FIN-550 Final Exam Answers

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Question 1
The five major classes of ratios include the following, except
Question 2
Which of the following statements regarding financial risk and business risk is true?
Question 3
Which of the following is not a flow ratio?
Question 4
Which of the following ratios is not a measurement of the firms liquidity?
Question 5
A common-size income statement expresses all income statement items
Question 6
The growth rate of equity earnings without external financing is equal to
Question 7
The most appropriate discount rate to use when applying the Operating Free Cash Flows model
is the firms

 Question 8
All of the following are ways in which a firm can increase its growth rate of equity earnings
without any external financing except
Question 9
Which of the following is an underlying assumption of the constant growth dividend discount
model (DDM)?
Question 10
Dividend growth is a function of
Question 11
The dividend payout ratio for the aggregate market is 65 percent, the required rate of return is 13
percent, and the expected growth rate for dividends is 8 percent. Compute the current earnings
multiple.
Question 12
The correlation of stock market returns between the U.S. and Japan is ____ and ____.
Question 13
Which of the following economic series are included in the NBER lagging indicator series?
Question 14
The growth rate will most likely increase if the:
Question 15
If, for the S&P Industrials Index, the profit margin was .25 and the equity turnover ratio was 12,
the ROE would be:
Question 16
At what stage in the industrial life cycle is there an influx of competition?
Question 17
To estimate earnings per share an analyst will start by estimating
Question 18

During a recession,
Question 19
In which industrial life cycle stage do sales correlate highly with an economic series or the
economy in general?
Question 20
Which of the following is not characteristic of the decline phase of the industry life cycle?
Question 21
A speculative stock possesses a ____ probability of ____ return and is currently ____.
Question 22
Which of the following is not considered when looking at free cash flow to equity technique?
Question 23
Under the present value of operating free cash flow technique, the firms operating free cash flow
to the firm is discounted at the firms
Question 24
In Berkshire Hathaway annual reports Warren Buffett highlights financial tenets that he believes
are important. Which of the following is not a financial tenet of Warren Buffett?
Question 25
Which of the following statements concerning SWOT analysis is false?
FIN 550 Final Exam Part 2
Question 1
A stock currently sells for $75 per share. A put option on the stock with an exercise price $70
currently sells for $0.50. The put option is
Question 2
Which of the following is consistent with put-call-spot parity?
Question 3
An advantage of a forward contract over a futures contract is that

 Question 4
The cost of carry includes all of the following except
Question 5
A call option in which the stock price is higher than the exercise price is said to be
Question 6
The basis (Bt,T) at time t between the spot price (St) and a futures contract expiring at time T
(Ft,T) is
Question 7
The bond that maximizes the difference between the invoice price and the delivery price is
referred to as the
Question 8
An investor who wants a long position in a ____ must first place the order with a broker, who
then passes it on to the trading pit or electronic network. Details of the order are then passed on
to the exchange clearinghouse.
Question 9
When F0,T > E(ST) it is known as
Question 10
According to the cost of carry model the relationship between the spot (S0) and futures price
(F0,T) is
Question 11
A vertical spread involves buying and selling call options in the same stock with
Question 12
In a money spread, an investor would
Question 13
In the Black-Scholes option pricing model, an increase in time to expiration (T) will cause
Question 14

The Black-Scholes model assumes that stock price movements can be described by
Question 15
Which of the following is not a variable required to determine an options value in the BlackScholes valuation model?
Question 16
Investment companies or mutual funds that continue to sell and repurchase shares after their
initial public offerings are referred to as
Question 17
Investing in emerging markets can be viewed as a global application of
Question 18
The Securities Act of 1933
Question 19
Which of the following are guiding principles for ethical behavior in the asset management
industry as put forward by the CFA Center for Financial Market Integrity?
Question 20
An investment vehicle that acts like a mutual fund of hedge funds, and allows investors access to
managers that might otherwise be unavailable is known as

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