refer to the "Assignment Format" page for specific format requirements.


1. What form of partnership allows some of the investors to limit their liability? Explain by giving examples. (25 points)

2. When does insider trading occur? What government agency is responsible for protecting against the unethical practice of insider trading? Explain by giving examples. (25 points)

3. Explain how the tax code allows depreciation to contribute to cash flow. (25 points)

4. Explain why inflation may restrict the usefulness of the balance sheet as normally presented. (25 points)

 

BU340 Managerial Finance I Part-1

Part 1:
Directions: Unless otherwise stated, answer in complete sentences, and be sure to use correct English spelling and grammar. Sources must be cited in APA format. Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length
1. What form of partnership allows some of the investors to limit their liability? Explain by giving examples. (25 points)
2. When does insider trading occur? What government agency is responsible for protecting against the unethical practice of insider trading? Explain by giving examples. (25 points)
3. Explain how the tax code allows depreciation to contribute to cash flow. (25 points)
4. Explain why inflation may restrict the usefulness of the balance sheet as normally presented. (25 points)

 

Ashworth Semester Exam BU340 Managerial Finance I

Question 1
A  ________ has limited liability, is a legal entity, and can issue bonds.
sole proprietorship
general partnership
limited partnership
corporation

Question 2
________ is the name given to the processes surrounding recognition of the principal-agent problem and ways to align agents with the interests of the principals.
Principal theory
Interested party theory
Agency theory
Compensation process theory

Question 3
Which of the following items may be included on all balance sheets at Yahoo! Finance, even though they may not be part of an individual company's balance sheet for that year?
The effect of accounting changes, extraordinary items, and treasury stock
Deferred long-term asset charges, treasury stock, and extraordinary items
Goodwill, deferred long-term asset charges, and treasury stock
Cost of revenue, goodwill, and treasury stock

Question 4
In finance, we separate operating decisions from financing decisions, and thus exclude ________ as a part of operating income from the income statement.
cash flow
dividends
interest expense
earnings

Question 5
You have purchased a Treasury bond that will pay $10,000 to your newborn child in 15 years. If this bond is discounted at a rate of 3.875% per year, what is today's price (present value) for this bond?
8417
8500
5654
10000

Question 6
What type of loan requires both principal and interest payments as you go, making equal payments each period?
Amortized loan
Interest-only loan
Discount loan
Compound loan

Question 7
APRs must be converted to the appropriate periodic rates when compounding is:
more frequent than once a year.
less frequent than once a year.
more frequent than once a month.
less frequent than once every six months.

Question 8
The appropriate rate to use to discount the cash flows of a bond in order to determine the current price is the:
yield to maturity
coupon rate
par rate
current yield

Question 9
Bonds are different from stocks because:
bonds promise fixed payments for the length of their maturity.
bonds give payments only after other owners are paid.
bonds do not have maturity dates.
bonds promise growth in earnings

Question 10
Robert invested in stock and received a positive return over a nine-month period. Which of the following types of returns will be greater?
Holding period return (HPR)
Effective annual return (EAR)
Annual percentage rate (APR)
There is not enough information to make a definitive choice.

 

    

 

BU340 Lesson 1 Exam SCORE 100 PERCENT

Question 1

5 / 5 points

Which of the following is an advantage of a sole proprietorship?

Question options:

	The owner's unlimited liability
	The lack of continuity upon death of the owner
	The ease of start-up
	The ability to raise capital
Question 2		5 / 5 points

Stocks are bought and sold in __________ markets.

Question options:

	equity
	debt
	derivatives
	foreign exchange
Question 3		5 / 5 points

The common objective of borrowing and lending is to:

Question options:

	make all parties better off.
	gain a profit at the other's expense.
	make a firm or individual appear more liquid than is really the case.
	thwart regulatory authority.
Question 4		5 / 5 points

__________ are the forums where buyers and sellers of financial assets and commodities meet.

Question options:

	Housing markets
	Federal Reserve banks
	Financial markets
	Automotive shows
Question 5		5 / 5 points

Financial assets that will mature within a year are bought and sold in the __________ market.

Question options:

	debt
	capital
	stock
	money
Question 6		5 / 5 points

The set of financial activities that support the OPERATIONS of a business is best described by which main area of finance?

Question options:

	Corporate finance
	Investments
	Financial institutions and markets
	International finance
Question 7		5 / 5 points

At its most basic level, the function of financial intermediaries is to:

Question options:

	track and report interest rates.
	move money from lenders to borrowers and back again.
	report all financial transactions to the federal government.
	effect a transfer of wealth in society.
Question 8		5 / 5 points

__________ addresses the question of how to handle our day-to-day business needs.

Question options:

	Capital budgeting
	Capital structure
	Working capital management
	Accounts receivable management
Question 9		5 / 5 points

__________ is a major disadvantage of the corporate form of business.

Question options:

	Double taxation
	Unlimited liability
	Lack of ability to raise capital
	Transfer of ownership
Question 10		5 / 5 points

In agency theory, the owners of the business are referred to as __________, and the managers are referred to as __________.

Question options:

	bondholders, principals
	stockholders, bondholders
	agents, principals
	principals, agents
Question 11		5 / 5 points

Options are bought and sold in __________ markets.

Question options:

	equity
	debt
	derivatives
	foreign exchange
Question 12		5 / 5 points

Of the following, which is NOT one of the four main areas of finance?

Question options:

	International Finance
	Corporate Finance
	Investments
	All are considered main areas of finance.
Question 13		5 / 5 points

The problem of motivating one party to act in the best interest of another party is known as the:

Question options:

	leadership directive.
	management priority.
	principal-agent problem.
	sigma six structure.
Question 14		5 / 5 points

The means by which a company is financed refers to the firm's ________.

Question options:

	capital budgeting
	capital structure
	accounts receivable management
	working capital management
Question 15		5 / 5 points

Currencies are bought and sold in __________ markets.

Question options:

	equity
	debt
	derivatives
	foreign exchange
Question 16		5 / 5 points

__________ addresses the question of what business we should be in over the long run.

Question options:

	Capital budgeting
	Capital structure
	Working capital management
	Accounts receivable management
Question 17		5 / 5 points

The sale of "new" securities, where the financial asset is being traded for the very first time, is said to take place in the __________ market.

Question options:

	primary
	money
	secondary
	capital
Question 18		5 / 5 points

__________ is the area of finance concerned with activities like borrowing funds to finance projects such as plant expansions or new product launches.

Question options:

	Working capital management
	International finance
	Investments
	Corporate finance
Question 19		5 / 5 points

A __________ is a business that is owned entirely by an individual.

Question options:

	sole proprietorship
	partnership
	subchapter S corporation
	corporation
Question 20		5 / 5 points

__________ is the area of finance concerned with the activities of buying and selling financial assets such as stocks and bonds.

Question options:

	Investments
	Corporate finance
	International finance
	Financial markets and institutions

 

       

 

BU340 Lesson 2 Exam SCORE 100 PERCENT

Question 1

5 / 5 points

In regard to the Cash Flow Statement, assume we want to break down Yahoo! Finance's cost of revenue into its two major components, cost of goods sold (COGS) and depreciation. To do so, we would need to look at __________ for the depreciation amount.

Question options:

	the Statement of Cash Flow
	both the Income Statement and the Statement of Cash Flow
	both the Balance Sheet and the Statement of Cash Flow
	the Income Statement
Question 2		5 / 5 points

Which of the following statements is false?

Question options:

	Financial data on the Internet or via company annual reports provide a wealth of knowledge about the operations of the firm.
	Knowing the relationship of the primary financial statements and how to utilize the data in each are important tools for all financial managers.
	Although the annual report of a company is printed and mailed to owners and the SEC, much of the financial statement information is available at various financial websites.
	EDGAR stands for Electronic Data Gathering Analysis and Retribution.
Question 3		5 / 5 points

Notes to the financial statements help explain many of the details necessary to gain a more complete picture of the firm's performance. Some of the items often disclosed in the financial notes include which of the following?

Question options:

	How a specific item was computed
	Additional information on a company's financial condition
	Methods used to prepare the financial statements
	All of the above items are often included.
Question 4		5 / 5 points

The purpose of studying financial statements is:

Question options:

	to mechanically build portfolio analysis.
	to understand those portions of the statements that have relevance for financial decision making.
	to primarily investigate all portions of the statements that have relevance for dividend policy.
	to mechanically learn how to read and understand footnotes.
Question 5		5 / 5 points

The annual report of a company is:

Question options:

	printed and mailed to owners and the SEC.
	not available online.
	not mailed to owners but only to the SEC.
	always available online in more detail.
Question 6		5 / 5 points

Which of the following statements is true?

Question options:

	The finance manager uses the framework of the income statement to find <br /> the operating income of the company (an accounting measure), which is <br /> also the true cash flow from operations.
	In accrual-based accounting, revenue is recorded at the time of sale if <br /> the revenue has been received in cash.
	Three fundamental issues separate net income and cash flow: accrual <br /> accounting, noncash expense items, and interest expense.
	Generally Accepted Accounting Principles (GAAP) in the United States do <br /> not allow the use of accrual accounting to record revenue.
Question 7		5 / 5 points

Which of the following identities is true?

Question options:

	Operating Cash Flow = EBIT + Depreciation - Taxes
	Net Capital Spending = Ending Net Fixed Assets - Depreciation
	Change in Net Working Capital (NWC) = Current Assets - Current Liabilities
	Cash Flow from Assets = Operating Cash Flow + Net Capital Spending
Question 8		5 / 5 points

One of the key components to making financial decisions is to:

Question options:

	understand the timing and amount of dividends.
	understand the timing and amount of cash flow.
	understand the timing of EBIT.
	understand the amount of net income.
Question 9		5 / 5 points

Which one of the answers below is NOT one of the three components of the "Cash Flow from Assets"?

Question options:

	Operating Cash Flow
	Net Capital Spending
	Noncash expenses
	Change in Net Working Capital
Question 10		5 / 5 points

Cash flow is:

Question options:

	the increase but not decrease in cash for the period.
	the decrease but not increase in cash for the period.
	the increase or decrease in cash for the period.
	the net income for the period.
Question 11		5 / 5 points

Which of the statements below is true?

Question options:

	Accounting Identity is: Assets = Liabilities - Owners' Equity.
	Accounting Identity is: Assets = Liabilities + Owners' Equity.
	Accounting Identity is: Assets = Owners' Equity - Liabilities.
	Accounting Identity is: Liabilities = Assets + Owners' Equity.
Question 12		5 / 5 points

To find operating cash flow for the business for the year, add depreciation expense to EBIT and then:

Question options:

	subtract the interest expenses.
	add the taxes.
	subtract the taxes.
	add interest expenses.
Question 13		5 / 5 points

Understanding the sources and uses of cash in the recent past will enable a manager to __________ the cash flow for a potential project of the firm.

Question options:

	determine with perfect precision
	forecast with perfect precision
	predict more accurately
	know today
Question 14		5 / 5 points

It is important to remember that the fundamental __________ of accounting is the debit and credit recording activity where debits always equal credits.

Question options:

	effect
	end product
	outcome
	identity
Question 15		5 / 5 points

Cash flow from assets is derived from:

Question options:

	cash flow from operating activities and cash flow from investing activities.
	cash flow from operating activities and cash flow from financing activities.
	cash flow from financing activities and cash flow from investing activities.
	cash flow from creditors and cash flow from investing activities.
Question 16		5 / 5 points

Which of the statements below is false?

Question options:

	The income statement summaries and categorizes a company's revenues and expenses for that period.
	Typically, income statements are prepared quarterly and annually for distribution outside the company, but usually monthly for internal managers.
	The income statement begins with revenue and subtracts various operating expenses until arriving at Earnings Before Interest and Taxes (EBIT).
	The balance sheet reports the performance of the firm over the past period. It summarizes and categorizes a company's revenues and expenses for that period.
Question 17		5 / 5 points

Which of the sections below is NOT contained in the annual report?

Question options:

	Prediction of competitors' returns
	Company highlights
	President's letter to the shareholders
	Description of the company's activities (usually with pictures and graphs)
Question 18		5 / 5 points

Which of the following items may be included on all income statements at yahoo.finance.com, even though they may not be part of an individual company's income statement for that year?

Question options:

	Cost of Revenue and Extraordinary Items
	Goodwill and Effect of Accounting Changes
	Effect of Accounting Changes and Deferred Long-Term Asset Charges
	Cost of Revenue and Treasury Stock
Question 19		5 / 5 points

Debts to be paid more than one year from now are claims against the firm's assets; in other words, they are long-term liabilities. These claims are from __________ who have provided capital to the firm but whose entire repayment is not due during the coming year or operating cycle.

Question options:

	banks and bondholders
	banks and stockholders
	stockholders and bondholders
	all long-term lenders
Question 20		5 / 5 points

Notes to the financial statements help explain many of the details necessary to gain a more complete picture of the firm's:

Question options:

	capital budget.
	choice of management.
	dividend policy.
	performance.

 

    

 

BU340 Wek 3 Threaded Discussion

Discuss the relationship of bond prices and interest rates. Do interest rates affect coupon bonds differ from zero-coupon bonds? Explain why or why not.

 

(248 words with 2 references)

 

 

BU340 Lesson 3 Exam SCORE 95 PERCENT

Online Exam 3

 

Question 1

5 / 5 points

Which of the following will result in a future value greater than $100?

Question options:

	PV = $50, r = an annual interest rate of 10%, and n = 8 years.
	PV = $75, r = an annual interest rate of 12%, and n = 3 years.
	PV = $90, r = an annual interest rate of 14%, and n = 1 year.
	All of the future values are greater than $100.
Question 2		5 / 5 points

Your university is running a special offer on tuition. This year's tuition cost is $18,000. Next year's tuition cost is scheduled to be $19,080. The university offers to discount next year's tuition at a rate of 6% if you agree to pay both years' tuition in full today. How much is the total tuition bill today if you take the offer?

Question options:

	$18,000
	$34,981
	$37,080
	$36,000
Question 3		0 / 5 points

Which of the following formulas is correct for finding the present value 
of an investment?

Question options:

	<p><img border="0" id="MathMLEq1" src="https://study.ashworthcollege.edu/access/content/attachment/0ead80b7-a576-497a-bb9e-4c247c462da6/fckeditor/429e575b-0837-46b5-afb1-2057ddf903db/fmath-equation-40E4EDFD-A1CD-E9CF-8E58-AA18D025876A.png" /></p>
	<p> PV = FV × (1 + r)<sup>n</sup></p>
	<p> PV = FV<sup>n</sup> × (1 + r)</p>
	<p><img border="0" id="MathMLEq2" src="https://study.ashworthcollege.edu/access/content/attachment/0ead80b7-a576-497a-bb9e-4c247c462da6/fckeditor/955492a1-a2af-4fad-914b-e11637fbcf20/fmath-equation-5EDD8CA8-9A04-BD7F-C0D8-D18344981CE1.png" /></p>
Question 4		5 / 5 points

Gasoline cost $.10 per gallon in 1930. Over the next 60 years, the price rose at an average rate of 4.42% per year. Based on this information, what was the average price of a gallon of gas in 1990?

Question options:

	$1.34 per gallon
	$1.53 per gallon
	$2.65 per gallon
	$2.75 per gallon
Question 5		5 / 5 points

You won the state lottery and took the payout as a $1,283,475 lump sum today. Your spouse has decided that you need to invest this money for the next 10 years and can expect it to earn an average annual rate of return of 7.18%. If this comes to pass, how much money will be in the account at the end of the period?

Question options:

	$8,471,253
	$2,567,586
	$1,920,388
	$1,890,471
Question 6		5 / 5 points

You could double your money in about 9 years if you could earn an annual rate of return of what? Use the Rule of 72 to determine your answer.

Question options:

	You would need to earn an annual rate of return of about 12%.
	You would need to earn an annual rate of return of about 10%.
	You would need to earn an annual rate of return of about 8%.
	There is not enough information to answer this question.
Question 7		5 / 5 points

A two-year investment of $200 is made today at an annual interest rate of 6%. Which of the following statements is true?

Question options:

	The PV is $178.
	The FV is $224.
	The FV is $224.72.
	This question is irrelevant because there are no two-year investments that earn an average of 6% per year.
Question 8		5 / 5 points

An investment promises a payoff of $195 two and one-half years from today. At a discount rate of 7.5% per year, what is the present value of this investment?

Question options:

	$162.03
	$162.75
	$169.47
	There is not enough information to answer this question.
Question 9		5 / 5 points

A two-year investment of $200 is made today at an annual interest rate of 6%. Which of the following statements is true?

Question options:

	The future value would be greater if the interest rate was higher.
	The present value would be greater if the interest rate was higher.
	The future value would be greater if the interest rate was lower.
	The future value does not change as the interest rate changes.
Question 10		5 / 5 points

Which of the following investments has a larger future value: Investment A—a $1,000 investment earning 5% per year for 6 years, or Investment B—a $500 investment earning 10% per year for 6 years, with a bonus of an extra $500 added at the end of the sixth year?

Question options:

	Investment B, with a future value of $1,386.
	Investment A, with a future value of $1,386.
	Investment A, with a future value of $1,340.
	The investments have equal value.
Question 11		5 / 5 points

Which of the following actions will increase the present value of an investment?

Question options:

	Decrease the interest rate.
	Decrease the future value.
	Increase the amount of time.
	All of the above will increase the present value.
Question 12		5 / 5 points

A $100 deposit today that earns an annual interest rate of 10% is worth how much at the end of two years? Assume all interest received at the end of the first year is reinvested the second year.

Question options:

	$100
	$120
	$121
	$122
Question 13		5 / 5 points

In 1970, before the era of major league baseball free agency, the minimum player salary was $12,000. In 1975, the minimum salary was $16,000. What was the average annual growth in the minimum salary in major league baseball over those five years?

Question options:

	13.40%
	2.67%
	5.92%
	15%
Question 14		5 / 5 points

Which of the following is the correct formula for calculating the future value?

Question options:

	<p><img border="0" id="MathMLEq2" src="https://study.ashworthcollege.edu/access/content/attachment/0ead80b7-a576-497a-bb9e-4c247c462da6/fckeditor/584b2c4e-ea3e-4acd-9ca4-29fcc4df4a20/fmath-equation-AD7D39AD-5CB0-C75B-E35C-1111743F5579.png" /></p>
	<p> FV = PV × (1 + r)<sup>n</sup></p>
	<p> PV = FV × (1 + r)<sup>n</sup></p>
	<p><img border="0" id="MathMLEq3" src="https://study.ashworthcollege.edu/access/content/attachment/0ead80b7-a576-497a-bb9e-4c247c462da6/fckeditor/14fd8705-cb6b-4a3f-b2fc-97a1138b4b67/fmath-equation-8BEAAE42-2606-88E2-7B6E-010728C12464.png" /></p>
Question 15		5 / 5 points

In your first year out of college, you hope to earn $50,000 per year. How many years will you have to work until you earn $100,000 if your income increases at a rate of 10% per year? Use the Rule of 72 to determine your answer.

Question options:

	You would need to work for just over 5 years to reach an income level of $100,000 per year.
	You would need to work for just over 6 years to reach an income level of $100,000 per year.
	You would need to work for just over 7 years to reach an income level of $100,000 per year.
	You would need to work for just over 8 years to reach an income level of $100,000 per year.
Question 16		5 / 5 points

Rory has $2,500 but needs $5,000 to purchase a new golf cart. If he can invest his money at a rate of 12% per year, approximately how many years will it take the money in Rory's account to grow to $5,000? Use the Rule of 72 to determine your answer.

Note: The golf cart's price may have changed by the time Rory's account reaches a value of $5,000.

Question options:

	2 years
	4 years
	6 years
	8 years
Question 17		5 / 5 points

Which of the following investments has a larger future value? A $100 investment earning 10% per year for 5 years, or a $100 investment earning 5% per year for 10 years?

Question options:

	An investment of $100 invested at 10% per year for 5 years because it has a future value of $161.05.
	An investment of $100 invested at 10% per year for 5 years because it has a future value of $162.89.
	An investment of $100 invested at 5% per year for 10 years because it has a future value of $161.05.
	An investment of $100 invested at 5% per year for 10 years because it has a future value of $162.89.
Question 18		5 / 5 points

Your production manager informs you that currently the firm is producing 1,438 heating units per month but has plans to increase production at a rate of 5% per month until the firm is producing 3,000 units per month. How many months will this take?

Question options:

	27.33 months
	15.07 months
	14 months
	There is not enough information to answer this question.
Question 19		5 / 5 points

Your aunt places $13,000 into an account earning an interest rate of 7% per year. After 5 years the account will be valued at $18,233.17. Which of the following statements is correct?

Question options:

	The present value is $13,000, the time period is 7 years, the present value is $18,233.17, and the interest rate is 5%.
	The future value is $13,000, the time period is 5 years, the principal is $18,233.17, and the interest rate is 7%.
	The principal is $13,000, the time period is 5 years, the future value is $18,233.17, and the interest rate is 7%.
	The principal is $13,000, the time period is 7 years, the future value is $18,233.17, and the interest rate is 5%.
Question 20		5 / 5 points

__________ is simply the interest earned in subsequent periods on the interest earned in prior periods.

Question options:

	Quoted interest
	Anticipated interest
	Simple interest
	Compound interest

 

BU340 Lesson 4 & 5 Exam SCORE 95 PERCENT

Question 1

2.5 / 2.5 points

You have saved $47,000 for college and wish to use $15,000 per year. If you use the money as an ordinary annuity and earn 6.15% on your investment, how many years will your annuity last? Use a calculator to determine your answer.

Question options:

	4.27 years
	3.13 years
	3.59 years
	3.36 years
Question 2		2.5 / 2.5 points

An annuity is a series of:

Question options:

	variable cash payments at regular intervals across time.
	equal cash payments at regular intervals across time.
	variable cash payments at different intervals across time.
	equal cash payments at different intervals across time.
Question 3		2.5 / 2.5 points

If you borrow $100,000 at an annual rate of 8% for a 10-year period and repay the total amount of principal and interest due of $215,892.50 at the end of 10 years, what type of loan did you have?

Question options:

	Amortized loan
	Interest-only loan
	Discount loan
	Compound loan
Question 4		2.5 / 2.5 points

The main variables of the TVM equation are:

Question options:

	present value, future value, time, interest rate, and payment.
	present value, future value, perpetuity, interest rate, and payment.
	present value, future value, time, annuity, and interest rate.
	present value, future value, perpetuity, interest rate, and principal.
Question 5		2.5 / 2.5 points

You just won the Publisher's Clearing House Sweepstakes and the right to 20 after-tax ordinary annuity cash flows of $163,291.18. Assuming a discount rate of 7.50%, what is the present value of your lottery winnings? Use a calculator to determine your answer.

Question options:

	$3,265,823.60
	$1,789,520.81
	$1,664,670.52
	There is not enough information to answer this question.
Question 6		2.5 / 2.5 points

You have just won the Reader's Digest lottery of $5,000 per year for 20 years, with the first payment today followed by 19 more start-of-the-year cash flows. At an interest rate of 5%, what is the present value of your winnings?

Question options:

	$100,000
	$65,426.60
	$62,311.05
	$47,641.18
Question 7		2.5 / 2.5 points

What is the future value in Year 12 of an ordinary annuity cash flow of $6,000 per year at an interest rate of 4% per year?

Question options:

	$90,154.83
	$93,761.02
	$28,675.97
	$32,117.08
Question 8		2.5 / 2.5 points

What is the present value of a stream of annual end-of-the-year annuity cash flows if the discount rate is 0%, and the cash flows of $50 last for 20 years?

Question options:

	Less than $1,000
	Exactly $1,000
	More than $1,000
	This question cannot be answered because we have an interest rate of 0%.
Question 9		2.5 / 2.5 points

Which is greater, the present value of a $1,000 five-year ordinary annuity discounted at 10%, or the present value of a $1,000 five-year annuity due discounted at 10%?

Question options:

	The ordinary annuity is worth more with a present value of $3,790.79.
	The annuity due is worth more with a present value of $4,169.87.
	The ordinary annuity is worth more with a present value of $4,169.87.
	The annuity due is worth more with a present value of $4,586.85.
Question 10		2.5 / 2.5 points

What is the future value in Year 25 of an ordinary annuity cash flow of $2,000 per year at an interest rate of 10% per year?

Question options:

	$66,505.81
	$55,000.00
	$196,694.12
	$216,363.53
Question 11		2.5 / 2.5 points

Given the following cash flows, what is the future value at Year 6 when compounded at an interest rate of 8%?

Year	0	2	4	6
Cash Flow	$5,000	$7,000	$9,000	$11,000

Question options:

	$38,955.39
	$56,687.43
	$42,074.42
	$32,000
Question 12		2.5 / 2.5 points

If you borrow $100,000 at an annual rate of 8% for a 10-year period and repay with 10 equal annual end-of-the-year payments of $14,902.95, then you have just repaid what type of loan?

Question options:

	Amortized loan
	Interest-only loan
	Discount loan
	Compound loan
Question 13		2.5 / 2.5 points

Randy W. recently won the Western States Lottery of $6,500,000. The lottery pays either a total of twenty $325,000 payments per year with the first payment today (i.e., an annuity due), or $3,500,000 today. At what interest rate would Randy be financially indifferent between these two payout choices?

Question options:

	5.37%
	7.36%
	7.76%
	8.00%
Question 14		2.5 / 2.5 points

What type of loan makes interest payments throughout the life of the loan and then pays the principal and final interest payment at the maturity date?

Question options:

	Amortized loan
	Interest-only loan
	Discount loan
	Compound loan
Question 15		0 / 2.5 points

If you borrow $50,000 at an annual interest rate of 12% for six years, what is the annual payment (prior to maturity) on an interest-only type of loan?

Question options:

	$0
	$6,000
	$8,333.33
	$12,161.29
Question 16		2.5 / 2.5 points

If for the next 40 years you place $3,000 in equal year-end deposits into an account earning 8% per year, how much money will be in the account at the end of that time period?

Question options:

	$120,000.00
	$777,169.56
	$839,343.12
	$2,606,942.58
Question 17		2.5 / 2.5 points

If you borrow $100,000 at an annual rate of 8% for a 10-year period and repay the interest of $8,000 at the end of each year prior to maturity and the final payment of $108,000 at the end of 10 years, then you have just repaid what type of loan?

Question options:

	Amortized loan
	Interest-only loan
	Discount loan
	Compound loan
Question 18		0 / 2.5 points

Your firm intends to finance the purchase of a new construction crane. The cost is $1,500,000. How large is the payment at the end of Year 10 if the crane is financed at a rate of 8.50% as a discount loan?

Question options:

	$228,611.56
	$127,500
	$3,391,475.16
	There is not enough information to answer this question.
Question 19		2.5 / 2.5 points

Present value calculations do which of the following?

Question options:

	Compound all future cash flows into the future
	Compound all future cash flows back to the present
	Discount all future cash flows back to the present
	Discount all future cash flows into the future
Question 20		2.5 / 2.5 points

A/An __________ is a series of cash flows at regular intervals across time.

Question options:

	annuity
	annuity due
	perpetuity due
	None of the above
Online Exam 5

 

Question 21

2.5 / 2.5 points

Assume that Don is 45 years old and has 20 years for saving until he retires. He expects an APR of 8.5% on his investments. How much does he need to save if he puts money away annually in equal end-of-the-year amounts to achieve a future value of $1 million in 20 years' time?

Question options:

	$20,570.00
	$20,670.97
	$20,770.90
	$20,800.00
Question 22		2.5 / 2.5 points

The phrase "price to rent money" is sometimes used to refer to:

Question options:

	historical prices.
	compound rates.
	discount rates.
	interest rates.
Question 23		2.5 / 2.5 points

Suppose you invest $1,000 today, compounded quarterly, with the annual interest rate of 5%. What is your investment worth in one year?

Question options:

	$1,025.00
	$1,500.95
	$1,025.27
	$1,050.95
Question 24		2.5 / 2.5 points

James is a rational investor wishing to maximize his return over a 20-year period. The current yield curve is inverted with one-year rates at 5% and 20-year rates at 3.5%. James will invest in the lower-rate 20-year bonds if:

Question options:

	he thinks rates will fall in the future and locking in long-term rates today may provide the highest long-run average return.
	he thinks rates will rise in the future and locking in long-term rates today may provide the lowest long-run average return.
	he thinks rates will remain flat at 5% in the future and locking in long-term rates today will prevent him from appearing greedy to those without this investment opportunity.
	James has no idea what to do and should just skip this question.
Question 25		2.5 / 2.5 points

Suppose you deposit money in a certificate of deposit (CD) at a bank. Which of the following statements is true?

Question options:

	The bank is borrowing money from you without a promise to repay that money with interest.
	The bank is lending money to you with a promise to repay that money with interest.
	The bank is technically renting money from you with a promise to repay that money with interest.
	The bank is lending money to you, but not borrowing money from you.
Question 26		2.5 / 2.5 points

Assume you just bought a new home and now have a mortgage on the home. The amount of the principal is $150,000, the loan is at 5% APR, and the monthly payments are spread out over 30 years. What is the loan payment? Use a calculator to determine your answer.

Question options:

	$798.95
	$805.23
	$850.32
	$903.47
Question 27		2.5 / 2.5 points

The two major components of the interest rate that cause rates to vary across different investment opportunities or loans are:

Question options:

	the default premium and the bankruptcy premium.
	the liquidity premium and the maturity premium.
	the default premium and the maturity premium.
	the inflation premium and the maturity premium.
Question 28		2.5 / 2.5 points

You put down 20% on a home with a purchase price of $300,000. The down payment is thus $60,000, leaving a balance owed of $240,000. The bank will loan you the remaining balance at 4.28% APR. You will make annual payments with a 20-year payment schedule. What is the annual annuity payment under this schedule?

Question options:

	$18,100.23
	$22,625.29
	$12,000.00
	$33,785.23
Question 29		2.5 / 2.5 points

Nominal interest rates are the sum of two major components. These components are:

Question options:

	the real interest rate and expected inflation.
	the risk-free rate and expected inflation.
	the real interest rate and default premium.
	the real interest rate and the T-bill rate.
Question 30		2.5 / 2.5 points

When interest rates are stated or given for loan repayments, it is assumed that they are __________ unless specifically stated otherwise.

Question options:

	daily rates
	annual percentage rates
	effective annual rates
	APYs
Question 31		2.5 / 2.5 points

The __________ compensates the investor for the additional risk that the loan will not be repaid in full.

Question options:

	default premium
	inflation premium
	real rate
	interest rate
Question 32		2.5 / 2.5 points

If you take out a loan from a bank, you will be charged:

Question options:

	for principal but not interest.
	for interest but not principal.
	for both principal and interest.
	for interest only.
Question 33		2.5 / 2.5 points

Which of the following statements is true if you increase your monthly payment above the required loan payment?

Question options:

	The extra portion of the payment does not go to the principal.
	You can significantly increase the number of payments needed to pay off the loan.
	The extra portion of the payment increases the principal.
	You can significantly reduce the number of payments needed to pay off the loan.
Question 34		2.5 / 2.5 points

We can write the true relationship between the nominal interest rate and the real rate and expected inflation as which of the following?

Question options:

	(1 + r) = (1 + r) × (1 + h*)
	r = (1 + r*) × (1 + h) - 1
	r* = (1 + r) × (1 + h) -1
	r = (1 + r*) × (1 + h) + 1
Question 35		2.5 / 2.5 points

Assume that you are willing to postpone consumption today and buy a certificate of deposit (CD) at your local bank. Your reward for postponing consumption implies that at the end of the year:

Question options:

	you will be able to consume fewer goods.
	you will be able to buy the same amount of goods or services.
	you will be able to buy fewer goods or services.
	you will be able to buy more goods or services.
Question 36		2.5 / 2.5 points

The typical payments on a consumer loan are made at:

Question options:

	the end of each day.
	the end of each week.
	the end of each month.
	the beginning of each month.
Question 37		2.5 / 2.5 points

What is the EAR if the APR is 10.52% and compounding is daily?

Question options:

	Slightly above 10.09%
	Slightly below 11.09%
	Slightly above 11.09%
	Over 11.25%
Question 38		2.5 / 2.5 points

Suppose you invest $2,000 today, compounded monthly, with an annual interest rate of 7.5%. What is your investment worth in one year?

Question options:

	$2,150
	$2,152.81
	$2,155.27
	$2,154.77
Question 39		2.5 / 2.5 points

Suppose you postpone consumption so that by investing at 8% you will have an extra $800 to spend in one year. Suppose that inflation is 4% during this time. What is the approximate real increase in your purchasing power?

Question options:

	$800
	$600
	$400
	$200
Question 40		2.5 / 2.5 points

Which of the following statements is true?

Question options:

	On many calculators the TVM key for interest is I/Y; this is Interest per Year, or the EAR rate.
	On many calculators the TVM key for interest is Y/I; this is Interest per Year, or the APR rate.
	On many calculators the TVM key for interest is I/Y; this is Interest per Year, or the APR rate.
	On many calculators the TVM key for a period is I/Y.

 

BU340 Week 5 Threaded Discussion

Discuss how effective bond rating agencies are? Is there room for improvement. Why or why not?

 

(193 words with 1 reference)

 

 

 

BU340 Week 6 Threaded Discussion

Compare the primary market to the secondary market.

(159 words with 1 reference)

 

 

 

BU340 Lesson 6 & 7 Exam SCORE 95 PERCENT

Online Exam 6

 

Question 1

2.5 / 2.5 points

Moody's has developed a corporate bond default-risk rating system using capital and lowercase letters and numbers. Below are several examples of Moody's ratings. Which answer choice lists a collection of ratings for "high credit investment grade" bonds?

Question options:

	Baa1, A1, A3
	Ba1, Baa2, Baa3
	Aa2, Aa3, A1
	Caa, Ca, C
Question 2		2.5 / 2.5 points

A bond is a __________ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates in the future.

Question options:

	long-term equity
	long-term debt
	short-term debt
	short-term equity
Question 3		2.5 / 2.5 points

When a company is in financial difficulty and cannot fully pay all of its creditors, the first lenders to be paid are the:

Question options:

	stockholders.
	sinking fund holders.
	junior debtholders.
	senior debtholders.
Question 4		2.5 / 2.5 points

The __________ is the regular interest payment of the bond.

Question options:

	dividend
	par
	coupon rate
	coupon
Question 5		2.5 / 2.5 points

As the rating of a bond increases (for example, from A, to AA, to AAA), it generally means that:

Question options:

	the credit rating increases, the default risk increases, and the required rate of return decreases.
	the credit rating increases, the default risk decreases, and the required rate of return increases.
	the credit rating increases, the default risk decreases, and the required rate of return decreases.
	the credit rating decreases, the default risk decreases, and the required rate of return decreases.
Question 6		2.5 / 2.5 points

The __________ is the interest rate printed on the bond.

Question options:

	coupon rate
	semiannual coupon rate
	yield to maturity
	compound rate
Question 7		2.5 / 2.5 points

The difference between the price and the par value of a zero-coupon bond represents:

Question options:

	taxes payable by the bond buyer.
	the accumulated principal over the life of the bond.
	the bond premium.
	the accumulated interest over the life of the bond.
Question 8		2.5 / 2.5 points

Bonds are sometimes called __________ securities because they pay set amounts on specific future dates.

Question options:

	variable-income
	fixed-income
	bully
	real
Question 9		2.5 / 2.5 points

From 1980 to 2006, the default risk premium differential between Aaa-rated bonds and Aa-rated bonds has averaged between:

Question options:

	50 to 150 basis points.
	90 to 190 basis points.
	120 to 220 basis points.
	250 to 350 basis points.
Question 10		2.5 / 2.5 points

"Junk" bonds are a street name for __________ grade bonds.

Question options:

	investment
	speculative
	extremely speculative
	speculative and investment
Question 11		2.5 / 2.5 points

When the __________ is less than the yield to maturity, the bond sells at a/the __________ the par value.

Question options:

	coupon rate; premium over
	coupon rate; discount to
	time to maturity; discount to
	time to maturity; same price as
Question 12		2.5 / 2.5 points

Delagold Corporation is issuing a zero-coupon bond that will have a maturity of 50 years. The bond's par value is $1,000, and the current yield on similar bonds is 7.5%. What is the expected price of this bond, using the semiannual convention?

Question options:

	$25.19
	$250.19
	$750
	$1,000
Question 13		2.5 / 2.5 points

When real property is used as collateral for a bond, it is termed a/an:

Question options:

	debenture.
	mortgaged security.
	indenture.
	senior bond.
Question 14		2.5 / 2.5 points

Zero-coupon U.S. Government bonds are known as:

Question options:

	STRIPS.
	muni-bonds.
	Uncle Sam's Empty Pockets.
	BLANKS.
Question 15		2.5 / 2.5 points

With a bearer bond, whoever held it was entitled to the __________ and the __________.

Question options:

	interest payments; principal
	dividend payments; principal
	interest payments; dividend payments
	interest payments; voting rights
Question 16		2.5 / 2.5 points

Espresso Petroleum Inc. has a contractual option to buy back, prior to maturity, bonds the firm issued five years ago. This is an example of what type of bond?

Question options:

	Putable bond
	Callable bond
	Convertible bond
	Junior bond
Question 17		2.5 / 2.5 points

Which of the following is NOT an example of a bond that contains an option feature?

Question options:

	Callable bond
	Putable bond
	Convertible bond
	The above are all examples of bonds with option features.
Question 18		2.5 / 2.5 points

The __________ is the expiration date of the bond.

Question options:

	future value
	yield to maturity
	maturity date
	coupon
Question 19		2.5 / 2.5 points

The __________ is the annual coupon payment divided by the current price of the bond, and is not always an accurate indicator.

Question options:

	current yield
	yield to maturity
	bond discount rate
	coupon rate
Question 20		2.5 / 2.5 points

Which of the following statements about the relationship between yield to maturity and bond prices is false?

Question options:

	When the yield to maturity and coupon rate are the same, the bond is called a par value bond.
	A bond selling at a premium means that the coupon rate is greater than the yield to maturity.
	When interest rates go up, bond prices go up.
	A bond selling at a discount means that the coupon rate is less than the yield to maturity.
Online Exam 7

 

Question 21

2.5 / 2.5 points

The __________ is the market of first sale in which companies first sell 
their authorized shares to the public.

Question options:

	primary market
	secondary market
	bull market
	Nasdaq market
Question 22		2.5 / 2.5 points

Which of the statements below is true?

Question options:

	The profits for common stock owners come after payment to the employees, suppliers, government, and creditors.
	Shareholders elect the board of directors, which ultimately selects the bondholder team that runs the day-to-day operations of the company.
	Stock is a minor financing source for public companies.
	Stockholders are paid before debtholders (bondholders) if a company fails.
Question 23		2.5 / 2.5 points

__________ means that the percentage increase in the dividend is the same each year.

Question options:

	Constant growth
	Inconsistent growth
	No growth
	A constant cash flow
Question 24		2.5 / 2.5 points

Which of the statements below is true?

Question options:

	A problem with using the dividend growth model is that it appears to underestimate the expected return for all stocks.
	A problem with using the dividend growth model is that it produces a negative expected return whenever a firm cuts dividends.
	A problem with using the dividend growth model is that it produces a positive expected return whenever a firm cuts dividends.
	A problem with using the dividend growth model is that it produces a negative expected return whenever a firm increases its dividends.
Question 25		2.5 / 2.5 points

If we know the dividend stream, the future price of the stock, the future selling date of the stock, and the required return, we can price stocks just as we priced:

Question options:

	annuities.
	perpetuities.
	bonds.
	preferred stocks.
Question 26		2.5 / 2.5 points

Which of the statements below is FALSE? Answer:

Question options:

	The dividend model requires that a firm have a cash dividend history and that the dividend history shows a constant dividend or a positive growth in dividends.
	A problem with using the dividend growth model is that it appears to underestimate the expected return for some stocks.
	A problem with using the dividend growth model is that it produces a negative expected return whenever a firm cuts its dividends.
	A problem with using the dividend growth model is that it appears to underestimate the expected return for all stocks.
Question 27		2.5 / 2.5 points

You can think of the __________ as the "used stock" market because these shares have been owned or "used" previously.

Question options:

	secondary market
	primary market
	NYSE market
	initial public offering market
Question 28		2.5 / 2.5 points

The hiring process for an investment banker can happen in two ways. Which of the below is one of these ways?

Question options:

	Randomly choose an investment banking firm from a list of underwriting firms.
	Pick a desirable investment banking firm, usually basing the choice on the reputation and history of the banker in its particular industry.
	Have the primary government regulator of your industry choose the best investment banking firm for your company.
	Solicit advice from a government agency and use it as your primary guide in choosing an investment banker.
Question 29		2.5 / 2.5 points

Strong-form efficient markets theory proclaims that:

Question options:

	one can chart historical stock prices to predict future stock prices such that you can identify mispriced stocks and routinely outperform the market.
	one can exploit publicly available news or financial statement information to routinely outperform the market.
	current prices reflect the price and volume history of the stock, all publicly available information, and all private information.
	current prices reflect the price and volume history of the stock, all publicly available information, but no private information.
Question 30		2.5 / 2.5 points

You buy a stock for which you expect to receive an annual dividend of $2.10 for the 15 years that you plan on holding it. After 15 years, you expect to sell the stock for 32.25. What is the present value of a share for this company if you want a 10% return?

Question options:

	$7.72
	$15.97
	$23.69
	$31.41
Question 31		2.5 / 2.5 points

You want to invest in a stock that pays $6 annual cash dividends for the next five years. At the end of the five years, you will sell the stock for $30. If you want to earn 10% on this investment, what is a fair price for this stock if you buy it today?

Question options:

	$41.37
	$40.37
	$22.75
	$18.63
Question 32		2.5 / 2.5 points

A typical practice of many companies is to distribute part of the earnings to shareholders through:

Question options:

	quarterly stock splits.
	quarterly cash dividends.
	semiannual cash dividends.
	annual stock dividends.
Question 33		2.5 / 2.5 points

Shortcomings of the dividend pricing models suggest that we need a pricing model that is more inclusive than the dividend models and provides expected returns for companies based on aspects besides their historical dividend patterns. Which of the below is NOT one of these aspects?

Question options:

	The company's risk
	The premium for taking on risk
	The reward for waiting
	Stable dividends
Question 34		0 / 2.5 points

__________ has to do with the speed and accuracy of processing a buy or sell order at the best available price.

Question options:

	Market efficiency
	Mechanical efficiency
	Informational efficiency
	Operational efficiency
Question 35		2.5 / 2.5 points

Which of the statements below is FALSE?

Question options:

	In estimating the current price using the constant growth dividend <br /> model, we let g be the growth rate on the dividend stream and r be the <br /> rate of return required by the potential buyer of the stock.
	Constant growth means that the percentage increase in the dividend is <br /> the same each year.
	<p> Div<sub>0</sub> refers to the dividends that were just been paid to the current owner of the stock.</p>
	One unlikely dividend pattern is to raise or grow dividends by a fixed <br /> amount at fixed intervals.
Question 36		2.5 / 2.5 points

In the United States, there are three well-known secondary stock markets. Which of the below is NOT one of these?

Question options:

	The New York Stock Exchange (NYSE)
	The Chicago Stock Exchange (CSE)
	The National Association of Securities Dealers and their trading system NASDAQ (National Association of Securities Dealers Automated Quotation System)
	The American Stock Exchange (AMEX)
Question 37		2.5 / 2.5 points

Stocks are different from bonds because:

Question options:

	stocks, unlike bonds, are major sources of funds.
	stocks, unlike bonds, represent residual ownership.
	stocks, unlike bonds, give owners legal claims to payments.
	bonds, unlike stocks, represent voting ownership.
Question 38		2.5 / 2.5 points

Which of the statements below is FALSE?

Question options:

	The profits for common stock owners come before payment to employees, suppliers, government, and creditors.
	Shareholders elect the board of directors, which ultimately selects the management team that runs the day-to-day operations of the company.
	Stock is a major financing source for public companies.
	Common stock's ownership claim on the assets and cash flow of a company is often referred to as a residual claim.
Question 39		0 / 2.5 points

Which of the statements below is true?

Question options:

	Buying of shares is the selling of ownership in the company.
	A company is said to go "private" when it opens up its ownership structure to the general public through the sale of common stock.
	Private companies choose to sell stock to attract permanent financing through equity ownership of the company.
	Most companies have the resident expertise to complete an initial public offering (IPO), or first public equity issue.
Question 40		2.5 / 2.5 points

Which of the statements below is FALSE?

Question options:

	If an investor purchases 20% of the initial issue of the company, the investor then owns 20% of the company, given the one vote/one share norm.
	After an initial offering, the company can sell more shares to the public at a later date. If the investor who originally purchased 20% does not purchase 20% of the subsequent issue, his or her ownership is diluted below 20%.
	A preemptive right enables one to maintain one's proportional level of ownership.
	A preemptive right is never particularly valuable to shareholders with large ownership percentages.

 

BU340 Lesson 8 Exam SCORE 100 PERCENT

Online Exam 8

 

Question 1

Question 1

Which of the statements below is true?

Question options:

	Investors want to maximize return and maximize risk.
	Investors want to maximize return and minimize risk.  (*This is correct)
	Investors want to minimize return and maximize risk.
	Investors want to minimize return and minimize risk.
Question 2		5 / 5 points

The practice of not putting all of your eggs in one basket is an illustration of:

Question options:

	variance.
	diversification.
	portion control.
	expected return.
Question 3		5 / 5 points

The security market line has:

Question options:

	a positive slope.
	a negative slope.
	no slope.
	a beta of 1.0.
Question 4		5 / 5 points

Given an expected market return of 12.0%, a beta of 0.75 for Benson Industries, and a risk-free rate of 4%, what is the expected return for Benson Industries?

Question options:

	13%
	10%
	9%
	4%
Question 5		5 / 5 points

For most stocks, the correlation coefficient with other stocks is:

Question options:

	positive.
	negative.
	zero.
	The distribution of correlation coefficients between stocks is uniform from -1.0 to +1.0.
Question 6		5 / 5 points

Stocks A, B, C, and D have standard deviations, respectively, of 20%, 5%, 10%, and 15%. Which one is the riskiest?

Question options:

	Stock A
	Stock B
	Stock C
	Stock D
Question 7		5 / 5 points

Travis bought a share of stock for $31.50 that paid a dividend of $.85 and sold six months later for $27.65. What was his dollar profit or loss and holding period return?

Question options:

	-$3.00, -9.52%
	-$3.85, -12.22%
	-$.85, -2.70%
	-$3.85, -9.52%
Question 8		5 / 5 points

__________ may be defined as a measure of uncertainty in a set of potential outcomes for an event in which there is a chance for some loss.

Question options:

	Diversification
	Risk
	Uncertainty
	Collaboration
Question 9		5 / 5 points

The __________ is the intercept on the security market line.

Question options:

	prime rate
	risk-free rate
	market rate of return
	beta
Question 10		5 / 5 points

Which of the following investments is considered to be default risk-free?

Question options:

	Currency options
	AAA-rated corporate bonds
	Common stock
	Treasury bills
Question 11		5 / 5 points

Correlation, a standardized measure of how stocks perform relative to one another in different states of the economy, has a range from:

Question options:

	0.0 to +10.0.
	0.0 to +1.0.
	-1.0 to +1.0.
	There is no range; correlation is a calculated number that can take on any value.
Question 12		5 / 5 points

Jarvis bought a share of stock for $15.75 that paid a dividend of $.45 and sold three months later for $18.65. What was his dollar profit or loss and holding period return?

Question options:

	$2.90, 18.41%
	$3.35, 21.27%
	-$2.90, -18.41%
	$.45, 2.86%
Question 13		5 / 5 points

Find the variance for a security that has three one-year returns of 5%, 10%, and 15%.

Question options:

	10%
	16.67%
	25%
	30%
Question 14		5 / 5 points

Find the variance for a security that has three one-year returns of -5%, 15%, and 20%.

Question options:

	175%
	75%
	58.33%
	25%
Question 15		5 / 5 points

Use the following table:

States of the Economy	Probability of the State	3-Month T-Bill	Large-Company Stock	Small-Company Stock
Boom	0.3	4	10	30
Steady	0.5	4	5	20
Recession	0.2	4	0	10

What is the difference between the variances for large- and small-company stocks?

Question options:

	40.25%
	36.75%
	27.30%
	14.90%
Question 16		5 / 5 points

The correlation coefficient, a measurement of the comovement between two variables, has what range?

Question options:

	From 0.0 to +10.0
	From 0.0 to +1.0
	From -1.0 to +10.0
	From =1.0 to -1.0
Question 17		0 / 5 points

 

Stock	A	B	C	D
Expected Return	5%	5%	7%	6%
Standard Deviation	10%	12%	12%	11%

Which of the following statements is true?

Question options:

	A is a better investment than B.
	B is a better investment than C.
	C is a better investment than D.
	D is a better investment than C.
Question 18		5 / 5 points

Unsystematic risk:

Question options:

	is also known as nondiversifiable risk.
	can be diversified away.
	is system-wide risk.
	is equal to 2 times the systematic risk.
Question 19		5 / 5 points

Which of the following statements is true about variance?

Question options:

	Variance describes how spread out a set of numbers or values are around its mean or average.
	Variance is essentially the variability from the average.
	The larger the variance, the greater the dispersion.
	All of the above statements are true.
Question 20		5 / 5 points

Assume the following information about the market and JumpMasters' stock. JumpMasters' beta = 1.50, the risk-free rate is 3.5%, the market risk premium is 10%. Using the SML, what is the expected return for JumpMasters' stock?

Question options:

	7.5%
	13.5%
	18.5%
	27%