Quiz Review 8. Business - Finance

Shares in open-end mutual funds are actively traded in secondary markets.

What is unsystematic risk? What is systematic risk?

Assume that interest rate parity holds. The U.S. five-year interest rate is 5 percent annualized, and the Mexican five-year interest rate is 8 percent annualized. Today's spot rate of the Mexican peso is $.20 . What is the approximate five-year forecast of the peso's spot rate if the five-year forward rate is used as a forecast?

4

In measuring value, the firm's focus should be on:

5

People who want to invest speculatively in currencies can do so on the ____ exchange

6

Expected Return American Eagle Outfitters (AEO) recently paid a $0.42 dividend. The dividend is expected to grow at a 15.90 percent rate. At the current stock price of $24.47, what is the return shareholders are expecting?

7

Which of the following is a true statement?

8

Employers who have more than 100 employees may establish SIMPLE IRA plans after 1996

9

Suppose you are earning 3% interest on your savings account, and the inflation rate is 5%. In this case, you are

10

What are annuities?

11

The Black-Scholes model assumes that stock price movements can be described by

12

Which of the following is a measurement of the co-movement between two variables that ranges between -1 and +1?

13

What elements are found in an effective financial plan?

14

A ____ is a trading platform on a computer website that allows investors to trade stocks without the use of a broker

15

The payback method is at best a crude measure of the risk of a project because it fails to consider the ____ of a project's returns

16

Consider the multifactor model APT with two factors. Portfolio A has a beta of 0.75 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the factor-1 and factor-2 portfolios are 1% and 7%, respectively. The risk-free rate of return is 7%. The expected return on portfolio A is __________ if no arbitrage opportunities exist.

17

All the following can provide credit information about a customer except:

18

If statistical tests of stock returns over time support the efficient market hypothesis the resulting correlations should be

19

To reduce risk, you should look for assets with highly positively correlated related returns

20

What are the requirements of section 404 of SOX?

21

Suppose a sizeable, fully diversified portfolio has an F1 beta of .9, an F2 beta of 1.4, and an expected return of 11.6 percent. If F1 turns out to be 1.1 percent and F2 is −.8 percent, what will be the actual rate of return based on a two-factor arbitrage pricing model?

22

________ is a noncash charge

23

Which of the following is a checking account that the firm sets up so that the bank agrees to automatically transfer funds from an interest-bearing account to pay off any checks presented?

24

When a firm has accounts payable that are greater than the level of its receivables, the firm is actually receiving net trade credit

25

Variation margin is which of the following?

26

The observation that additions to fixed assets are lumpier than additions to current assets indicates that:

27

Which of the following statements is CORRECT?

in Business

A. One advantage of the NPV over the IRR is that NPV assumes that cash flows will be reinvested at the cost of capital, whereas IRR assumes that cash flows are reinvested at the IRR. The NPV assumption is generally more appropriate.
B. One advantage of the NPV over the MIRR method is that NPV takes account of cash flows over a project's full life whereas MIRR does not.
C. One advantage of the NPV over the MIRR method is that NPV discounts cash flows whereas the MIRR is based on undiscounted cash flows.
D. Since cash flows under the IRR and MIRR are both discounted at the same rate (the cost of capital), these two methods always rank mutually exclusive projects in the same order.
E. One advantage of the NPV over the IRR is that NPV takes account of cash flows over a project's full life whereas IRR does not.

28

The dividend-growth valuation model employs current dividends, future dividend growth, and the required return

29

Bonnie and James are retired. They wish to continue to invest in their portfolio and are seeking income instead of growth. Which should they invest in?