ashford BUS401 week 1-4 quiz and practice questions

ashford BUS401 week 1-4 quiz and practice questions

Question

BUS 401 Quiz Practice Questions

1) At what rate must $500 be compounded annually for it to

grow to $1,079

BUS 401 Quiz Practice Questions

1) At what rate must $500 be compounded annually for it to

grow to $1,079.46 in 10

years?

a. 6 percent

b. 7 percent

c. 8 percent

d. 5 percent

2) What is the present value of $12,500 to be received 10

years from today? Assume a

discount rate of 8% compounded annually and round to the

nearest $10.

a. $17,010

b. $9,210

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c. $11,574

d. $5,790

3) How much money must you pay into an account at the end of
each of 20 years in

order to have $100,000 at the end of the 20th year? Assume

that the account pays

6% per year, and round to the nearest $1.

a. $2,195

b. $1,840

c. $2,028

d. $2,718

4) You have the choice of two equally risk annuities, each

paying $5,000 per year for

8 years. One is an annuity due and the other is an ordinary

annuity. If you are going

to be receiving the annuity payments, which annuity would

you choose to maximize

your wealth?

a. The annuity due

b. Either one because they have the same present value.

c. The ordinary annuity

d. Since we don’t know the interest rate, we can’t fi nd the

value of the annuities and

hence we cannot tell which one is better.

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5) If you put $1,000 in a savings account that yields 8%
compounded semi-annually,

how much money will you have in the account in 20 years

(round to nearest $10)?

a. $4,660

b. $4,801

c. $2,190

d. $1,480

6) You want $20,000 in 5 years to take your spouse on a

second honeymoon. Your

investment account earns 7% compounded semiannually. How

much money must you

put in the investment account today? (round to the nearest

$1)

a. $14,178

b. $15,985

c. $13,349

d. $12,367

7) You invest $1,000 at a variable rate of interest.

Initially the rate is 4% compounded

annually for the fi rst year, and the rate increases

one-half of one percent annually for

fi ve years (year two’s rate is 4.5%, year three’s rate is

5.0%, etc.). How much will you

have in the account after fi ve years?

a. $1,462
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b. $1,359

c. $1,276

d. $1,338

8) Assume that you have $165,000 invested in a stock that is

returning 11.50%,

$85,000 invested in a stock that is returning 22.75%, and

$235,000 invested in a

stock that is returning 10.25%. What is the expected return

of your portfolio?

a. 14.8%

b. 12.9%

c. 18.3%

d. 15.6%

9) Which of the following statements is most correct

concerning diversification and risk?

a. Risk-averse investors often select portfolios that

include only companies from the

same industry group because the familiarity reduces the

risk.

b. Risk-averse investors often choose companies from

different industries for their portfolios because the correlation of returns is
less than if all the companies came from the same industry.

c. Only wealthy investors can diversify their portfolios

because a portfolio must contain

at least 50 stocks to gain the benefi ts of diversifi

cation.

d. Proper diversifi cation generally results in the

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elimination of risk.

10) You are considering buying some stock in Continental

Grain. Which of the following

are examples of non-diversifi able risks?

I. Risk resulting from a general decline in the stock

market.

II. Risk resulting from a possible increase in income taxes.

III. Risk resulting from an explosion in a grain elevator

owned by Continental.

IV. Risk resulting from a pending lawsuit against

Continental.

a. III and IV

b. II, III, and IV

c. I and II

d. I only

11) Of the following, which differs in meaning from the

other three?

a. Systematic Risk

b. Market Risk

c. Asset-unique Risk

d. Undiversifi able Risk

12) Which of the following is true of a zero coupon bond?

a. The bond has a zero par value.

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b. The bond sells at a premium prior to maturity.

c. The bond makes no coupon payments.

d. The bond has no value until the year it matures because

there are no positive cash

fl ows until then.

13) In an effi cient securities market the market value of a

security is equal to

a. par value.

b. its intrinsic value.

c. its book value.

d. its liquidation value.

14) In 1998 Fischer Corp. issued bonds with an 8 percent coupon

rate and a $1,000

face value. The bonds mature on March 1, 2023. If an

investor purchased one of

these bonds on March 1, 2008, determine the yield to

maturity if the investor paid

$1,050 for the bond.

a. 8.5%

b. The yield to maturity must be greater than 8% because the

price paid for the bond

exceeds the face value.

c. The yield to maturity is $950 ($1,000 interest less $50

capital loss).

d. 7.44%

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15) A bond will sell at a discount (below par value) if:

a. The economy is booming.

b. Current market interest rates are moving in the same

direction as bond values.

c. The market value of the bond is less than the present

value of the discount rate of the

bond.

d. Investor’s current required rate of return is above the

coupon rate of the bond.

16) Many preferred stocks have a feature that requires a fi

rm to periodically set aside

an amount of money for the retirement of its preferred

stock. What is the name of this

feature?

a. Callable

b. Cumulative

c. Sinking fund

d. Convertible

17) H. J. Corp. common stock paid $2.50 in dividends last

year (D0). Dividends are

expected to grow at a 12-percent annual rate forever. If H.

J.’s current market price

is $40.00, what is the stock’s expected rate of return

(nearest .01 percent)?

a. 5.50%
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b. 18.25%

c. 19.00%

d. 11.00%

18) Investment A has an expected return of 15% per year,

while investment B has an expected return of 12% per

year. A rational investor will choose:

A) investment A if A and B are of equal risk.

B) investment A because of the higher expected return.

C) investment B because a lower return means lower risk.

D) investment A only if the standard deviation of returns

for A is higher than the standard deviation of

returns for B.

19) A typical measure for the risk-free rate of return is

the:

A) U.S. Treasury Bill rate.

B) short-term AAA-rated bond rate.

C) money market rate.

D) prime lending rate.

20) If the Beta for stock A equals zero, then:

A) stock A has a guaranteed return.

B) stock A's required return is equal to the required return

on the market portfolio.

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C) stock A's required return is equal to the risk-free rate
of return.

D) stock A's required return is greater than the required

return on the market portfolio.

21) Stock A has a beta of 1.4 and a standard deviation of

returns of 12%. Stock B has a beta of 1.1 and a standard

deviation of returns of 12%. If the market risk premium

increases, then:

A) the required returns on stocks A and B will remain the

same.

B) the required returns on stocks A and B will both increase

by the same amount.

C) the required return on stock A will increase more than

the required return on stock B.

D) the required return on stock B will increase more than

the required return on stock A.

22) The appropriate measure for risk according to the

capital asset pricing model is:

A) the coefficient of variation of a firm's cash flows.

B) the standard deviation of a firm's cash flows.

C) alpha.

D) beta.

23) Beta is a statistical measure of:

A) the standard deviation.

B) total risk.
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C) unsystematic risk.

D) the relationship between an investment's returns and the

market return.

24) Of the following different types of securities, which is

typically considered most risky?

A) common stocks of large companies

B) long term corporate bonds

C) long term government bonds

D) U.S. Treasury bills

25) Which of the following is an acceptable method of

measuring the risk of a single investment?

A) the capital asset pricing module

B) the standard deviation

C) the coefficient of capitalization

D) the systemic characteristic variation

26) Which of the following types of risk is diversifiable?

A) unsystematic, or company-unique risk

B) systematic risk

C) market risk

D) betagenic, or ecocentric risk

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27) The yield to maturity on a bond:

A) is lower for higher risk bonds.

B) is the required rate of return on the bond.

C) is fixed in the indenture.

D) is generally below the coupon interest rate.

28) Aaron Corporation has two bonds outstanding. Both bonds

mature in 10 years, have a face value of $1,000,

and have a yield to maturity of 8%. One bond is a zero

coupon bond and the other bond has a coupon rate of

8%. Which of the following statements is true?

A) The zero coupon bond must have a higher price because of

its greater capital gain potential.

B) All rational investors will prefer the 8% bond because it

pays more interest.

C) The zero coupon bond must sell for a lower price than the
bond with an 8% coupon rate.

D) Both bonds must sell for the same price if markets are in
equilibrium.

29) A corporate bond has a coupon rate of 10%, a yield to

maturity of 12%, a face value of $1,000, and a market

price of $900. Therefore, the annual interest payment is:

A) $120

B) $108

C) $100

D) $90

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30) A $1,000 par value 8-year bond with a 7 percent coupon
rate recently sold for $1,100. The yield to maturity is:

A) less than 7 percent.

B) greater than 7 percent.

C) 7 percent.

D) cannot be determined.

31) If the market price of a bond decreases, then:

A) the yield to maturity increases.

B) the coupon rate increases.

C) the yield to maturity decreases.

D) the coupon rate decreases.

32) If a bond has a Standard & Poor's rating of BB, or

below, it is referred to as a ________.

A) low yield bond

B) convertible bond

C) capital bond

D) junk bond

33) A bond will sell at a discount (below par value) if:

A) current market interest rates are moving in the same

direction as bond values.

B) the market value of the bond is less than the present

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value of the discount rate of the bond.

C) investors' current required rate of return is above the

coupon rate of the bond.

D) the economy is booming.

34) Which of the following statements concerning the

constant growth dividend valuation model is true?

A) The growth rate must increase every year.

B) The dividend growth rate must be bigger than 10%.

C) The required rate of return must be equal to the growth

rate for dividends.

D) The required rate of return must exceed the growth rate.

35) How is preferred stock affected by a decrease in the

required rate of return?

A) the dividend yield increases

B) the value of a share of preferred stock increases

C) the dividend decreases

D) the dividend increases

36) Preferred stock differs from common stock in that:

A) preferred stock usually has a maturity date.

B) preferred stock can never be called.

C) common stock investors have a required return and

preferred stock investors do not.

D) preferred stock dividends are fixed.

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37) Who bears the greatest risk of loss of value if a firm
should fail?

A) bondholders

B) common stockholders

C) preferred stockholders

D) All of the above bear equal risk of loss.

ashford BUS401 week 1-4 quiz and practice questions

Attachments
BUS_401_Week_1_to_4,_Quizes,_Practice_Questions.docx (18.44 KB)

Preview: return xx stock x 22) The xxxxxxxxxxx measure for xxxx according xx xxx capital xxxxx
pricing model xxxxx the coefficient xx variation xx x firm's xxxx flows B) xxx standard deviation
xx a xxxxxx xxxx flows xx alpha D) xxxx 23) Beta xx a xxxxxxxxxxx xxxxxxx of:A) xxx standard
deviation xx total risk xx unsystematic xxxx xx the xxxxxxxxxxxx between an xxxxxxxxxxxx
returns and xxx market xxxxxx xxx Of xxx following different xxxxx of securities, xxxxx is
xxxxxxxxx xxxxxxxxxx most xxxxxxxx common stocks xx large companies xx long xxxx
xxxxxxxxx bondsC) xxxx term government xxxxx D) U x Treasury xxxxxxxx xxxxx of xxx
following is xx acceptable method xx measuring xxx xxxx of x single investment?A) xxx capital
asset xxxxxxx module xx xxx standard xxxxxxxxxxx the coefficient xx capitalization D) xxx
systemic xxxxxxxxxxxxxx xxxxxxxxxxxx Which xx the following xxxxx of risk xx diversifiable?A)
xxxxxxxxxxxxx xx company-unique xxxx B) systematic xxxxxx market risk xx betagenic, xx
xxxxxxxxxx risk27) xxx yield to xxxxxxxx on a xxxxxxx is xxxxx xxx higher xxxx bonds B) xx the
required xxxx of xxxxxx xx the xxxx C) is xxxxx in the xxxxxxxxx D) xx xxxxxxxxx below xxx
coupon interest xxxx 28) Aaron xxxxxxxxxxx has xxx xxxxx outstanding xxxx bonds mature xx
10 years, xxxx a xxxx xxxxx of xxxxxxxxxx have a xxxxx to maturity xx 8% xxx xxxx is x zero
coupon xxxx and the xxxxx bond xxx x coupon xxxx of8% Which xx the following xxxxxxxxxx is
xxxxxxx xxx zero xxxxxx bond must xxxx a higher xxxxx because xx xxx greater xxxxxxx gain
potential xx All rational xxxxxxxxx will xxxxxx xxx 8% xxxx because it xxxx more interest xx The
xxxx xxxxxx bond xxxx sell for x lower price xxxx the xxxx xxxx an xx coupon rate xx Both bonds
xxxx sell xxx xxx same xxxxx if markets xxx in equilibrium xxx A xxxxxxxxx xxxx has x coupon
rate xx 10%, a xxxxx to xxxxxxxx xx 12%, x face value xx $1,000, and x marketprice xx xxxx
Therefore, xxx annual interest xxxxxxx is:A) $120 xx $108 xx xxxx D) xxxxxx A $1,000 xxx value
8-year xxxx with x x percent xxxxxx rate recently

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