Question

What is the real rate of return if the risk-free rate is 3% and expected inflation is 2%?

3%

1%

5%

-1%

Question 2

Which of the following combinations reduces risk the most (all else being equal)?

Uncorrelated assets

Horizontally-correlated assets

Positively-correlated assets

Negatively-correlated assets

Question 3

Foreign exchange risk is primarily the risk that:

exchanges made in foreign countries will create losses in the foreign currency.

overseas assets will be nationalized.

transactions and assets using foreign currencies will lose value because of changes in currency exchange rates.

foreign governments will limit economic exchanges.

Question 4

2/10 net 30 means:

2% payment due in 10 days and balance in 30 days.

10% payment due in 2 days and balance in 30 days.

2% discount if paid in 10 days; otherwise, pay in 30 days..

10% discount if paid in 2 days; otherwise, pay in 30 days.

Question 5

According to the constant growth valuation (Gordon) model, the value of a share of common stock is equal to the:

future stock price discounted at the cost of equity.

assets minus debts.

present value of all future cash flows.

present value of all expected future dividends.

Question 6

The ability of a firm to pay its short-term debts is measured by:

times-interest-earned.

liquidity ratios.

ROE.

profitability ratios .

Question 7

If interest rates rise, what will happen to a standard bond (all else being equal)?

Interest payments will go up.

The price will go up.

The price will go down.

Interest payments will go down.

Question 8

Which of the following is not a commonly used method to expand a business internationally?

Exporting

Foreign exchange

Licensing

Joint venture

Question 9

DuPont analysis shows us that an increase in financial leverage for a profitable company will lead to:

a decrease in ROA.

an increase in ROE.

a decrease in ROE.

an increase in ROA.

Question 10

In the U.S., what form of business organization is subject to double taxation of profits?

Limited partnerships

Partnerships

Corporations

Sole proprietorships

Question 11

Generally, an increase in net working capital:

decreases liquidity return.

increases liquidity risk.

lowers liquidity risk.

has no effect on liquidity.

Question 12 0 / 1 point

A company has two bonds that are identical except one matures in 5 years and one matures in 10 years. If interest rates fall, what will happen to the price of the bonds?

Both will decrease and the 5-year will decrease more.

Both will increase and the 10-year will increase more.

Both will decrease and the 10-year will decrease more.

Both will increase and the 5-year will increase more.

Question 13

What is the net present value of a $10,000 initial investment with future cash flows that have a present value of $12,000?

-$2,000

$10,000

$22,000

$2,000

Question 14

The beta of the market portfolio is:

greater than 1.

1.

changes yearly.

0.

Question 15

A firm's capital structure is composed of the following sources and after-tax costs: 30% long-term debt (cost 6%), 10% preferred stock (cost 8%), and 60% common stock (cost 14%). The weighted average cost of capital is:

12 percent.

11 percent.

10 percent.

13 percent.

Question 16

Which of the following capital budgeting techniques ignores the time value of money?

MIRR

NPV

Payback

IRR

Question 17

When evaluating two projects with different risk levels, one way to account for this is to:

require a longer payback period for the safer project.

use a higher discount rate for the riskier project..

require a longer payback period for the riskier project.

use a lower discount rate for the riskier project.

Question 18

The present value of a $1,000 perpetuity discounted at 8% is:

$12,500.

$8,000.

$80,000.

$16,000.

Question 19

If you knew the stock market was going to increase next year, which of the following portfolios should you purchase (according to CAPM theory)?

A portfolio with a beta of 2

A portfolio with a beta of -1

A portfolio with a beta of 0

A portfolio with a beta of 1

Question 20

What impact will an increase in risk usually have on the required rate of return on an investment?

A decrease

An increase

An increase and then a decrease

No impact