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Question 1
 
A firm will repurchase their own shares in the market because
 
Answer

it can stabilize their price in the market

they believe the shares are selling at a high price

it will generally provide a benefit to the shareholders

all of these
 
Question 2
 
1. A portfolio of international stocks in comparison to purely U.S. stocks generally shows
 
Answer
 
lower percentage risk for a given number of stocks.

higher percentage risk for a given number of stocks.

the same percentage risk for a given number of stocks.

lower percentage return for a given number of stocks.
 
Question 3
 
1. All of the following are advantages to the corporation of issuing convertibles except
 
Answer
 
provides a low-cost financing alternative for large, high-quality companies

used when believe stock is undervalued

generally lower cost than straight debt

provides access for small co’s to debt market
 
Question 4
 
1. All of the following are motivation for firms to issue warrants except
 
Answer
 
may allow the firm to issue debt at lower rate when warrants are included

used as sweetener during merger negotiations

more desirable than convertible securities for creating new common stock

all of these are motivations
 
Question 5
 
1. All of the following groups are subject to foreign exchange risk except
 
Answer
 
Importers and exporters

Investors

MNCs

All of these are subject to foreign exchange risk
 
Question 6
 
1. All of the following uses of annual earnings would contribute toward an increase in shareholder value except
 
Answer
 
repurchase shares

invest in projects with high profit potential

payoff debt

all of these increase shareholder value
 
Question 7
 
1. CBA Inc has 400,000 shares outstanding with a $5 par value. The shares were issued for $12. The stock is currently selling for $34. CBA has $5,000,000 in retained earnings and has declared a stock dividend that will increase the number of outstanding shares by 6%. What will be the capital in excess of par account after the stock dividend?
 
Answer

$7,685,000

$2,685,000

$3,496,000

$2,385,000
 
Question 8
 
1. Each of the following are benefits of dividend reinvestment plans to firms except
 
Answer
 
increased cash flow for reinvestment

no underwriting fees required

leads to higher earnings per share

all of these are benefits
 
Question 9
 
1. Expectations of a significant increase in the price of a firm’s common stock will result in
 
Answer
 
large conversion premiums for the firm’s convertible bonds.

small conversion premiums for the firm’s convertible bonds.

negative conversion premiums for the firm’s convertible bonds.

no effect at all on conversion premiums.
 
Question 10

 
1.If a forward discount is prevalent in U.S. dollars to Swiss Francs
 
Answer

The forward rate is lower than the spot rate

The forward rate is higher than the spot rate

Markets expect the Swiss Franc to appreciate relative to the dollar

A and C
 
Question 11
 
1. If prices double in New York while the prices in Frankfort remain the same, the purchasing power of the dollar relative to the mark
 
Answer
 
should increase by 50%.

should increase by 100%.

should decrease by 50%.

should decrease by 100%.
 
Question 12
 
1. The Burma Hat Company’s warrant is trading for $10.20. The warrant carries the option to purchase two shares of common stock for $48. What is the speculative premium if the stock price is $51.30?
 
Answer
 
$3.30

$3.60

$6.60

None of these.
 
Question 13
 
1. The Swiss franc is selling for $.9412 and the British pound is selling for $1.5119. The cross rate between the franc and the pound is
 
Answer
 
.161

1.61

.0322

3.22
 
Question 14
 
1. The conversion premium is the greatest and the downside risk the smallest when
 
Answer
 
the conversion value equals the pure bond value.

the conversion value is greater than the pure bond value.

the conversion value is less than the pure bond value.

the stock price is expected to go up drastically.
 
Question 15
 
1. The following are the prices in the foreign exchange market between the U.S. dollar and another local currency (LC).
 
What was the discount or premium on 3-month forward for LC?
 
Answer

 
0.643% premium

.013% premium

.013% discount

0.643% discount
 

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Question 16
 
1. The following benefits occur to the corporation after forced conversion of a convertible bond except
 
Answer
 
Lower times interest earned

Lower debt to asset ratio

Higher earnings after taxes

All of these are benefits
 
Question 17
 
1. The intrinsic value of a warrant to buy 4 shares of Merton stock at $53 per share is $20. What is the current market price of Merton stock?
 
Answer

$55.00

$59.00

$58.00

None of these
 
Question 18
 
1. The lower borrowing costs in the Eurodollar market as compared to the U.S. are often attributed to
 

Answer
 
lower inflation abroad.

higher inflation in the United States.

slower money growth in the United States.

smaller overhead costs and the absence of a compensating balance requirement abroad.
 
Question 19
 
1. The spot rate of the British pound to the dollar is 1.15 (≤≤). The 180 day forward rate is $1.17, the annualized forward premium is
 
Answer

1.018%

3.571%

7.273%

3.478%
 
Question 20
 
1. The two step buy-out is a recent merger ploy that has which of the following characteristics?
 
Answer
 
It is negotiated in a social, rather than a business setting.

The acquiring firm offers to pay a very high price for the target company’s stock, and a short time later announces another price which may be higher or lower.

The acquiring firm offers to pay a very high price for the target company’s stock for a limited time only, after which it will pay a considerably lower price.

It forces stockholders to sell out.
 
Question 21
 
1. Under SFAS 141 and 142, the following occurred
 
Answer
 
goodwill is now amortized

at least 4 times per year, goodwill must be tested to determine if impaired

allowed a one time write-down of all past goodwill impairment

created pooling of interests accounting
 
Question 22
 
1. Vickrey Technology has had net income of $1,500,000 in the current fiscal year. There are 1,000,000 shares of common stock outstanding along with convertible bonds, which have a total face value of $8 million. The $8 million is represented by 5,000 different $1,000 bonds. Each $1,000 bond pays 4 percent interest. The conversion ratio is 30. The firm is in a 30 percent tax bracket. What is Vickrey’s diluted earnings per share?
 
Answer
 
$1.43

$1.81

$2.00

None of these
 
Question 23
 

1. When Country A’s currency strengthens against Country B’s, citizens of Country A will
 
Answer
 
pay less to buy Country B’s products.

pay more to buy Country B’s products.

pay more to buy domestically produced products.

not be affected by the change in their currency’s value.
 
Question 24
 
1. Which of the following is true of forward and spot rates?
 
Answer
 
The premium or discount is usually between 7-10%

Spot and forward transactions generally occur on the organized exchange

The length of a forward contract is generally between 1 and 6 months

None of these
 
Question 25
 
1. Which of the following is true?
 

Answer
 
As the price of common stock increases, the market price of a convertible bond and the conversion premium increase.

As the price of common stock increases, the market price of a convertible bond and the conversion value increase.

As the price of common stock increases, the conversion value and the floor price increase.

Two of the above are true.

 
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