1.

Money markets are markets for

a. consumer automobile loans
b. Corporate stocks
c. Long term bonds
d. Short term debt securities
2. The component of the risk-adjusted discount rate that is derived from the risk of
Treasury securities is:
a. Risk premium
b. Call premium
c. Cost of capital
d. Risk-free rate
3. The price of a stock is:
a. The future of value of all expected future dividends discounted at the dividend
growth rate.
b. The present value of all expected future dividends discounted at the dividend
growth rate.
c. The future value of all expected future dividends discounted at the investor's
required return.
d. The present value of all expected future dividends discounted at the
investor's required return.
4. The major benefit of diversification is to:
a. Increase the expected return.
b. Remove negative risk assets from the portfolio.
c. Reduce the portfolio's systematic risk.
d. Reduce the expected risk.
5. Stocks that have high financial rewards are generally accompanied by:
a. High dividend payments
b. Low dividend payments because of internally generated growth
c. High risk
d. All the above
6. You are considering the purchase of a bond with a 13% coupon rate paid and
compounded semi-annually. The bond will mature in 8 years, and has a P1,000 face
value. The bond currently sells for P867. Calculate the annual yield to maturity for this
bond.( Round to nearest percentage.)
a. 8 percent
b. 13 percent
c. 9 percent
d. 16 percent
7. The overall weighted average cost of capital is used instead of costs for specific sources
of funds because
a. Use of the cost for specific sources of capital would make investment
decisions inconsistent.
b. A project with the highest return would always be accepted under the specific
cost criteria.
 c. Investment funded by equity or that is not relevant to this question
d. None of the above
8. The most expensive source of financing for a firm is:
a. Debt
b. Retained earnings
c. Preferred stock
d. New common stock
9. Which of the following are acceptable criteria for determining the weights in the weighted
average cost of capital?
a. Market value of the capital structure and historical costs of financing.
b. Market value of capital structure are the target mix of debt and equity.
c. Using the after-tax cost of debt and the market value of the capital structure.
d. Using book values of the capital structure and the prior level of debt and equity.
10. The dividend growth model, when used, assumes that the total return on a share of
common stock is comprise of a:
a. Capital gains yield and a dividend growth rate.
b. Capital gains growth rate and a dividend growth rate.
c. Dividend yield and the expected price next year
d. Dividend yield and a capital gains yield.
11. A five-year P1,000 par value bond pays 6.50% annual coupon. Given a YTM of 8.0%,
what is the price of the bond today?
a. P1,040
b. 860
c. 940
d. P1,000
12. Paramount Company's stock is expected to generate a dividend and terminal value one
year from now of P57.00. The stock has a beta of 1.3, the risk-free interest rate is
6%,and the expected return market return is 11%. What should the equilibrium price of
investors; stock in the market now?
a. P50.67
b. P43.85
c. 53.77
d. 41.22
13. Which of the following is an example of a capital market instrument?
a. Commercial paper.
b. Preferred stock.
c. U.S Treasury bills
d. Banker's acceptances
14. What is the proper procedure when investing at Philippine Stock Exchange?
I. Choose a stockholder
II. Pay before the settlement date.
III. The investor shall receive from his/ her broker either the proceeds of the his/her
stocks ( after 3 business days) or proofs of ownership of the stocks he/she bought
(confirmation receipt and invoice).
 IV. Open an account and fill out a customer account information form and submit
identification papers for verifications.
V. Give the order to the trader, and then ask for the confirmation receipt.
a. I,V,IV,II,III
b. I,II,IV,V,III
c. I,IV,V,II,III
d. I,IV,II,V,III
15. All equity transactions, whether buying or selling, have a settlement period of T+ 3
( trading day + 3 working days). This means that
a. Settlement of all transactions is done on the transaction date.
b. Settlement of accounts is performed by the clearing house.
c. A seller should be able to deliver the stock certificate, if any, to his broker
and the buyer must have paid the cost of transactions to his broker within
3 working days after the trade was done.
d. You can give instructions to your broker and pay the required a upliftment fee.
16. Encompasses the risk outside the risk of financial markets, such as the risk posed by
natural disasters and corporate takeovers.
a. Credit risk
b. Event risk
c. Business risk
d. Inflation risk
17. Which of the following statements is CORRECT? Assume that the project being
considered as normal cash flows, with one outflow followed by a series of inflows.
a. A project's NPV is generally found by compounding the cash inflows at the
WACC to find the terminal value (TV), then discounting the TV at the IRR to find
its PV.
b. The higher the WACC used to calculate the NPV, the lower the calculated NPV
will be.
c. If a project's NPV is greater than zero, then its IRR must be less than the
WACC.
d. If a project's NPV is greater than zero, then its IRR must be less than zero.
18. Projects C and D are mutua and have normal cash flows. Project C has a higher NPV if
the WACC is less than 12%, whereas Project D has a higher NPV if the WACC exceeds
12%. Which of the following statements is CORRECT?
a. Project D probably has a higher IRR
b. Project D is probably larger in the skill than Project C.
c. Project C probably has a faster payback.
d. Project C probably has a higher IRR.
19. Which of the following is the derivative?
a. Swaption
b. Forward contract
c. Future contract
d. Foreign exchange
20. Which of the following is most CORRECT?
 a. One advantage of forward contracts is that they are default free.
b. Futures contracts generally trade on an organized exchange and are
marked to market daily.
c. Goods are never delivered under forward contracts, but are almost always
delivered under the futures contracts.
d. There are futures contracts for currencies but no forward contracts for currencies.
21. Financial markets have the basic function of
a. Bring together people with funds to lend and people who want to borrow
funds.
b. Assuring that the swings in the business cycle are less pronounced.
c. Assuring that governments need never resort to printing money.
d. Both A and B above
e. Both B and C above
22. The marketable securities with the least amount of default risk are
a. Federal government agency securities
b. U.S. Treasury Securities
c. Repurchase agreements
d. Commercial paper.
23. Which of the following is an example of a capital market instrument?
a. Commercial Paper
b. Preferred stock
c. U.S. Treasury bills
d. Banker's acceptances
24. A commercial bank recognizes that its net income suffers whenever interest rates
increase. Which of the following strategies would protect the bank against rising interest
rates?
a. Buying inverse floaters.
b. Entering into an interest rate swap where the bank receives a fixed payment stream,
and in return agrees to make payments that float with market interest rates.
c. Purchase principal only (PO) strips that decline in value whenever interest rates rise.
d. Enter into a short hedge where the bank agrees to sell interest rate futures.
e. Sell some of the bank’s floating-rate loans and use the proceeds to make fixed-rate
loans.
25.