FINS1612 Chapter 6: Viney8e_IRM_ch06

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bluebee342

22 Oct 2018

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Eurodollars are U.S. dollars that have been deposited in

	a.	foreign branches of U.S. banks
	b.	foreign subsidiaries
	c.	foreign banks
	d.	foreign banks and foreign branches of U.S. banks

10 points

QUESTION 2

A savings and loan association is an example of which type of financial intermediary?

	a.	commercial bank
	b.	investment company
	c.	finance company
	d.	thrift institution

10 points

QUESTION 3

Finance companies obtain a significant amount of their funds by

	a.	pooling funds
	b.	issuing their own debt securities
	c.	issuing their own equity securities
	d.	accepting both demand and time deposits

10 points

QUESTION 4

When an investor purchases shares in a no-load common stock mutual fund, she is using a(n)

	a.	primary intermediary
	b.	broker
	c.	financial intermediary
	d.	over-the-counter market

10 points

QUESTION 5

In an efficient capital market, corporate diversification is ____.

	a.	of great benefit
	b.	inexpensive
	c.	unnecessary
	d.	of benefit to corporate managers

10 points

QUESTION 6

Changes in the tax code that slow down depreciation, ____ the present value of investment cash flows and, therefore, make the investment ____ desirable.

	a.	increase, more
	b.	increase, less
	c.	decrease, less
	d.	decrease, more

10 points

QUESTION 7

Christy purchased 100 shares of Good Idea stock for $48 last year. Yesterday she sold the stock for $45. If she received $4 in dividends during the time she held the security, what is her holding period return?

	a.	-6.30%
	b.	14.60%
	c.	8.30%
	d.	2.08%

10 points

QUESTION 8

Lear purchased 100 shares of Quitcha Twitchin Anti-inch Cream stock at $30 per share last year and sold them eleven months later for $24 per share. The shares split 2 for 1 shortly after Lear purchased the stock. If the stock paid $0.25 per share in dividends last year, what is Lear's holding period return?

	a.	6.17%
	b.	61.67%
	c.	21.67%
	d.	-19.17%

10 points

QUESTION 9

All of the following are financial intermediaries EXCEPT:

	a.	loan sharks
	b.	commercial banks
	c.	investment companies
	d.	thrift institutions

10 points

QUESTION 10

Trading on the NYSE is conducted by members of the exchange. The members that execute orders and act as agents on behalf of their clients are::

	a.	Floor Brokers
	b.	SEC Agents
	c.	Exchange Runners
	d.	Designated Market Makers

10 points

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coffeebutterfly395

Assume all bonds in these problems are semi-annual bonds with $1000 par value 1. Calculate the yield to maturity for the following corporate bond

Company(Ticker) Coupon Maturity Last Price Merck (MRK) 4.375 April 15, 2031 98.211

2. US Treasury Strips are zero-coupon securities. Suppose you wish to purchase a US Treasury Strip that matures exactly 10 years from now. If the yield on 10-year US Treasury securities is currently 2.40%, what is the correct price quote for this bond? (Use semi- annual compounding).

3. A corporate bond has a coupon rate of 5.5% and a yield to maturity of 4.905%. You buy the bond when it is quoted at 102.10 percent of par. It has been 75 days since the last coupon payment was made. How much must you pay, per bond?

4. RJ Wagner Insurance Co. preferred stock pays a cash dividend of $2.00 per share, per year. The current price of this stock is $51.95. What is the yield on this preferred? Suppose an individual is considering investing in this preferred stock, versus a AAA-rated municipal bond that has a yield to maturity of 2.195%. Which has the higher after tax yield if the investor pays 45% of her income in state and federal income taxes, and the municipal bond interest is tax exempt?

5. Heavy Metal Corporation is expected to generate Free Cash Flow of $75 million in the current year. The free cash flow is expected to grow at a 3% rate forever. Heavy Metal has 20 million shares outstanding, $400 million in debt and no excess cash. The tax rate is 40%, the required return on equity is 12%, and the WACC (cost of capital) is 9%. Compute the Enterprise Value of Heavy Metal and the value of the equity per share.

6a) IBM Corp. earned $12.25 in EPS last year. IBM has recently adopted a long-term target to pay out 50% of all future earnings as dividends. IBMâs dividends and earnings are expected to grow at a constant rate of 3% in the future. You require a 9% rate of return on stock investments of similar risk. What is your estimate of the market value of IBM stock?

6b). Based on the information provided what is the implied return on new investment (ROE*) for IBM.

7. Bunge Corp. earned $9.75 per share and paid $3.25 in dividends in the year just ended. Bungeâs (trailing) P/E ratio is 15.0. If Bunge dividends are expected to grow at a 5% rate forever, what is the expected rate of return on Bunge stock?

8. Monsanto, Corp paid dividends of $8.80 last year. You develop the following forecast for Monsantoâs future dividends: growth of 20% for 2 years, growth of 10% in years 3, 4 and 5, and growth of 5% per year, forever, after year 5. If investors required return on Monsanto stock is 15%, what is the estimated market value according to the multi-stage dividend discount model?

cyanelk22

Question 18

1. Which of the following does an efficient portfolio do?

1. Maximizes risk for a given return.

2. Minimizes risk for a given return.

3. Maximizes return for a given level of risk.

4. Minimizes return for a given level of risk.

	a.	1 and 3.
	b.	1 and 4.
	c.	2 and 3.
	d.	2 and 4.

3 points

Question 19

1. The security market line does not:

	a.	Indicate the relationship between risk and return.
	b.	Relate the market return and beta to a stock's return.
	c.	Identify the optimal portfolio for the investor.
	d.	Use beta coefficients as a measure of risk.

3 points

Question 20

1. Mutual funds ____ realized capital gains and income (for example, dividends received):

	a.	Retain.
	b.	Reinvest.
	c.	Distribute.
	d.	Distribute or reinvest.

2 points

Question 21

1. An index fund limits its portfolio to:

	a.	High quality securities.
	b.	Stocks that respond to changes in the consumer price index.
	c.	Stocks included in an aggregate measure of stock prices.
	d.	Stocks of firms in a particular industry.

2 points

Question 22

1. Mutual funds with beta coefficients greater than 1.0:

	a.	Have outperformed the market.
	b.	Have underperformed the market.
	c.	Have more systematic risk than the market.
	d.	Have less systematic risk than the market.

3 points

Question 23

1. Which of the following will tend to cause a stock's price to fall?

1. The firms beta declines.

2. The firms beta increases.

3. The risk-free rate declines.

4. The risk-free rate increases.

	a.	1 and 3.
	b.	1 and 4.
	c.	2 and 3.
	d.	2 and 4.

2 points

Question 24

1. The use of P/E ratios to select stocks suggests that:

	a.	High P/E stocks should be purchased.
	b.	Low P/E ratio stocks are overvalued.
	c.	A stock should be purchased if it is selling near its historic low P/E.
	d.	A stock should be purchased if it is selling near its historic high P/E.

2 points

Question 25

1. What does the efficient market hypothesis require?

1. Financial markets to be competitive.

2. Prices to adjust rapidly.

3. Prices of undervalued securities to fall.

	a.	1 and 2.
	b.	1 and 3.
	c.	2 and 3.
	d.	All of these choices.

3 points

Question 26

1. Which of the following does the strong form of the efficient market hypothesis suggest?

1. Inside information will not lead to superior investment results.

2. Inside information will lead to superior investment results.

3. Studying financial statements will not lead to superior investment results.

4. Studying financial statements will lead to superior investment results.

	a.	1 and 3.
	b.	1 and 4.
	c.	2 and 3.
	d.	2 and 4.

3 points

Question 27

1. Which of the following is the least broad-based measure of stock prices?

	a.	NASDAQ market index.
	b.	Dow Jones industrial average.
	c.	S&P 500 stock index.
	d.	AMEX market value index.

3 points

Question 28

1. What is dollar-cost averaging?

	a.	Periodically buying a round lot of stock.
	b.	Periodically investing a specified dollar amount in a stock.
	c.	A means to increase the average cost basis.
	d.	A means to ensure a positive return.

2 points

Question 29

1. Stock dividends cause:

	a.	The price of a share of stock to rise.
	b.	The price of a share of stock to fall.
	c.	The value of the firm to rise.
	d.	The value of the firm to fall.

2 points

Question 30

1. Which of the following occurs when a stock has a two-for-one split?

	a.	The price of the stock doubles.
	b.	The firm's assets increase.
	c.	The firm's liabilities decrease.
	d.	The par value of the stock is reduced.

3 points

Question 31

1. Dividend reinvestment plans offer which of the following advantages?

1. Deferment of federal income taxes.

2. A convenient means to accumulate shares.

3. Dollar-cost averaging.

	a.	1 and 2.
	b.	1 and 3.
	c.	2 and 3.
	d.	2.

3 points

Question 32

1. When the Federal Reserve seeks to expand the money supply, it:

	a.	Sells securities.
	b.	Buy securities.
	c.	Runs a deficit.
	d.	Runs a surplus.

2 points

Question 33

1. The sum of cash, currency, and demand deposits is:

	a.	M1.
	b.	M2.
	c.	M3.
	d.	M4.

3 points

Question 34

1. If the Federal Reserve lowers the target federal funds rate:

	a.	The discount rate rises.
	b.	Liquidity in the banking system is increased.
	c.	Security prices fall.
	d.	Required reserves are also decreased.

3 points

Question 35

1. The anticipation of inflation suggests that the investor should:

	a.	Buy bonds.
	b.	Anticipate higher interest rates.
	c.	Avoid real estate investments.
	d.	Sell stocks of gold companies.

3 points

Question 36

1. The current ratio is unaffected by:

	a.	Using cash to pay a dividend.
	b.	The collection of an account receivable.
	c.	Selling inventory for a profit.
	d.	Selling bonds and using the funds to finance inventory.

2 points

Question 37

1. Which of the following are true as the debt ratio increases?

1. Fewer assets are debt financed.

2. More assets are debt financed.

3. The ratio of debt equity increases.

4. The ratio of debt equity decreases.

	a.	1 and 3.
	b.	1 and 4.
	c.	2 and 3.
	d.	2 and 4.

2 points

Question 38

1. The technical approach suggests that future stock prices are forecasted by:

	a.	Past stock rates.
	b.	Financial ratios.
	c.	Accounting statements.
	d.	Monetary policy.

2 points

Question 39

1. The Dogs of the Dow strategy:

	a.	Forecasts the direction of the Dow Jones averages.
	b.	Suggests buying the Dow stocks with the highest dividend yields.
	c.	Outperforms the S&P 500.
	d.	Suggests buying the lowest-priced Dow stocks.

3 points

Question 40

1. Behavioral finance combines aspects from which two fields in an attempt to identify human traits that affect investment decisions?

	a.	Accounting and finance.
	b.	Finance and psychology.
	c.	Physics and finance.
	d.	Finance and marketing.

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FINS1612 Chapter 6: Viney8e_IRM_ch06

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