1.) Which of the following statements is CORRECT?

a. A good goal for a firm's management is maximization of expected Earning Per Share (EPS).

b. Most business in the U.S. is conducted by corporations, and corporations' popularity results primarily from their favorable tax treatment.

c. Corporations have an advantage over proprietorships because a sole proprietor is exposed to unlimited liability.

d. The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the relevant time horizon, generally the coming year.

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2-) 1. Portfolio P has $200,000 consisting of $100,000 invested in Stock A and $100,000 in Stock B. Stock A has a beta of 1.2 and a standard deviation of 20%. Stock B has a beta of 0.8 and a standard deviation of 25%. Which of the following statements is CORRECT?

a. Stock B has a higher required rate of return than Stock A.

b. Portfolio P has a beta of less than 1.0.

c. More information is needed to determine the portfolio's beta.

d. Portfolio P has a beta of 1.0.

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3- ). 1. Of the following investments, which would have the highest present value? Assume that the effective annual rate for all investments is the same and is greater than zero.

a. Investment A pays $250 at the end of every year for the next 10 years (a total of 10 payments).

b. Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).

c. Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).

d. Investment D pays $2,500 at the end of 10 years (just one payment).

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4- 1. Assume that the risk-free rate is 6% and the market risk premium is 5%. Given this information, which of the following statements is CORRECT?

a. If a stock has a negative beta, its required return must also be negative.

b. An index fund with beta = 1.0 should have a required return less than 11%.

c. An index fund with beta = 1.0 should have a required return greater than 11%.

d. An index fund with beta = 1.0 should have a required return of 11%.

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5-)1. Cochrane Associate's net sales last year were $525 million. If sales grow at 7.5% per year, how large (in millions) will they be 8 years later?

a. $845.03

b. $889.51

c. $936.33

d. $983.14

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6-) 1. Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a regular corporation. Which of the following statements is CORRECT?

a. Cheers will now be subject to fewer regulations.

b. Cheers' shareholders (the ex-partners) will now be exposed to more liability.

c. Cheers' investors will be exposed to less liability and find it easier to transfer their ownership.

d. Cheers will find it more difficult to raise additional capital.

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7-). 1. How much will a $100 deposit made today be worth in 10 years if interest is compounded quarterly at an annual rate of 10%?

a. $200

b. $259.37

c. $268.51

d. $271.79

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8-)1. The future value of a deposit in a saving account today will depend on

a. nominal annual interest rate offered on the account

b. the length of time the money is on deposit

c. the frequency of interest compounding

d. all of the above

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Question answered on Mar 11, 2020

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