Download Sample Second Mid-Term

SECOND MID-TERM, FINANCE 327, SAMPLE
1.Which one of the following is probably the most direct and immediate way to stimulate or slow
the economy although it is not very useful for fine tuning economic performance?
A. Monetary policy
B. Fiscal policy
C. Supply-side policy
D. targeting unemployment
2. A firm in the early stages of its industry life cycle will likely have __________.
A. Low level of retained earnings
B. Low dividend payout rates
C. Low rates of return on investment
D. Low R&D spending
3. The most widely used monetary policy tool is __________.
A. Altering the discount rate
B. Altering reserve requirements
C. Open market operations (NOT A GOOD Q. A, B MATTER TOO, NOT AS MUCH)
D. Increasing the budget deficit
4. A top-down analysis of a firm's prospects starts with an analysis of the ____.
A. firm's position in its industry
B. U.S. economy or even the global economy
C. industry
D. specific firm under consideration
5. GDP refers to __________.
A. The amount of personal disposable income in the economy
B. The difference between government spending and government revenues
C. The total manufacturing output in the economy
D. The total production of goods and services in the economy
6. Bill, Jim and Shelly are all looking to buy the same stock that pays dividends. Bill plans on
holding the stock for one year. Jim plans on holding the stock for three years. Shelly plans on
holding the stock until she retires in 10 years. Which one of the following statements is correct?
A. Bill will be willing to pay the most for the stock because he will get his money back in one
year when he sells.
B. Jim should be willing to pay three times as much for the stock as Bill because his expected
holding period is three times as long as Bill's.
C. Shelly should be willing to pay the most for the stock because she will hold it the longest and
hence she will get the most dividends.
D. All three should be willing to pay the same amount for the stock regardless of their
holding period.
7. Which of the following methods for valuation are acceptable to financial analysts?
A. relative valuation models
B. discounted cash flow models
C. price to replacement cost models
D. all of the above.
E. none of the above.
8. A high amount of short interest is typically considered as a __________ and contrarians may
consider it as a _________.
A. Bearish signal; bullish signal (KEY IS CONTRARIAN).
B. Bullish signal; bearish signal
C. Bearish signal; false signal
D. Bullish signal; false signal
9. A support level is ___________________.
A. A level beyond which the market or stock is unlikely to rise
B. A level below which the market or stock is unlikely to fall
C. An equilibrium price level justified by characteristics such as earnings and cash flows
D. The peak of a market wave or cycle.
10. In bear markets, when a stock you do not own breaks through the moving average line from
below, a technical analyst would probably suggest it is a good time to ___________.
A. Buy the stock
B. Hold the stock
C. Sell the stock
D. Short the stoc . KEY IS THAT IN BEAR MKTS TREND LINE IS DOWN
11. Which of the following contradicts the proposition that the stock market is weak-form
efficient.
A. Over 25% of mutual funds outperform the market on average (MEANS STRONG INEFF)
B. Insiders earn abnormal trading profits (MEANS STRONG INEFF)
C. Every January, the stock market earns above normal returns
D. Applications of technical trading rules fail to earn abnormal returns (MEANS WEAK EFF)
Use the following information to answer the next 3 questions.
QTC Inc is a firm that just earned $ 2.00 per share. These earnings are expected to grow at 20%
for the next 3 years after which earnings growth will stabilize at 10% per year. 50% of earnings
are paid as dividends. QTC has a beta of 1.25, the risk-free rate is 4% and the market riskpremium is 8%.
12. The required rate of return that investors require for their investment in the equity of this
company is:
A. 8%
B. 12%
C. 14% 4+8(1.25)
D. 16%
13. The expected price of this company’s stock in 3 years is closest to:
A.39.60
B. 47.52
[2 * (0.5) * 1.2)3 * 1.1]/(-14-.10)
C. 95.04
D. None of the above.
14. The intrinsic value of the company’s stock at the present time is closest to:
A. 29.50
B. 35.40
C. 70.45
D. None of the above.
15. Which of the following stock price observations would appear to contradict the weak form of
the efficient market hypothesis?
A. The average rate of return is significantly greater than zero.
B. The correlation between the market return one week and the return the following week is zero.
C. You could have consistently made superior returns by buying stock after a 10% rise in
price and selling after a 10% fall.
D. You could have consistently made superior returns by forecasting future earnings
performance with your new Crystal Ball forecast methodology.
16. An important assumption underlying the use of technical analysis techniques is that
___________________.
A. security prices adjust rapidly to new information
B. security prices adjust gradually to new information IF EFF THEN TA DOESN’T WORK
C. security dealers will provide enough liquidity to keep price changes relatively small
D. all investors have immediate and costless access to information
17. You would expect the beta of cyclical industries to be ______ and the beta of defensive
industries to be ______.
A. greater than 1; less than 1
B. less than 1; less than 1
C. less than 1; greater than 1
D. greater than 1; greater than 1
18. Consider a 5-year, 10% coupon bond priced currently at par. You are considering purchasing
this bond, with the intent of selling it after one year when applicable interest rates are 8%. The
price of the bond when you sell it will be closest to:
A.
B.
C.
D.
966.24
1000.00
1066.24
1162.39
19. Including the coupon, your rate of return over the one-year period that you hold this bond is
closest to:
A.
B.
C.
D.
8%
10.0%
16.62%
18%
20. Which of the following statements about callable bonds is true?
A.
B.
C.
D.
Callable bonds expose issuers to the risk of a reduced re-investment return.
Callable bonds are not as liquid as non-callable bonds.
Callable bonds always trade at a discount to non-callable bonds.
The maturity of callable bonds does not change.