Federal Reserve
FIN 571 Final Exam August 2017
1
Which one of the following is an example of a nondiversifiable risk?
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A well-respected chairman of the Federal Reserve Bank suddenly resigns
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A poorly managed firm suddenly goes out of business due to lack of sales
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A well-respected president of a firm suddenly resigns
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A key employee suddenly resigns and accepts employment with a key competitor
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A well-managed firm reduces its work force and automates several jobs
question2
A firm has a debt-equity ratio of .64, a pretax cost of debt of 8.5 percent, and a required return on assets of 12.6 percent. What is the cost of equity if you ignore taxes?
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15.22%
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16.38%
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8.06%
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11.12%
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8.55%
question3
Which term defines the tax rate that applies to the next dollar of taxable income earned?
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Deductible
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Marginal
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Average
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Total
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Residual
question4
All else held constant, interest rate risk will increase when the time to maturity:
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Increases or the coupon rate decreases.
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Decreases or the coupon rate increases.
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Increases or the coupon rate increases.
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Decreases or the coupon rate decreases.
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Decreases and the coupon rate equals zero.
question5
Under the _______ method, the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue, while under the _______ method, the underwriter does not purchase the shares but merely acts as an agent.
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Negotiated offer; competitive offer
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Firm commitment; best efforts
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Competitive offer; negotiated offer
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Best efforts; firm commitment
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Seasoned; unseasoned
question6
The underlying assumption of the dividend growth model is that a stock is worth:
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An amount computed as the next annual dividend divided by the market rate of return.
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The present value of the future income that the stock is expected to generate.
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The same amount to every investor regardless of their desired rate of return.
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The same amount as any other stock that pays the same current dividend and has the same required rate of return.
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An amount computed as the next annual dividend divided by the required rate of return.
question7
The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the:
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Inflation premium.
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Risk premium.
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Arithmetic average return.
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Time premium.
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Geometric average return.
question8
Which one of these statements is correct concerning the cash cycle?
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A positive cash cycle is preferable to a negative cash cycle.
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Increasing the accounts payable period increases the cash cycle.
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The longer the cash cycle, the more likely a firm will need external financing.
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The cash cycle can exceed the operating cycle if the payables period is equal to zero.
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Adopting a more liberal accounts receivable policy will tend to decrease the cash cycle.
question9
Which one of the following statements about preferred stock is true?
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If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year will be carried forward to the next year.
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Preferred stock usually has a stated liquidating value of $100 per share.
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Unlike dividends paid on common stock, dividends paid on preferred stock are a tax-deductible expense.
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There is no significant difference in the voting rights granted to preferred and common shareholders.
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Dividends on preferred stock payable during the next twelve months are considered to be a corporate liability.
question10
What is the present value of $6,811 to be received in one year if the discount rate is 6.5 percent?
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$6,023.58
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$6,671.13
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$6,395.31
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$6,643.29
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$7,253.72
question11
The market price of a bond increases when the:
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Coupon rate decreases.
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Par value decreases.
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Face value decreases.
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Discount rate decreases.
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Coupon is paid annually rather than semiannually.
question12
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