FIN 351 DeVry Final Exam

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FIN 351 DeVry Final Exam

FIN351

FIN 351 DeVry Final Exam

 

FIN 351 DeVry Final Exam

Page 1

Question 1.1.(TCO 1) Which of the following investments would theoretically always carry the highest risk premium? (Points : 4)

  • A U.S. treasury bill
  • Common stock
  • Preferred stock
  • Corporate bond

 

Question 2.2.(TCO 1) From the investment banker’s point of view, the major reason syndicates are formed in the distribution of large issues is for the purpose of (Points : 4)

  • improving the liquidity of the issue.
  • improving geographic distribution.
  • reducing the underwriter’s risk.
  • improving brand recognition.

 

Question 3.3.(TCO 1) A _____ requires full payment for the purchase of securities, whereas a _____ allows the investor to borrow a portion of the purchase price from the brokerage firm. (Points : 4)

  • money market account; cash account
  • cash account; charge account
  • cash account; margin account
  • type 5 account; type 2 account

 

Question 4.4.(TCO 2) The composite index of leading indicators, made up of 10 leading indicators, has historically (Points : 4)

  • not always preceded changes in the business cycle.
  • given roughly the same notice at peaks as at troughs.
  • varied widely in its timing of notice at peaks and troughs.
  • More than one of the above

 

Question 5.5.(TCO 2) Why would an investor want to use the rotational investing method? (Points : 4)

  • It allows the investor to rotate out of losing stocks.
  • The investor is attempting to profit from movements in the economic cycle.
  • It is an easy method of employing dollar-cost averaging.
  • It assures the investor of owning the proper mix of stocks and bonds.

 

Question 6.6.(TCO 2) If the equity risk premium (ERP) expands, Kewill(Points : 4)

  • increase by beta times the equity risk premium.
  • not be affected.
  • go down.
  • decrease by beta times the equity risk premium.

 

Question 7.7.(TCO 2) _____ analysis is the process of studying a series of ratios for a company and/or industry over time. (Points : 4)

  • DuPont
  • Trend
  • Common size
  • Critical

 

Question 8.8.(TCO 3) What is market capitalization? (Points : 4)

  • The total owners’ equity in a firm
  • The total marketable assets of a firm
  • Shares outstanding multiplied by the market value of the stock
  • None of the above

 

Question 9.9.(TCO 3) A ratio of the total short sales positions on an exchange to average daily exchange volume for the month is normally(Points : 4)

  • between 0 and .5.
  • between 1.0 and 2.0.
  • between 2.0 and 3.0.
  • over 3.0.

 

Question 10.10.(TCO 4) A bond with a put provision allows the investor to (Points : 4)

  • convert the bond to a specified number of shares of common stock.
  • sell the bond back to the corporation at a small premium over par at a specified time period.
  • sell the bond back to the corporation at par at a specified time period.
  • receive additional interest payments if inflation goes above a specified level.

 

Page 2

Question 1.1.(TCO 4) Yield to maturity takes into account everything except(Points : 4)

  • annual interest received.
  • the difference between the current bond price and its maturity value.
  • the number of years to maturity.
  • the number of years since the bond’s purchase.

 

Question 2.2.(TCO 4) Duration is used primarily as a measure of(Points : 4)

  • the relationship between coupon rate and bond rating.
  • bond price-sensitivity to interest rate changes.
  • the present value of investment inflows.
  • None of the above

 

Question 3.3.(TCO 5) What factor(s) would cause the pure bond value to go up?(Points : 4)

  • A decrease in the market interest rate
  • An increase in stock price
  • A change in the conversion ratio
  • More than one of the above

 

Question 4.4.(TCO 5) At the time of expiration, the premium (price) on a call option(Points : 4)

  • reflects risk in addition to intrinsic value.
  • will be equal to the intrinsic value.
  • may be above or below the intrinsic value.
  • None of the above

 

Question 5.5.(TCO 5) The settle price is the same as the(Points : 4)

  • opening price.
  • closing price.
  • intraday high price.
  • None of the above

 

Question 6.6.(TCO 5) The value of a stock index futures contract is the product of ____ and the appropriate multiplier.(Points : 4)

  • the settle price
  • the change in the settle price
  • the difference between the settle price and the change
  • None of the above

 

Question 7.7.(TCO 6) The difference between a load fund and a no-load fund is that(Points : 4)

  • no-load funds do not charge commissions and are sold directly by the investment company.
  • load funds do not charge commissions and are sold directly by the investment company.
  • no-load funds charge higher commissions than load funds.
  • no-load funds charge lower commissions than load funds.

 

Question 8.8.(TCO 6) Investing directly in the international equities markets refers to buying shares(Points : 4)

  • of multinational corporations.
  • of foreign companies.
  • of internationally invested mutual funds.
  • More than one of the above

 

Question 9.9.(TCO 6) Real assets may be effective for portfolio diversification because(Points : 4)

  • they provide an effective hedge against deflation.
  • they are perceived as a safe haven for investments.
  • real and financial assets are less positively correlated than financial assets alone.
  • None of the above

 

Question 10.10.(TCO 7) The investor wants to achieve the _____ risk-return indifference curve.(Points : 4)

  • lowest
  • highest
  • median
  • mean

 

Page 3

Question 1.1.(TCO 1) The stock of Trudeau Corporation went from $27 to $40 last year. The firm also paid $1 in dividends during the same year. Thereafter, in the following year, the dividend was raised to $1.40. However, a declining market toward the end of the year caused the stock to fall to $24 per share from $40. Compute the rate of return (gain or loss) to the stockholder in the following year.(Points : 15)

 

Question 2.2.(TCO 2) Given the following financial data, compute the return on assets and return on equity: net income/sales = 7%, sales/total assets = 2.5X, and debt/total assets = 20%.(Points : 15)

 

 

Question 3.3.(TCO 4) What is the approximate yield to maturity of an 8% coupon bond with a par value of $1,000? The bond is currently selling for $920 and has 5 years to maturity.(Points : 15)

 

 

Question 4.4.(TCO 5) A convertible bond has a face value of $1,000 and the conversion price is $50 per share. The stock is selling at $30 per share. The bond pays $65 per year in interest and is selling in the market for $950. It matures in 7 years. Market rates are 10% annually.

(I) What is the conversion ratio?

(II) What is the conversion value?(Points : 15)

 

 

Question 5.5.(TCO 5) If a $100,000 Treasury bond futures contract changes by 9/32, what is the dollar change?(Points : 15)

 

 

Question 6.6.(TCO 6) A mutual fund is set up to charge a load. Its net asset value is $17.70 and its offer price is $18.60. What is the dollar value of the load (commission)?(Points : 15)

 

 

Question 7.7.(TCO 6) A shopping center has an annual net operating income of $1,050,000 and a capitalization rate of 8%. What is its value?(Points : 15)

 

 

Question 8.8.(TCO 7) An investment has the following range of outcomes and probabilities.

Outcomes (Percent)

Probabilities of Outcomes

5%

.30

7%

.25

12%

.45

 

Calculate the expected value and the standard deviation (round to two places after the decimal point where necessary).(Points : 15)

 

 

 

Page 4

Question 1.1.(TCO 1) Explain the characteristics of primary markets versus secondary markets.(Points : 10)

 

 

Question 2.2.(TCO 2) From the standpoint of fundamental analysis, what types of indicators are most valuable to investors?(Points : 10)

 

 

Question 3.3.(TCO 3) What is a major emphasis of the Dow theory?(Points : 10)

 

 

Question 4.4.(TCO 6) Discuss the main advantage of international investing and being involved in foreign markets.(Points : 10)

 

 

Question 5.5.(TCO 7) Which type of risk is associated with a risk premium?(Points : 10)