FINC600 Midterm Quiz
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Part 1 of 1 - Week 4
REQUIRED Quiz 93.5/ 100.0 Points
Question 1 of 25
4.0/ 4.0 Points
The concept of
compound interest is most appropriately described as:
A.Interest earned on an investment
B.The total amount of interest earned over
the life of an investment
Correct C.Interest earned on interest
D.None of the above
Question 2 of 25
4.0/ 4.0 Points
Which of the
following investment rules does not use the time value of the money concept?
A.Net present value
B.Internal rate of return
Correct C.The payback period
D.All of the above use the time value
concept
Question 3 of 25
4.0/ 4.0 Points
The unique risk is
also called the:
A.Unsystematic risk
B.Diversifiable risk
C.Firm specific risk
Correct D.All of the above
Question 4 of 25
2.0/ 4.0 Points
What are some of the
important points to remember while estimating the cash flows of a project?
The most important
points are
1) They are
estimates. So there can be deviations
2) Some huge loss may
completely change the return from product.
3) Other risks like
market risks, reinvestment risk etc. may affect the cash flow pattern
Question 5 of 25
4.0/ 4.0 Points
A bond with duration
of 10 years has yield to maturity of 10%. This bond's volatility is:
Correct A.9.09%
B.6.8%
C.14.6%
D.6.0%
Question 6 of 25
4.0/ 4.0 Points
Major disadvantages
of the Sarbanes-Oxley Act of 2002 (SOX) are the following except:
Correct A.good investor protection
B.increase in compliance costs
C.that it constrains managers' ability to
run the firm
D.that it may discourage development of
human capital in the firm
Question 7 of 25
4.0/ 4.0 Points
According to the net
present value rule, an investment in a project should be made if the:
A.Net present value is greater than the cost
of investment
B.Net present value is greater than the
present value of cash flows
Correct C.Net present value is positive
D.Net present value is negative
Question 8 of 25
0.0/ 4.0 Points
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?
A.$56.18
B.$54.10
Incorrect C.$55.66
D.None of the above.
Question 9 of 25
4.0/ 4.0 Points
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?
A.The cost of research and development
undertaken for developing the electric car in the past three years
B.The annual depreciation charge
Correct C.Tax savings resulting from the
depreciation charges
D.Dividend payments
Question 10 of 25
4.0/ 4.0 Points
The following are
some of the actions shareholders can take if the corporation is not performing
well:
A.Replace the board of directors in an
election.
B.Force the board of directors to change the
management team.
C.Sell their shares of stock in the
corporation.
Correct D.Any of the above
Question 11 of 25
4.0/ 4.0 Points
The mixture of debt
and equity, used to finance a corporation is also known as:
A.Capital budgeting
Correct B.Capital structure
C.Investing
D.Treasury
Question 12 of 25
3.5/ 4.0 Points
Discuss the general
principle in the valuation of a common stock.
Question 13 of 25
4.0/ 4.0 Points
The managers of a
firm can maximize stockholder wealth by:
Correct A.Taking all projects with positive
NPVs
B.Taking all projects with NPVs greater than
the cost of investment
C.Taking all projects with NPVs greater than
present value of cash flow
D.All of the above
Answer Key: A
Question 14 of 25
4.0/ 4.0 Points
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.
A.12%
B.10%
Correct C.11%
D.None of the above.
Question 15 of 25
4.0/ 4.0 Points
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.)
Correct A.9.2%
B.14%
C.8.1%
D.None
of the above
Question 16 of 25
4.0/ 4.0 Points
The following are
important functions of financial markets: I) Source of financing; II) Provide
liquidity; III) Reduce risk; IV) Source of information
A.I only
B.I and II only
Correct C.I, II, III, and IV
D.IV only
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