EXIT ASSESSMENT FIN MAJOR SOLUTION
1. A 30-year bond issued by Gary's Plaid Pants Warehouse, Inc., in 2010 would now trade in the
D) Secondary capital market
2. NASDAQ is a(n) ......
D) Secondary capital market
3. Investment bankers
B) Act as intermediaries between issuers of stock and investors
4. A 10-year corporate bond has an annual coupon payment of 9 percent. The bond is currently
selling at par ($1,000). Which of the following statements is most correct?
D) all of the above
5. Which of the following software can you use to calculate the risk of a stock?
C) Microsoft Excel
5. Usury laws put a cap on the:
C) interest rate charged by banks
6. What was the significance of the Basel Accord?
C) Standardizing capital requirements for banks
7. Considering the “Price” column of the following table, which type of chart would be best to
use if you want to visually represent the contribution of each item as part of the total? Table is
provided below (see image)
C) Pie chart
8. Which of the following is a problem using the dividend discount model to value common
stock?
C) The model does not consider that dividends may not be paid
9. The capital market line (CML) uses ____ as a risk measurement, whereas the capital asset
pricing model (CAPM) uses ____.
C) Standard deviation; systematic risk
10. Lee Sun’s has sales of $3,000, total assets of $2,500, and a profit margin of5%. The fi rm has
a total debt ratio of 40%. What is the return on equity?
C) 10%
11. Which one of the following terms is defined as dividends paid expressed as a percentage of
net income?
C) dividend payout ratio
12. Monamy invested $9,250 in an account that pays 6 percent simple interest. How much more
could he have earned over a 7-year period if the interest had compounded annually?
B) $773.58
13. You are getting ready to prepare pro forma statements for your business. Which one of the
following are you most apt to estimate first as you begin this process? *
A) sales forecast
14. The beta of the market __________
C) is 1
15. If a fi rm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the
following?
B) 0.5
16. Unique Industries is investing in a new project. The minimum rate of return the firm requires
on this project is referred to as the:
C) cost of capital
17. The proposition that a fi rm borrows up to the point where the marginal benefit of the interest
tax shield derived from increased debt is just equal to the marginal expense of the resulting
increase in financial distress costs is called:
A) the static theory of capital structure
18. If an employee deposits TK 20 at the end of each month into his company’s plan which pays
6% interest compounded monthly, how much will he have in the account at the end of 5 years?
D) TK 1,395.40
19. Dividend per share is equal to dividends paid:
B) divided by the total number of shares outstanding.
20. Free cash flow is:
D) cash that the firm is free to distribute to creditors and stockholders.
21. How much are you willing to pay for one share of Jumbo Trout stock if the company just
paid a $0.70 annual dividend, the dividends increase by 1.6 percent annually, and you require a
10 percent rate of return?
C) $8.46
22. All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to
maturity.
B) a premium; equal to
23. __________ is the variability of return on stocks or portfolios not explained by general
market movements. It is avoidable through diversification.
C) Unsystematic risk
24. You have purchased 200 shares of common stock at $50 per share by borrowing from your
broker. The initial margin requirement is 50%. How much you have borrowed?
A) $5,000.
25. Which of the following does NOT characterize the money market?
D) High expected returns
26. Which of the following borrowers' demand for funds is least sensitive to interest rates?
C) Governments
27. Which of the following is the major monetary policy-making body of the Federal Reserve
System?
D) Federal Open Market Committee
28. Investors in mortgages are subject to ________ risk, which is generally not faced by
investors in other markets (like bonds).
A) Prepayment
29. Which of the following does the most to reduce default risk for future contracts?
C) Marking to market
30. A bank enters into an interest rate swap making annual fixed rate payments of8% and
receiving a floating rate equal to LIBOR + 2%. The notional principal on the swap is $10
million. What is the first net payment under the swap if LIBOR is 7%?
B) Bank receives $100,000
31. Projected future financial statements are called:
B) pro forma statements.
32. The financial ratio measured as earnings before interest and taxes, divided by interest
expense is the:
C) times interest earned ratio.
33. Havier’s has a profit margin of 6%, a return on assets of 8%, and an equity multiplier of 1.4.
What is the return on equity?
A) 6.7%
34. Annuities where the payments occur at the end of each time period are called_____, whereas
_____ refer to annuity streams with payments occurring at the beginning of each time period.
D) ordinary annuities; annuities due
35. Matron Company offers a common stock that pays an annual dividend of$2.00 a share. The
company has promised to maintain a constant dividend. How much are you willing to pay for
one share of this stock if you want to earn 12%return on your equity investments?
C) $16.67
36. _____ refers to the cash flows those result from the firm’s day to day regular business
activities.
A) Cash flow from operating activities
37. The variance of a portfolio of risky securities
C) is the weighted sum of the securities' variances and covariances.
38. The concept of beta is most closely associated with:
D) Systematic risk.
39. The risk-free rate is 5 percent. Stock B has a beta = 1.4. Market has a required
return of 11 percent. What is Stock B’s required return?
B) 13.4%
40. If you believe in the ________ form of the EMH, you believe that stock prices reflect all
relevant information including historical stock prices and current public information about the
firm, but not information that is available only to insiders
A) Semi strong
