Finance EXAMINATION (1)

Questions 1 to 30: Select the best answer to each question. Note that a question and its answers may

be split across a page

break, so be sure that you have seen the entire question and all the answers before choosing an

answer.

1. If you deposit $700 in an account today, and the money grows to $1,800 in 14 years,

what rate of

annual interest have you earned? A. 50 percent

B. 4 percent

C. 7 percent

D. 10 percent

2. If you deposit $10,000 in an investment that yields 6 percent annually, how many years

will it take for

your investment to double in value? A. 20 years

B. 15 years

C. 12 years

D. 18 years

3. Accountants suggest that assets should be valued at A. the lower of market or cost.

B. the higher of market or cost.

C. market.

D. cost.

4. What is the required return using the CAPM if the stock's beta is 1.2, and the

individual, who expects

the market to rise by 13.2%, can earn 6.4% invested in a risk-free Treasury bill? A. 9.46%

B. 24.58%

C. 11.62%

D. 14.56%

5. If annual interest rates are 10 percent, which of the following values is the lowest? A. The future value of a $100 investment after 3 years

B. The future value of an investment after 4 years, if $100 is deposited annually

C. The present value of an annuity that will pay $200 a year, at the end of each of the next 4 years

D. The present value of an investment that will be worth $100 after 2 years

6. What is the future value of an annuity due if you deposit $1,500 per year for the next 5

years into an

account that earns an interest rate of 5 percent annually? A. $8,703

B. $7,500

C. $8,288

D. $11,914

7. If $800 is deposited in a savings account that pays an interest rate of 5 percent

annually, how much

money will be in the account after 15 years?

A. $384

B. $238

C. $1,609

D. $1,663

8. Which of the following would be the most likely cause of an increase in inventory

turnover? A. The faster collection of accounts receivable

B. Lowered sales

C. An increase in the inventory level

D. A reduction in the price of the product

9. Liabilities equal A. assets minus equity.

B. equity minus assets.

C. assets.

D. equity.

10. To measure risk, the capital asset pricing model uses A. beta.

B. an asset's standard deviation.

C. the volatility of an asset's cash flows.

D. the term during which the asset is held.

11. What is the future value of an ordinary annuity if you deposit $1,500 per year for the

next 5 years into

an account that earns an interest rate of 5 percent annually? A. $1,914

B. $8,288

C. $6,322

D. $7,500

12. An investor my reduce risk by selecting A. a cross-section of firms in the same industry.

B. stocks with poorly correlated returns.

C. stocks traded on organized exchanges.

D. high beta stocks.

13. What is the future value of an ordinary annuity if you deposit $500 per year for the

next 10 years in an

account that earns an interest rate of 4 percent annually? A. $5,263

B. $6,003

C. $1,700

D. $5,000

14. A beta coefficient for a risky stock is A. equal to 1.0.

B. negative.

C. less than 1.0.

D. greater than 1.0.

15. Which of the following types of ratio is used to measure activity? A. Profitability ratio

B. Turnover ratio

C. Liquidity ratio

D. Leverage ratio

16. If an account currently has a value of $84,000 and earns an interest rate of 4 percent

annually, for how

many years can you withdraw $10,000 from the account? A. 8

B. 20

C. 10

D. 12

17. The current ratio excludes A. inventory.

B. accrued interest.

C. paid-in capital.

D. cash equivalents.

18. What is the present value of an annuity due if you deposit $1,200 per year for the next

5 years into an

account that earns an interest rate of 5 percent annually? A. $6,703

B. $8,288

C. $5,455

D. $5,195

19. A current ratio is presently 2 : 1 for a corporation that sells sporting goods. Which of

the following

statements about the ratio is correct? A. The current ratio is unchanged by using cash to retire accounts payable.

B. The current ratio is affected by exchanging bonds for stock.

C. The current ratio is increased by purchasing a store with cash, with potential to increase corporate

sales.

D. The quick ratio is smaller than the current ratio.

20. If the interest rate on an account is 8 percent annually, what is the present value of

$40,000 to be

received 5 years from today? A. $10,018

B. $6,188

C. $22,073

D. $27,223

21. A stock is currently selling for $45 a share. What is your gain/loss if you sell the

stock short and the

price rises to $62? A. You would gain $17 per share.

B. You would gain $13 per share.

C. You would lose $0 per share.

D. You would lose $17 per share.

22. Which of these statements best describes the function of a preliminary prospectus?

A. A preliminary prospectus is the document that registers a new security issue with the Securities

and Exchange Commission

(SEC) and on which the SEC bases its approval or disapproval of the issue for the general investing

public.

B. A preliminary prospectus, or "red herring," serves to provide both valid information about the

proposed issue and conflicting

information designed to confuse potential purchasers of the issue.

C. A preliminary prospectus announces to the SEC and the investing public the terms of a new public

issue, including the issuer's

planned use of the proceeds of the sale and the proposed price of the issue.

D. A preliminary prospectus informs the investing public about many of the terms of a proposed new

security offering.

23. Entering an order to sell stock at $17 when the bid is $18 to $19 is an example of a A. limit order.

B. margin payment.

C. market order.

D. short sale.

24. The International Monetary Fund A. developed to help the Federal Reserve control U.S. investments abroad.

B. buys foreign securities.

C. holds a pool of currencies.

D. can lend a country currencies to meet a surplus in its merchandise trade balance.

25. Foreign investments may be financed by issuing A. London Interbank Bonds.

B. Euro dollars.

C. Eurobonds.

D. IMF reserve securities.

26. Which of the following best explains a potential disadvantage of leaving securities in

street name? A. In the event of class action suits against securities issuers, the custodian, not the beneficial owner

(customer), is the only party

that may benefit from court orders.

B. Correspondence sent by securities issuers may not be forwarded to brokerage clients who own

securities held in street name.

C. Securities held in street name can't be quickly purchased or sold.

D. Securities held in street name become the property of the custodian and the customer is only

beneficiary of the securities.

27. Which of the following is a federally insured investment? A. A savings account in a national commercial bank

B. Commercial bank assets

C. A life insurance policy

D. A certificate of deposit in excess of $100,000

28. When investing in securities, an investor may place a limit order that A. establishes the exchange on which the security is to be bought or sold.

B. limits the amount of commissions.

C. states a price at which the investor seeks to buy or sell the stock.

D. specifies when the stock will be purchased.

29. Which of the following assets is the most liquid? A. Stocks and bonds

B. Savings accounts and checking accounts

C. Bonds and real estate

D. Money and antiques

30. The reserves of commercial banks must be held against A. losses.

B. the bank as equity.

C. commercial loans.

D. savings deposits.