Your Results:

The correct answer for each question is indicated by a

Multiple Choice Q 007338237x 1 5 no Mutual Funds and 4

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2122599 1

1 INCORRECT

Which one of the following statements regarding open-end mutual funds is false? A) B) C) D) The funds redeem shares at net asset value. The funds offer investors professional management. The funds offer investors a guaranteed rate of return. B and C.

A and B. E) Feedback: Ope n-end mutual funds redeem shares at net asset value and offer investors professional manage ment. However, they do not offe r investors a guaranteed rate of return.
2 INCORRECT
2 5

Which one of the following statements regarding closed-end mutual funds is false? A) B) C) D) The funds always trade at a discount from NAV. The funds redeem shares at their net asset value. The funds offer investors diversification. A and B.

None of the above. E) Feedback: Closed-end mutual funds trade at premiums and discounts from NAV.
3 INCORRECT
3 5

Century fund had average daily assets of $3.0 billion in 2007. The fund sold $750 million worth of stock and purchased $850 million worth of stock during the year. Century fund's turnover ratio is 27.5%.

A) B) C) D) E)
4 INCORRECT

12%. 15%. 25%. 20%.

4 5

Feedback: 750,000,000 / 3,000,000,000 = 0.25.

Which of the following functions do mutual fund companies perform for their investors? A) B) C) D) Record keeping and administration Professional management Diversification and divisibility Lower transaction costs

All of the above E) Feedback: Mutual fund companies provide record keeping and administration, professional manage ment, dive rsification and divisibility, and lowe r transaction costs.
5 INCORRECT
5 5

Large amounts of money invested in a portfolio that is fixed for the life of the fund are called A) B) C) D) closed-end funds. unit investment trusts. REITS. open-end funds.

redeemable trust certificates. E) Feedback: Large amounts of money invested in a portfolio that is fixed for the life of the fund are called unit investment trusts.
6

6 INCORRECT

At issue, offering prices of open-end funds will typically be A) B) C) D) less than NAV due to limited demand. greater than NAV due to greater demand. less than NAV due to loads and commissions. NAV or greater due to loads and commissions.

less than or greater than NAV with no apparent pattern. E) Feedback: At issue, offering prices of open-end funds will typically be NAV or greater due to loads and commissions.
7 INCORRECT
7 5

Ultra Fund had year-end assets of $862,000,000 and liabilities of $12,000,000. There were 32,675,254 shares in the fund at year-end. What was Ultra Fund's Net Asset Value? A) B) C) D) $28.17 $25.24 $19.62 $26.01

$21.56 E) Feedback: 862M – 12M = 850M; 850,000,000 / 32,675,254 = $26.01

8 5

8 INCORRECT

Premier Fund had year-end assets of $825,000,000 and liabilities of $25,000,000. If Premier's NAV was $32.18, how many shares must have been held in the fund? A) B) 21,619,346,92 22,930,546.28 24,860,161.59

C) D) 25,693,645.25

None of the above. E) Feedback: (Assets liabilities) / shares = NAV; 800M / S = 32.18; S = 24,860,161.59.
9 INCORRECT
9 5

Most actively managed mutual funds, when compared to a market index such as the Wilshire 5000, A) B) C) D) beat the market return in all years. beat the market return in most years. exceed the return on index funds. do not outperform the market.

None of the above is a correct statement. E) Feedback: Most actively managed mutual funds, when compared to a market index such as the Wilshire 5000, do not outperform the market.
10 5

10 INCORRECT

You purchased shares of a mutual fund at a price of $17 per share at the beginning of the year and paid a front-end load of 5.0%. If the securities in which the find invested increased in value by 12% during the year, and the funds expense ratio was 1.0%, your return if you sold the fund at the end of the year would be ____________. A) B) C) D) 4.75 5.45 5.65 4.39

None of the above E) Feedback: {[$17 * .95*(1.12-.01)]-$17} / $17 = 5.45%.

17

Results Reporter
Out of 10 questions, you answered 3 correctly with a final grade of 30% 3 correct (30%) 7 incorrect (70%) 0 unanswered (0%)

Your Results:
The correct answer for each question is indicated by a
Multiple Choice Q 007338237x no Macroeconomic a 17

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2122638 1

1 CORRECT

The most widely used monetary tool is open market operations.

A)

B)

altering the reserve requirements.

C)

altering the discount rate.

D)

altering marginal tax rates.

E)

none of the above.

Feedback: The most widely used monetary tool is open market operations.

2 INCORRECT

Monetary policy is determined by presidential mandates.

A)

B)

government budget decisions.

C)

congressional actions.

D)

the board of Governors of the Federal Reserve System.

E)

none of the above

Feedback: Monetary policy is determined by the board of Governors of the Federal Reserve System.
3 INCORRECT
3 5

Fiscal policy is difficult to implement quickly because it requires political negotiations.

A)

B)

increases in tax rates affect consumer spending gradually.

C)

much of government spending is non-discretionary and cannot be changed.

D)

A and B

E)

A and C

Feedback: Fiscal policy is difficult to implement quickly because it requires political negotiations and much of government spending is non-discretionary and cannot be

changed.
4 INCORRECT

Supply-side economists wishing to stimulate the economy are most likely to recommend a decrease in the money supply.

A)

B)

a decrease in the tax rate.

C)

an increase in the real interest rate.

D)

a decrease in production output.

E)

none of the above

Feedback: Supply-side economists wishing to stimulate the economy are most likely to recommend a decrease in the tax rate.
5 INCORRECT
5 5

The process of estimating the dividends and earnings that can be expected from the firm based on determinants of value is called business cycle forecasting.

A)

B)

macroeconomic forecasting.

C)

fundamental analysis.

D)

technical analysis. none of the above

E) Feedback: The process of estimating the dividends and earnings that can be expected from the firm based on determinants of value is called fundamental analysis.
6 5

6 CORRECT

During which stage of the industry life cycle would a firm experience stable growth in sales? Consolidation

A)

B)

Relative Decline

C)

Maturity

D)

Start-up

E)

Stabilization

Feedback: One of the features of the Consolidation phase is stable growth. There is no "Stabilization" stage. During Start-up there is rapid growth; during the Maturity phase there is slowing growth; and during the Relative Decline phase there is minimal or negative growth.
7 CORRECT
7 5

If interest rates decrease, business investment expenditures are likely to ______ and consumer durable expenditures are likely to _________. increase, increase

A)

B)

increase, decrease

C)

decrease, increase

D)

decrease, decrease

E)

be unaffected, be unaffected

Feedback: If interest rates decrease, business investment expenditures are likely to increase and consumer durable expenditures are likely to increase.
5 8

8 INCORRECT

If the economy is growing, firms with low operating leverage will experience __________. higher increases in profits than firms with high operating leverage.

A)

B)

similar increases in profits as firms with high operating leverage.

C)

smaller increases in profits than firms with high operating leverage.

D)

no change in profits.

E)

none of the above.

Feedback: If the economy is growing, firms with low operating leverage will experience smaller increases in profits than firms with high operating leverage.
9 5

9 INCORRECT

According to Michael Porter, there are five determinants of competition. An example of _____ is when the availability limits the prices that can be charged to customers. Threat of Entry Rivalry between Existing Competitors

A)

B) Pressure from Substitute Products

C)

D)

Bargaining power of Buyers

E)

Bargaining power of Suppliers

Feedback: An example of Pressure from Substitute Products is when the availability limits the prices that can be charged to customers.
10 INCORRECT
10 5

A top down analysis of a firm starts with ____________. the relative value of the firm

A)

B)

the absolute value of the firm

C)

the domestic economy

D)

the global economy

E)

the industry outlook

Feedback: A top down analysis of a firm starts with the domestic economy.

14

Results Reporter
Out of 10 questions, you answered 2 correctly with a final grade of 20% 2 correct (20%) 8 incorrect (80%) 0 unanswered (0%)

Your Results:
The correct answer for each question is indicated by a
Multiple Choice Q 007338237x no Bond Prices and 14

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2122629 1

1 CORRECT

The current yield on a bond is equal to ________. annual interest divided by the current market price

A)

B)

the yield to maturity

C)

annual interest divided by the par value

D)

the internal rate of return

E)

none of the above

Feedback: The current yield on a bond is equal to annual interest divided by the

current market price.

2 INCORRECT

To earn a high rating from the bond rating agencies, a firm should have a low times interest earned ratio.

A)

B)

a low debt to equity ratio.

C)

a high quick ratio.

D)

B and C.

E)

A and C.

Feedback: To earn a high rating from the bond rating agencies, a firm should have a low debt to equity ratio and a high quick ratio.
3 CORRECT
3 5

Ceteris paribus, the price and yield on a bond are negatively related.

A)

B)

positively related.

C)

sometimes positively and sometimes negatively related.

D)

not related.

E)

indefinitely related.

Feedback: Ceteris paribus, the price and yield on a bond are negatively related.

4 INCORRECT

A coupon bond is a bond that does not pay interest on a regular basis but pays a lump sum at maturity.

A)

B)

pays interest on a regular basis (typically every six months).

can always be converted into a specific number of shares of common stock in the C) issuing company. always sells at par.

D)

E)

none of the above

Feedback: A coupon bond is a bond that pays interest on a regular basis (typically every six months).
5 INCORRECT
5 5

Consider two bonds, X and Y. Both bonds presently are selling at their par value of $1,000. Each pays interest of $150 annually. Bond X will mature in 6 years while bond Y will mature in 7 years. If the yields to maturity on the two bonds decrease from 15% to 12% both bonds will increase in value, but bond X will increase more than bond Y.

A)

B)

both bonds will decrease in value, but bond X will decrease more than bond Y.

C)

both bonds will increase in value, but bond Y will increase more than bond X.

D)

both bonds will decrease in value, but bond Y will decrease more than bond X. none of the above

E) Feedback: If the yields to maturity on the two bonds decrease from 15% to 12% both bonds will increase in value, but bond Y will increase more than bond X. It is a general property that, ceteris paribus, the prices of bonds with longer maturities change more as required yields change.
6 INCORRECT
6 5

Consider a 5-year bond with a 10% coupon that has a present yield to maturity of 8%. If interest rates remain constant, one year from now the price of this bond will be $1,000.

A)

B)

higher.

C)

lower.

D)

the same.

E)

cannot be determined.

Feedback: If interest rates remain constant, one year from now the price of this bond will be lower. The bonds is currently selling at a premium to par. To prevent arbitrage, the bond must sell at par when it matures. Thus, each year, the premium decreases (price declines toward par).
7 INCORRECT
7 5

Which one of the following statements about convertibles is true? The longer the call protection on a convertible, the less the security is worth.

A)

B)

Convertibles are not callable. The smaller the spread between the dividend yield on the stock and the yield-tomaturity on the bond, the more the convertible is worth.

C) The collateral that is used to secure a convertible bond is one reason convertibles D) are more attractive than the underlying stock. The more volatile the underlying stock, the greater the value of the conversion E) feature. Feedback: The more volatile the underlying stock, the greater the value of the conversion feature. This is because the probability of profitable conversion increases.
8 5

8 INCORRECT

When a bond indenture includes a sinking fund provision firms must establish a cash fund for future bond redemption.

A)

bondholders always benefit, because principal repayment on the scheduled B) maturity date is guaranteed. bondholders may lose because their bonds can be repurchased by the C) corporation at below-market prices. both A and B are true.

D)

E)

none of the above are true.

Feedback: When a bond indenture includes a sinking fund provision bondholders may lose because their bonds can be repurchased by the corporation at below-market prices.
9 INCORRECT
9 5

One year ago, you purchased a newly issued TIPS bond that has a 6% coupon rate, five years to maturity, and a par value of $1,000. The average inflation rate over the year was 4.2%. What is the amount of the coupon payment you will receive and what is the current face value of the bond? $60.00, $1,000

A)

B)

$42.00, $1,042

C)

$60.00, $1,042

D)

$62.52, $1,042

E)

$102.00, $1,000

Feedback: The bond price, which is indexed to the inflation rate, becomes $1,000*1.042 = $1,042. The interest payment is based on the coupon rate and the new face value. The interest amount equals $1,042*.06 = $62.52.
5 10

10 INCORRECT

Bond analysts might be more interested in a bond's yield to call if the bond's yield to maturity is insufficient.

A)

B)

the firm has called some of its bonds in the past.

C)

the investor only plans to hold the bond until its first call date.

D)

interest rates are expected to rise.

E)

interest rates are expected to fall.

Feedback: Bond analysts might be more interested in a bond's yield to call if interest rates are expected to fall. If rates fall, firms may desire to call higher coupon bonds.

18

Results Reporter
Out of 10 questions, you answered 2 correctly with a final grade of 20% 2 correct (20%) 8 incorrect (80%) 0 unanswered (0%)

Your Results:
The correct answer for each question is indicated by a
Multiple Choice Q 007338237x no Equity Valuation M 18

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2122641 1

1 INCORRECT

_______ is the amount of money per common share that could be realized by breaking up the firm, selling the assets, repaying the debt, and distributing the remainder to shareholders. Book value per share

A)

B)

Liquidation value per share

C)

Market value per share

D)

Tobin's Q None of the above

E) Feedback: Liquidation value per share is the amount of money per common share that could be realized by breaking up the firm, selling the assets, repaying the debt, and distributing the remainder to shareholders.
2 INCORRECT
2 5

You wish to earn a return of 10% on each of two stocks, C and D. Each of the stocks is expected to pay a dividend of $2 in the upcoming year. The expected growth rate of dividends is 9% for stock C and 10% for stock D. The intrinsic value of stock C _____. will be greater than the intrinsic value of stock D

A)

B)

will be the same as the intrinsic value of stock D

C)

will be less than the intrinsic value of stock D

D)

cannot be calculated without knowing the rate of return on the market portfolio

E)

none of the above is a correct statement.

Feedback: PV0 = D1/(k-g); given that dividends are equal, the stock with the higher growth rate will have the higher value.
3 INCORRECT
3 5

A company has an expected ROE of 11%. The dividend growth rate will be _______ if the firm follows a policy of paying 25% of earnings in the form of dividends. 3.0%

A)

B)

4.8%

C)

8.25%

D)

9.0%

E)

none of the above

Feedback: 11% × 0.75 = 8.25%.

4 5

4 CORRECT

Historically, P/E ratios have tended to be lower when inflation has been high.

A)

B)

higher when inflation has been high.

uncorrelated with inflation rates but correlated with other macroeconomic C) variables. uncorrelated with any macroeconomic variables including inflation rates.

D)

E)

none of the above

Feedback: Historically, P/E ratios have tended to be lower when inflation has been high.
5 INCORRECT
5 5

One of the problems with attempting to forecast stock market values is that there are no variables that seem to predict market return.

A)

B)

the earnings multiplier approach can only be used at the firm level.

C)

dividend payout ratios are highly variable.

D)

the level of uncertainty surrounding the forecast will always be quite high.

E)

none of the above

Feedback: One of the problems with attempting to forecast stock market values is that the level of uncertainty surrounding the forecast will always be quite high.
6 5

6 INCORRECT

A preferred stock will pay a dividend of $2.50 in the upcoming year, and every year thereafter, i.e., dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock. $0.39

A)

B)

$0.56

C)

$25.00

D)

$56.25

E)

none of the above

7 5

Feedback: $2.50 / 0.10 = $25.00.

7 CORRECT

If a firm has a required rate of return equal to the ROE the amount of earnings retained by the firm does not affect market price or the A) P/E.

B)

the firm can increase market price and P/E by increasing the growth rate.

C)

the firm can increase market price and P/E by retaining more earnings.

D)

A and B

E)

none of the above

Feedback: If a firm has a required rate of return equal to the ROE the amount of earnings retained by the firm does not affect market price or the P/E.
5 8

8 INCORRECT

The goal of fundamental analysts is to find securities with high market capitalization rates.

A)

B)

with a positive present value of growth opportunities.

C)

whose intrinsic value exceeds market price.

D)

all of the above

E)

none of the above

Feedback: The goal of fundamental analysts is to find securities whose intrinsic value exceeds market price.
9 INCORRECT
9 5

Many stock analysts assume that a mispriced stock will immediately return to its intrinsic value.

A) gradually approach its intrinsic value over several years.

B)

C)

never return to its intrinsic value.

D)

return to its intrinsic value within a few days.

E)

none of the above

Feedback: Many stock analysts assume that a mispriced stock will gradually approach its intrinsic value over several years.
10 INCORRECT
10 5

Because the DDM requires multiple estimates, investors should carefully examine inputs to the model.

A)

B)

not use this model without expert assistance.

C)

perform sensitivity analysis on price estimates.

D)

feel confident that DDM estimates are correct.

E)

both A and C

Feedback: Because the DDM requires multiple estimates, investors should carefully examine inputs to the model, and perform sensitivity analysis on price estimates.

19

Your Results:
The correct answer for each question is indicated by a
Multiple Choice Q 007338237x 1 5 no Financial Stateme 19

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2122644 1

1 INCORRECT

To create a common size income statement ____________ all items on the income statement by ____________. A) B) C) D) multiply; net income multiply; total revenue divide; net income divide; total revenue

multiply; COGS E) Feedback: To create a common size income statement divide all ite ms on the income statement by total revenue.
2 INCORRECT
2 5

If a firm has "goodwill" recorded on its balance sheet it must have ____________. A) B) C) D) donated to charity participated in a benefit for a charitable cause participated in a company-wide fund raising drive for a charity acquired another firm

none of the above E) Feedback: If a firm has "goodwill" recorded on its balance sheet it must have acquired another firm.
3 INCORRECT
3 5

An example of a liquidity ratio is A) current ratio

B) C) D)

fixed asset turnover acid test or quick ratio A and C

B and C E) Feedback: An example of a liquidity ratio is the current ratio and the acid test or quick ratio.
4 CORRECT
4 5

A firm has a higher asset turnover ratio than the industry average, which implies the firm is utilizing assets more efficiently than other firms in the A) industry. the firm is more likely to avoid insolvency in the short run than other B) firms in the industry. C) D) the firm is more profitable than other firms in the industry. the firm has a higher P/E ratio than other firms in the industry.

the firm has higher spending on new fixed assets than other firms in E) the industry. Feedback: A firm has a highe r asset turnover ratio than the industry average, which implies the firm is utilizing assets more efficiently than other firms in the industry.
5 INCORRECT
5 5

Over a period of thirty-odd years in managing investment funds, Benjamin Graham used the approach of investing in the stocks of companies where the stocks were trading at less than their working capital value. The average return from using this strategy was approximately A) B) C) D) E) 5%. 20%. 15%. 30%. none of the above

Feedback: Although Graham said in 1976 that markets were so efficient that one could not expect to identify undervalued securities consistently as he had done throughout his career, he continued to find this one variable useful. His return was 20%.
6 INCORRECT
6 5

A measure of asset utilization is A) B) C) D) sales divided by working capital. return on equity capital. return on total assets. operating profit divided by sales.

none of the above E) Feedback: A measure of asset utilization is return on total assets.
7 5

7 UNANSWERED

During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes A) B) C) D) E)
8

higher inventory turnover. higher reported sales. lower ending inventory. higher income taxes. none of the above
5

8 INCORRECT

MBC Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average. These ratios suggest that the firm A) B) utilizes assets effectively. has too much equity in the capital structure. has a relatively low dividend payout ratio.

C) D) has relatively high current liabilities.

none of the above E) Feedback: MBC Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average. These ratios suggest that the firm has relatively high current liabilities.
9 UNANSWERED
9 5

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years A) B) C) D) E)
10

sales/total assets. retained earnings/total assets. debt/equity. debt/total assets. none of the above
5

10 INCORRECT

Comparability problems arise because A) firms may use different generally accepted accounting principles.

inflation may affect firms differently due to accounting conventions B) used. C) D) financial analysts do not know how to compare financial statements. A and B.

A and C. E) Feedback: Comparability problems arise because firms may use different generally accepted accounting principles, and inflation may affect firms differently due to accounting conventions used.