Finance-AW703

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1) . Sarah purchased a stock one year ago at a price of $32 a share. In the past year, she has received four quarterly dividends of $0.75 each. Today she sold the stock for $38 a share. Her capital gain per share is
$3.00. B) $6.00. C) $(6.00). D) $9.00.
 

2) Assume the foreign exchange rate for the euro was U.S. $1.00 = .70 euro last month. This month, the exchange rate is U.S. $1.00 = .72 euro. All things equal, the dollar value of European stocks
A) decreased. B) increased.
B) stayed the same.
C) would vary depending on the country.
 

3) Joseph bought 100 shares of stock at a price of $24 a share. He used his 70% margin account to make the purchase. Joseph sold his stock after a year for $20 a share. Ignoring margin interest and trading costs, what is Joseph’s return on investor’s equity for this investment?
A) -17% B) -24% C) 24% D) -56%
 

4) Assume the foreign exchange rate for the euro was U.S. $1.00 = .70 euro last month. This month, the exchange rate is U.S. $1.00 = .72 euro. This information indicates that over the past month the
A) U.S. dollar remained unchanged relative to the euro.
B) U.S. dollar appreciated relative to all foreign currencies. C) euro appreciated relative to the dollar.
c) euro depreciated relative to the dollar.
 

5) Justin just made a margin purchase of 100 shares of DEF Corp. for $22.50 per share. The initial margin is 70%. The maintenance margin is 30%. How low can the price of each share of DEF be before Justin will have to add equity to his account?
A) $4.73
B) $5.25
C) $6.75
D) $9.64
 

6) On March 15, Marcos placed a good-’til-canceled order to buy 200 shares of ABC at $10 a share. ABC sold between $10.50 and $11.00 on that day. Over the following two months the stock price continued to rise and Marcos forgot about the order. After the markets closed on June 6, some bad news concerning ABC was released. The stock opened on June 7 at a price of
$8.00 a share. Which one of the following statements is correct concerning Marcos’ order?
 

A) The order was cancelled on May 15 because it had not been executed within the allowable two-month time period.
 

The order was executed on March 15 at $10.50 a share since that was the best available price of the day.
 
The order was executed on June 7 at a price of $10.00 a share. D) The order was executed on June 7 at a price of $8.00 a share.
 

7) Mike bought 200 shares of EG stock two years ago at $16 per share. The stock has traded in a range of $21 to $44 a share over the past year. EG is now selling for $43.60 a share. EG announces its earnings today and Mike feels the stock could go to $60 on good news or fall to
$30 on bad. To protect his profits, the most appropriate order for him to place is
A) market order to sell immediately. B) a limit sell order at $60.00.
B) a stop loss order at $42.
C) a stop-limit order to sell at $45.
 

8) 16. Roy is going to receive a payment of $5,000 one year from today. He earns an average of
6% on his investments. What is the present value of this payment? A) $4,717
B) $4,821
$5,000
$5,300
 

9) 17. The required rate of return on the Cosmos Corporation’s common stock is 10%, the current real rate of return in the market is 1%, and the inflation rate is 3%. In this case, the risk premium associated with Cosmos stock is
A) 5%. B) 6%. C) 7%. D) 8%.
 

10) 18. Christopher purchased 200 shares of ABC stock at $21.25 per share. After nine months, he sold all of his shares at a price of $19.88 a share. Jake received a total of $0.55 per share in dividends during the time he owned the shares. Jake’s holding period return is
A) -6.4%. B) -3.9%. C) 2.6%. D) 9.7%.
 

11) An investment costs $3,500 today. This investment is expected to produce annual cash flows of $1,200, $1,400, $1,300 and $1,100, respectively, over the next four years. What is the internal rate of return on this investment?
A) 8.1% B) 9.33% C) 14.6% D) 16.2%
 

12) 20. Alexis bought a stock for $34 a share two years ago. The stock does not pay any dividends. Today she sold the stock for $28.50 a share. What was her internal rate of return on this investment?
A) 9.22% B) -9.22% C) 19.30% D) -8.44%
 

13) . Josh purchased 100 shares of XOM for $76.63 per share at the beginning of 2007. He received dividends per share of $1.37 (2007), $1.55 (2008), $1.66 (2009), $1.74 (2010), $1.85 (2011). At the end of 2011, just after receiving the last dividend, he sold the stock for $84.76. What was his average annual rate of return form both dividends and capital gains? (Hint: compute the IRR, assume that all dividends were received at the end of the year.)
A) 9.831% B) 3.774% C) 3.423% D) 4.076%
 

14) An investment produced annual rates of return of 4%, 8%, 14% and 6%, respectively, over the past four years. What is the standard deviation of these returns?
A) 3.7% B) 4.1% C) 4.3% D) 4.6%
 

15) Marco owns the following portfolio of stocks. What is the expected return on his portfolio?
A) 4.7% B) 6.6% C) 8.4% D) 8.7%
16) Which of the following represent systematic risks? I. the president of a company suddenly resigns
I. the economy goes into a recessionary period
 

II. a company’s product is recalled for defects
 

III. the Federal Reserve unexpectedly changes interest rates
B) I, II and IV only
C) II and IV only
D) I and III only
E) I, II and III only
 

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17) Amanda has the following portfolio of assets.
What is the beta of Amanda’s portfolio? A) 1.06
B) 1.10
C) .74
D) .62
 

18) The Franko Company has a beta of 1.09. By what percent will the rate of return on the stock of Franko Company increase if the market rate of return rises by 3%?
A) 1.91% B) 2.75% C) 3.27% D) 4.09%
 

19) . The risk-free rate of return is 2% while the market rate of return is 12%. Delta Company has a historical beta of .85. Today, the beta for Delta Company was adjusted to reflect internal changes in the structure of the company. The new beta is 1.38. What is the amount of the change in the expected rate of return for Delta Company based on this revision to beta?
A) 8.5% B) 5.3% C) 12.2% D) 14.0%
 

20) . Engines, Inc. declares a 4-for-10 stock split. The stock currently sells for $3 a share. A
shareholder who owned 1000 shares of stock prior to the split will now own
A) 400 shares valued at about $7.50 a share. B) 40 shares valued at about $1.20 a share. C) 250 shares valued at about $7.50 a share. D) 250 shares valued at about $1.20 a share.
 

21) Westlake Industries has total assets of $42.5 million, total debt of $29.3 million, and $2.4 million of 6% preferred stock outstanding. If the company has 250,000 shares of common stock outstanding, its book value per share would be
A) $32.33. B) $33.60. C) $43.20. D) $52.80.
 

22) The Limberger Corporation declared a quarterly dividend of $0.10 per share. The ex- dividend date was July 15, the date of record was July 18, and the payment date was July 28. If you had owned 100 shares of the Limberger Corporation and sold them on July 15, then
A) you would collect $10.00 in dividends, and the purchaser would not collect any dividends. B) the purchaser would collect $10.00 in dividends, and you would not collect any dividends. C) you would collect $5.00 in dividends, and the purchaser would collect $5.00 in dividends. D) neither you nor the purchaser would collect any money in dividends.
 

23) Pilgrim Corp. stock currently sells for $25 per share? The dividend yield is $1.00 per share
and earnings per share are $3.00. The dividend yield is and the dividend payout ratio
is .
A) 12%, .48% B) 8.33%, 25% C) 4%, 33%
D) 33%,4%.
 

24) Nadine Enterprises has total assets of $240,000, a debt-equity ratio of 0.60, and a return on assets of 9%. What is the return on equity?
A) 5.4% B) 5.6% C) 14.4% D) 15.0%
 

25) . Global Warning’s EPS for the current year is $2.75 and its current P/E ratio is 50. You have forecasted that EPS will grow by 10% but the P/E ratio will fall to 40. What do you expect the price of a share of GW’s stock to be at the end of next year?
A) $110
B) $121
C) $137.50
D) $151.25
 

26) . Markhem Enterprises is expected to earn $1.34 per share this year. The company has a dividend payout ratio of 40% and a P/E ratio of 18. What should one share of common stock in Markhem Enterprises be selling for in the market?
A) $9.65
B) $14.47
C) $24.12
D) $33.77
 

27) The risk free rate is 2%. The expected rate of return on the market is 12%. Beta and the expected rate of return for four stocks are as follows.: ABC .8 , 10%; DEF 1, 12%; GHI 1.2 ,
13%, and JKL 2, 22%. Which of these stocks should not be purchased? A) ABC
B) DEF C) GHI D) JKL
 

28) John requires a 12% rate of return on EG stock at a time when investors, on average, are requiring an 11% rate of return on the same stock. Which of the following will happen?
A) John will have to pay more for the stock than he was willing to pay.
B) Investors with different required rates of return will pay different prices for the stock. C) John will not be able to buy the stock unless the price changes.
C) John will buy the stock at a lower price.
 

29) What is the required rate of return on a common stock that is expected to pay a $0.75 annual dividend next year if dividends are expected to grow at 2 percent annually and the current stock price is $8.59?
A) 8.73% B) 8.91% C) 10.73% D) 11.38%
 

30) The Frisco Company just paid $2.20 as its annual dividend. The dividends have been increasing at a rate of 4% annually and this trend is expected to continue. The stock is currently selling for $63.60 a share. What is the rate of return on this stock?
A) 3.46% B) 3.60% C) 7.46% D) 7.60%
 

31) The weak form of the efficient market theory contends that
A) past price performance is useless in predicting future price movements.
B) past performance can help determine the general direction of future price movements. C) any publicly available information is useless in predicting future price movements.
C) price movements are not random but follow a general trend over a period of time.
 

32) Which of the following are common but dysfunctional investor behaviors? I. overinvesting in companies with familiar names
 

I. dividing their funds equally among available choices, even if several of the choices serve the same purpose
 

II. hastily disposing of stocks that have dropped in price in order to take advantage of tax breaks
 

III. exaggerating the role of luck and randomness in investment success or failure
A) I and IV only
B) II and III only
C) I, II and III only
D) I, II, III and IV only
 
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