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FINC/600 FINC600 FINC 600 Week 4 Midterm Quiz

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FINC 600 Week 4 Midterm Quiz Question 1 The concept of compound interest is most appropriately described as: Question 2 Which of the following investment rules does not use the time value of the money concept? Question 3 The unique risk is also called the: Question 4 What are some of the important points to remember while estimating the cash flows of a project? Question 5 A bond with duration of 10 years has yield to maturity of 10%. This bond’s volatility is: Question Major disadvantages of the Sarbanes-Oxley Act of 2002 (SOX) are the following except: Question 7 According to the net present value rule, an investment in a project should be made if the: Question 8 If the Wall Street Journal Quotation for a company has the following values close: 55.14; Net chg: = + 1.04; then the closing price for the stock for the previous trading day was? Question 9 For example, in the case of an electric car project, which of the following cash flows should be treated as incremental flows when deciding whether to go ahead with the project? Question 10 The following are some of the actions shareholders can take if the corporation is not performing well: Question 11 The mixture of debt and equity, used to finance a corporation is also known as: Question 12 Discuss the general principle in the valuation of a common stock. Question 13 The managers of a firm can maximize stockholder wealth by: Question 14 Florida Company (FC) and Minnesota Company (MC) are both service companies. Their historical return for the past three years are: FC: – 5%,15%, 20%; MC: 8%, 8%, 20%. If FC and MC are combined in a portfolio with 50% of the funds invested in each, calculate the expected return on the portfolio. Question 15 The market value of XYZ Corporation’s common stock is 40 million and the market value of the risk-free debt is 60 million. The beta of the company’s common stock is 0.8, and the expected market risk premium is 10%. If the Treasury bill rate is 6%, what is the firm’s cost of capital? (Assume no taxes.) Question 16 The following are important functions of financial markets: I) Source of financing; II) Provide liquidity; III) Reduce risk; IV) Source of information Question 17 Which of the following portfolios have the least risk? Question 18 Present Value of $100,000 that is, expected, to be received at the end of one year at a discount rate of 25% per year is: Question 19 Discuss some of the disadvantages of the payback rule. . Question 20 What is the relationship between interest rates and bond prices? Question 21 Spill Oil Company’s stocks had -8%, 11% and 24% rates of return during the last three years respectively; calculate the average rate of return for the stock. Question 22 Which of the following statements regarding the discounted payback period rule is true? Question 23 The NPV value obtained by discounting nominal cash flows using the nominal discount rate is the: I) same as the NPV value obtained by discounting real cash flows using the real discount rate II) same as the NPV value obtained by discounting real cash flows using the nominal discount rate III) same as the NPV value obtained by discounting nominal cash flows using the real discount rate Question 24 Market risk is also called: I) systematic risk, II) undiversifiable risk, III) firm specific risk. Question 25 The cost of a resource that may be relevant to an investment decision even when no cash changes hand is called a (an):

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