FIN 351 DeVry Final Exam

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FIN 351 DeVry Final Exam


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








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)