FIN 300

1. The concept that the expected return on an investment depends solely on that
ass
2. The cost of capital for a project is primarily determined by the project's
a. initial cost.
b. level of risk.
c. source of funds.
d. internal rate of return.
3. All else constant, a bond will sell at _____ when the yield to maturity is _____
the coupon rate.
a. a premium; higher than
b. a premium; equal to
c. at par; higher than
d. at par; less than
e. a discount; higher than
4. Tim needs to borrow $5,000 for two years. The loan will be repaid in one lump sum
at the end of the loan term. Which one of the following interest rates is best for
Tim?
a. 7.5 percent simple interest
b. 7.5 percent interest, compounded monthly
c. 8.0 percent simple interest
d. 8.0 percent interest, compounded annually
e. 8.0 percent interest, compounded monthly
5. The slope of the security market line is referred to as the:
a. market alpha.

b. market risk premium.
c. diversification benefit.
d. systematic risk premium.
e. expected return.
6. Net present value is:
a. negative when a project's benefits exceed its costs.
b. equal to the present value of an investment's benefits.
c. equal to zero when the discount rate equals the IRR.
d. negative when a project's IRR exceeds the required rate of return.
e. the current measure of a project's cash inflows.
7. Which one of the following terms is defined as an underwriting for which the
underwriters assume full responsibility for any unsold shares?
a. Initial public offering
b. Best efforts underwriting
c. Firm commitment underwriting
d. Rights offer
e. Private placement
8. Which of the following is NOT correct?
a. The cost of equity is the return that equity investors require on their
investment in the firm.
b. The cost of equity can be found by either the dividend growth approach or the SML
approach.
c. The cost of debt is the return that lenders require on the firm's debt.
d. If the firm has preferred stock in its capital structure, the cost of preferred
stock should be included in the cost of capital.
e. Book value capital structure weights should be used to calculate the WACC rather
than market value weights.
9. The linear relation between an asset's expected return and its beta coefficient
is the:
a. Reward to risk ratio.
b. Portfolio weight.
c. Portfolio risk.
d. Security market line.
e. Market risk premium.
10. SesameSweet Inc. has 220,000 shares outstanding with a par value of $1 per share
and a market price of
$12 per share. On the balance sheet, additional paid-in capital is
$540,000,
while retained earnings is $475,000. There is no treasury stock and there are no
transactions costs.

Suppose SesameSweet declares a 2-for-1 stock split. What happens to the common
stock account on the balance sheet?
a. The account remains unchanged.
b. The account increases by
$22,000.
c. The account increases by
$44,000.
d. The account increases by
$242,000.
e. The account increases by
$264,000.
11. Standard deviation measures ________ risk while beta measures ________ risk.
a. asset-specific; market
b. unsystematic; systematic
c. systematic; unsystematic
d. total; systematic
e. total; unsystematic
12. This morning, Structural Steel purchased 3,500 of its outstanding shares in the
open market. What type of transaction was this?
a. Stock payout
b. Stock dividend
c. Stock distribution
d. Stock repurchase
e. Stock reversal
13. Which one of the following bonds is the least sensitive to changes in market
interest rates?
a. 3 percent coupon, 20 year
b. 5 percent coupon, 30 year
c. 5 percent annual coupon, 20 year
d. 8 percent annual coupon, 5 year
14. A loan has an APR of 8.5 percent and an EAR of 8.5 percent. Given this, the loan
must:
a. have a one-year term.
b. require the accrued interest be paid in full with each monthly payment.
c. have a zero percent interest rate.
d. must be partially amortized with each loan payment.
e. charge interest annually.
15. A bond's annual coupon interest payment divided by its face value is referred to
as the:
a. yield-to-maturity.

b. coupon rate.
c. market rate.
d. call rate.
e. current yield.
16. Net working capital is defined as:
a. current assets minus current liabilities.
b. the value of a firm's current assets.
c. total assets minus total liabilities.
d. the depreciated book value of a firm's fixed assets.
e. E). available cash minus current liabilities.
17. The financial statement that summarizes a firm's accounting value as of a
particular date is called the:
a. periodic operating statement.
b. cash flow statement.
c. income statement.
d. balance sheet.
e. liquidity position.
18. You just purchased a patio set with a 2- year loan. If the APR is 14.2 percent,
and your monthly payment is $70. how much is the patio set?
a. $1,184.75
b. $1,455.08
c. $1,228.46
d. $1,300.00
e. $1,006.90
19. The investment firms that act as intermediaries between the issuer of securities
and the potential investors are called:
a. underwriters.
b. investment advisors.
c. brokers.
d. Green Shoe firms.
e. venture capitalists.
20. Miller Brothers is considering a project that will produce cash inflows of
$80,500, $80,470, $40,805, and $41,300 a year for the next four years,
respectively. What is the internal rate of return if the initial cost of the
project is $185,000?

a. 6.86 percent
b. 13.86 percent
c. 6.47 percent
d. 14.62 percent
e. 6.91 percent
21. Travis is buying a car and will finance it with a loan that requires monthly
payments of $265 for the next four years. His car payments can be described by
which one of the following terms?
a. Perpetuity
b. Annuity
c. Consol
d. Present value
e. Lump sum
22. . Which one of the following is the maximum growth rate that a firm can achieve
without any additional external financing?
a. DuPont rate
b. External growth rate
c. Sustainable growth rate
d. Internal growth rate
e. Cash flow rate
23. A premium bond has a:
I. market price equal to the face value.
II. market price that exceeds the face value.
III. yield to maturity that exceeds the coupon rate.
IV. yield to maturity that is less than the coupon rate.
a. I only
b. I and III only
c. II and III only
d. I and IV only
e. II and IV only
24. Which term best refers to the practice of investing in a variety of diverse
assets as a means of reducing risk?
a. Unsystematic
b. Systematic
c. Security market line
d. Capital asset pricing model

e. Diversification
25. Venture capital is most apt to be the source of funding for a:
a. bankruptcy reorganization.
b. global expansion of an established firm.
c. new, high-risk venture.
d. seasonal production costs.
e. daily operations for an established, profitable firm