Finance Exam #2

A significantly higher collection period than the industry average may suggest:a. high profit levelsb. rapid collection of accountsc. poor credit decisions d. low levels of inventorye. strong economic growth c. poor credit decisions
South Korea Telecom (SKM) has a debt/equity ratio of 8.1. This means:a. SKM is financing the company with 81% borrowed fundsb. SKM has 8.1 times more debt than equity c. SKM has 81 times more debt than equityd. SKM’s debt is 8.1 times greater than common stocke. SKM’s debt is turning over 8.1 times per b. SKM has 8.1 times more debt than equity
Johnson Inc. has a current ratio of 1.7. Thompson Inc. has a current ratio of 2.2. Which of the following is true?a. Johnson has less cash than Thompsonb. Thompson has more current assets than Johnsonc. Johnson’s current liabilities exceed Thompson’sd. All of the above must be truee. None of the above is necessarily true e. None of the above is necessarily true
If the inventory turnover ratio is very high relative to the industry:Select one:a. cost of goods sold, relative to inventory, is significantly lower than the industryb. the firm has good total assets management practices c. the firm may be losing sales if its inventory is too lowd. the firm has too high a level of inventorye. the firm has too many items that the customer probably does not want c. the firm may be losing sales if its inventory is too low
All else being equal, which of the following will increase a company’s current ratio:a. An increase in long term bonds payableb. An increase in retained earningsc. An increase in accounts receivable d. An increase in fixed assetse. An increase in account payable c. An increase in accounts receivable
Sony and Toshiba each recently reported the same earnings per share (EPS). Sony’s stock, however, trades at a higher price. Which of the following statements is most correct?a. Sony must be more leveragedb. Sony must be riskierc. Sony must have a higher P/E ratio d. Sony’s cash flow must be inferiore. Sony must have a higher market to book ratio c. Sony must have a higher P/E ratio
A current ratio of 0.9 means: the firm has $0.90 of current assets for $1.00 of current liabilities
In terms of risk, labor union disputes, entry of a new competitor, and embezzlement by management are all examples of factors affecting:a. diversifiable risk b. systematic riskc. company specific risk that can not be diversified awayd. portfolio riske. market risk a. diversifiable risk
What is the expected return given the following information: Possible Returns Probability8% 20%10% 10%12% 40%15% 20%16% 10% 12%
Stock A has a beta of 1.5 and Stock B has a beta of 0.5. If the expected market rate of return is positive, which of the following statements must be true about these securities?a. Stock B would be a more desirable addition to a portfolio than Stock Ab. The expected return on Stock B will be greater than that on Stock Ac. The expected return on Stock A will be greater than that on Stock B d. Stock A would be a more desirable addition to a portfolio than Stock Be. When held in isolation, Stock A has greater risk than Stock B c. The expected return on Stock A will be greater than that on Stock B
What is the beta for an investment given the following information? Investment’s required rate of return is 9.5%; market return is 13%; and the risk free rate of return is 6%.a. 1.5b. 0.75c. 0.25d. 1.0e. 0.50 e. 0.50
The coefficient of variation is best represented by: standard deviation / mean
A good measure of an investor’s risk exposure if she/he holds only a single asset in her/his portfolio is:a. the correlation coefficient with the market portfoliob. the normal probability distribution functionc. the standard deviation of possible returns of the asset d. the expected value of the assets returnse. the asset’s Beta value c. the standard deviation of possible returns of the asset
The ultimate group of diversified assets, the market, has a beta of: 1
Beta is best described as a measure of:a. marginal riskb. Unsystematic riskc. total riskd. diversifiable riske. Nondiversifiable risk Nondiversifiable risk
Given the following information, calculate the required return on this firm’s securities: Beta is 1.5, the risk free rate is 6%, required rate of return of the overall market is 9%, coeficient of correlation is 4.53. 10.5%
Which of the following premiums might be included in a corporation’s bond?a. maturityb. default riskc. inflationd. illiquiditye. any or all of the above may be included e. all included
What is the semi-annual interest payment on a bond with a 7% coupon rate and a $1,000 par value? $35
Money markets are markets for:a. Foreign currency exchangeb. Short-term debt securities c. Corporate stocksd. Consumer automobile loanse. Long-term bonds b. short-term debt securities
Junk bonds are:a. very liquidb. bonds that have been rated investment gradec. low interest-rate debtd. restriced to hedge fund investinge. bonds that have been rated below investment grade e. bonds that have been rated below investment grade
Maturity date is:a. when the bond is first issuedb. when the principle is paid c. when the issuer receives the par valued. when the bond turns 18 years old b. when the principle is paid
The expected inflation is 4% and the nominal interest rate is 6%; what is the real rate of interest? 2%

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