Strayer fin540/fin 540 final exam


Question 1
1. Which is the best appraise of induce for an asset held in detachment, and which is the best appraise for an asset held in a heterogeneous portfolio?
Answer
Variance; mutuality coefficient.
Standard discontinuance; mutuality coefficient.
Beta; difference.
Coefficient of variation; beta.
Beta; beta.
8 points
Question 2
1. Which of the forthcoming statements encircling pension contrivances if any, is inexact?
Answer
A defined gift contrivance is, in movables, a savings contrivance that is siegeed by mistresss, although sundry contrivances as-well sanction added gifts by employees.
Under a defined utility contrivance, the mistress agrees to surrender retirees a specifically defined utility, such as $500 per month or 50 percent of the employee’s ultimate assignance.
A light pension contrivance is one that an employee can heave from one mistress to another.
An mistress’s duty is content inferior a defined gift contrivance when it finds the required gifts to the contrivance. The induce of irregular boarding acknowledgments is borne by the employee.
If property exceed the give prize of utilitys, the pension contrivance is abundantly siegeed.
8 points
Question 3
1. You penetratetain the forthcoming postulates on three stores:
Stock Mould Discontinuance Beta
A 0.15 0.79
B 0.25 0.61
C 0.20 1.29
As a induce minimizer, you would adopt Store if it is to be held in detachment and Store if it is to be held as sepaobjurgate of a well-heterogeneous portfolio.
Answer
A; A.
A; B.
B; C.
C; A.
C; B.
8 points
Question 4
1. Which of the forthcoming statements of chief erection plea is NOT
CORRECT?
Answer
The senior gift of Miller's plea is that it demonstrates that particular taxes hitheren the prize of using corpoobjurgate something-due.
Under MM behind a ageliness naught taxes, financial leverage has no movables on a unshaken’s prize.
Under MM behind a ageliness corpoobjurgate taxes, the prize of a levered unshaken exceeds the prize of the unlevered unshaken by the emanation of the tax objurgate occasions the communicate prize dollar size of something-due.
Under MM behind a ageliness corpoobjurgate taxes, rs outgrowths behind a ageliness leverage, and this outdevelopment accurately offsets the tax utilitys of something-due financing.
Under MM behind a ageliness corpoobjurgate taxes, the movables of office induce is automatically incorporated owing rsL is a office of rsU.
8 points
Question 5
1. Which of the forthcoming would object middle schedule holdings to hitheren, other things held continuous?
Answer
Fixed dispose requires inclose.
The acquisition compensation of schedule aces hitherens by 50 percent.
The heaveing compensation of an ace hitherens (as a percent of acquisition compensation).
The sales forecast is revised downward by 10 percent.
Interest objurgates sink.
8 points
Question 6
1. Which of the forthcoming is NOT a genuine liberty?
Answer
The liberty to amplify emanationion if the emanation is fortunate.
The liberty to buy shares of store if its compensation goes up.
The liberty to amplify into a new geographic clime.
The liberty to forfeit a contrivance.
The liberty to switch the image of fuel used in an industrial furnace.
8 points
Question 7
1. Which of the forthcoming statements is CORRECT?
Answer
The natural R2 for a store is encircling 0.3 and the natural R2
for a portfolio is as-well encircling 0.3.
The natural R2 for a store is encircling 0.94 and the natural R2
for a portfolio is encircling 0.6.
The natural R2 for a store is encircling 0.3 and the natural R2 for a broad portfolio is encircling 0.94.
The natural R2 for a store is encircling 0.94 and the natural R2 for a portfolio is as-well encircling 0.94.
The natural R2 for a store is encircling 0.6 and the natural R2 for a portfolio is as-well encircling 0.6.
8 points
Question 8
1. Which of the forthcoming accomplish NOT outdevelopment the prize of a genuine liberty?
Answer

Lengthening the occasion in which a genuine liberty must be exercised.
An outdevelopment in the incoherence of the inferiorlying beginning of induce.
An outdevelopment in the induce-frank objurgate.
An outdevelopment in the require of obtaining the genuine liberty.
A hitheren in the presumption that a opponent accomplish penetscold the communicate of the contrivance in endowigation.
8 points
Question 9
1.  Which of the forthcoming statements is most CORRECT?
Answer
One exercise of obtrusive contracts is that they are absence frank.
Futures contracts unconcealedly dealing on an organized substitute and are remarkpotent to communicate daily.
Goods are never delivered inferior obtrusive contracts, but are approximately regularly delivered inferior comings contracts.
There are comings contracts for currencies but no obtrusive contracts for currencies.
Futures contracts don’t penetratetain any room requirements but obtrusive contracts do.
8 points
Question 10
1. Which of the forthcoming statements of the MM production behind a ageliness outdevelopment is NOT
CORRECT?
Answer
The tax surrenders should be discounted at the require of something-due.
The prize of a growing tax surrender is elder than the prize of a continuous tax surrender.
For a surrendern D/S, the levered require of equity is elder than the levered require of equity inferior MM’s ancient (behind a ageliness tax) assumptions.
For a surrendern D/S, the WACC is elder than the WACC inferior MM’s ancient (behind a ageliness tax) assumptions.
The aggregate prize of the unshaken outgrowths behind a ageliness the size of something-due.
8 points
Question 11
1. In a portfolio of three unanalogous stores, which of the forthcoming could NOT be gentleman?
Answer
The induceiness of the portfolio is halt than the induceiness of each of the stores if they were held in detachment.
The induceiness of the portfolio is elder than the induceiness of one or two of the stores.
The beta of the portfolio is halt than the betas of each of the single stores.
The beta of the portfolio is elder than the beta of one or two of the single stores’ betas.
The beta of the portfolio can not be resembling to 1.
8 points
Question 12
1.  Stock A’s beta is 1.5 and Store B’s beta is 0.5. Which of the forthcoming statements must be gentleman encircling these securities? (Assume communicate equilibrium.)
Answer
When held in detachment, Store A has elder induce than Store B.
Stock B must be a balance delightful restoration to a portfolio than Store A.
Stock A must be a balance delightful restoration to a portfolio than Store B.
The foreseeed retaliate on Store A should be elder than that on Store B.
The foreseeed retaliate on Store B should be elder than that on Store A.
8 points
Question 13
1. Which of the forthcoming are the rudiments for the Fama-French stance?
Answer
The abundance communicate retaliate, a dimension rudiment, and a book-to-communicate rudiment.
The abundance communicate retaliate, a something-due rudiment, and a book-to-communicate rudiment.
The abundance communicate retaliate, a dimension rudiment, and a something-due.
A something-due rudiment, a dimension rudiment, and a book-to-communicate rudiment.
The abundance communicate retaliate, an industrial emanationion rudiment, and a book-to-communicate rudiment.
8 points
Question 14
1. Which of the forthcoming statements is CORRECT?
Answer
The Chief Communicate Row (CML) is a tortuous row that connects the induce-frank objurgate and the communicate portfolio.
The tower of the CML is ( M – rRF)/bM.
All portfolios that lie on the CML to the reform of sM are pointless.
All portfolios that lie on the CML to the left of sM are pointless.
M..sThe tower of the CML is ( M – rRF)/
8 points
Question 15
1. For communicates to be in equilibrium (that is, for there to be no impetuous urgency for compensations to desepaobjurgate from their prevalent levels),
Answer
The foreseeed objurgate of retaliate must be resembling to the required objurgate of retaliate; that is, .
The late genuineized objurgate of retaliate must be resembling to the foreseeed objurgate of retaliate; that is, .
The required objurgate of retaliate must resembling the genuineized objurgate of retaliate; that is, .
all companies must pay dividends.
no companies can be in venture of declaring closing.
8 points
Question 16
1.  Which of the forthcoming statements encircling defined gift contrivances is inexact?
Answer
A defined gift contrivance places the induce of deficient pension portfolio execution on the employee.
In unconcealed, employees can adopt the boarding vehicle inferior a defined gift contrivance. Thus, exceedingly induce-averse employees can adopt low-induce boardings, ageliness balance induce-tolerant employees can adopt high-induce boardings.
In a defined gift contrivance, the mistress must find broadr-than-middle gifts to the pension contrivance when boarding acknowledgments penetratetain been inferior foreseeations.
Defined utility contrivances are used balance repeatedly by broad corporations than by diminutive companies.
The PBGC insures a division of pension utilitys.
8 points
Question 17
1. The senior gift of the Miller stance is that it demonstrates that
Answer
particular taxes outdevelopment the prize of using corpoobjurgate something-due.
particular taxes hitheren the prize of using corpoobjurgate something-due.
financial mortify and production requires hitheren the prize of using corpoobjurgate something-due.
equity requires outdevelopment behind a ageliness financial leverage.
something-due requires outdevelopment behind a ageliness financial leverage.
8 points
Question 18
1.  Which of the forthcoming statements encircling pension contrivance portfolio execution is inexact?
Answer
Pension siege sponsors must evaluate the execution of their portfolio managers dateically as a premise for coming asset allocations.
Alpha separation, which relies on the Chief Asset Pricing Model, considers the induce of the portfolio when measuring execution.
Peer similitude examines the not-absolute execution of portfolio managers behind a ageliness resembling boarding objectives.
A portfolio annual retaliate of 12 percent from one boarding advisor is not necessarily emend than a retaliate of 10 percent from another advisor.
In managing the retiree portfolio, siege managers repeatedly use immunization techniques such as alpha separation to enucleate, or at meanest significantly hitheren, the induce associated behind a ageliness changing curiosity-behalf objurgates.
8 points
Question 19
1.  A swap is a manner used to hitheren financial induce. Which of the forthcoming statements encircling swaps, if any, is NOT CORRECT?
Answer
A swap involves the substitute of specie reimbursement dutys.
The foremost swaps were vogue swaps, in which companies dealingd something-due designated in unanalogous currencies, say dollars and pounds.
Swaps are very repeatedly de- by a financial intermediary, who may or may not choose the position of one of the counterparties.
A bearing behind a ageliness swaps is that no mouldized contracts endure, which has prevented the outdevelopment of a resultant communicate.
A community can swap urban curiosity-behalf reimbursements for discurrent curiosity-behalf reimbursements.
8 points
Question 20
1. Which one of the forthcoming aspects of banks is considered most applicpotent to officees when choosing a bank?
Answer
Convenience of residuum.
Competitive require of services supposing.
Size of the bank's deposits.
Experience of personnel.
Loyalty and accomplishingness to wear lending induces.
8 points
Question 21
1.  Which one of the forthcoming is an stance of a “flexibility” liberty?
Answer
A community has an liberty to endow in a contrivance today or to endure a year.
A community has an liberty to halt down an influence if it hinges out to be productionless.
A community agrees to pay balance to set-up a contrivancet in dispose to be potent to exexfluctuate the contrivancet’s inputs and/or outputs at a later duration if stipulations exchange.
A community endows in a contrivance today to construct notice that may enpotent it to amplify into unanalogous communicates at a later duration.
A community endows in a jet aircraft so that its CEO, who must excursion regularly, can get for apart meetings impression halt jaded than if he had to fly wholesale.
8 points
Question 22
1.  Which of the forthcoming statements encircling contrivance induce separation in not-for-profit unshakens is inexact?
Answer
The communicate induce of a contrivance is not applicpotent to not-for-profit unshakens.
A contrivance’s corpoobjurgate beta appraises the gift of the contrivance to the balanceall corpoobjurgate induce of the unshaken.
A contrivance’s corpoobjurgate beta is build (at meanest conceptually) by regressing acknowledgments on the contrivance athwart acknowledgments on the communicate portfolio.
A contrivance’s corpoobjurgate beta is defined as (σP/σF)rPF, where σP
is the mould discontinuance of the contrivance’s acknowledgments, σF
is the mould discontinuance of the unshaken’s acknowledgments, and rPF is the mutuality unmoulded the two sets of acknowledgments.
In exercise, it is usually hard, if not impracticable, to straightway appraise a contrivance’s corpoobjurgate induce, so contrivance induce separation naturally focuses on stand-alone induce.
8 points
Question 23
1.  Which of the forthcoming statements of the MM production behind a ageliness outdevelopment is NOT
CORRECT?
Answer
The tax surrenders should be discounted at the unlevered require of equity.
The prize of a growing tax surrender is elder than the prize of a continuous tax surrender.
For a surrendern D/S, the levered require of equity is elder than the levered require of equity inferior MM’s ancient (behind a ageliness tax) assumptions.
For a surrendern D/S, the WACC is halt than the WACC inferior MM’s ancient (behind a ageliness tax) assumptions.
The aggregate prize of the unshaken outgrowths behind a ageliness the size of something-due.
8 points
Question 24
1.  A unshaken’s honor government consists of which of the forthcoming aces?
Answer
Credit date, specie discounts, honor moulds, receivables monitoring.
Credit date, specie discounts, honor moulds, collation government.
Credit date, specie discounts, receivables monitoring, collation government.
Cash discounts, honor moulds, receivables monitoring, collation government.
Credit date, receivables monitoring, honor moulds, collation government.
8 points
Question 25
1.  Which of the forthcoming is gentleman of the EOQ stance? Voicelessness that the optimal dispose size, Q, accomplish be determined EOQ.
Answer
If the urban per dispose require outgrowths by 20%, then EOQ accomplish outdevelopment by 20%
If the annual sales, in units, outgrowths by 20%, then EOQ accomplish outdevelopment by 20%.
If the middle schedule outgrowths by 20%, then the aggregate heaveing requires accomplish outdevelopment by 20%.
If the middle schedule outgrowths by 20% the aggregate dispose requires accomplish outdevelopment by 20%.
The EOC is the selfselfsimilar for all comppanies.
8 points
Question 26
1.  Which of the forthcoming statements of the MM production behind a ageliness outdevelopment is NOT
CORRECT?
Answer
The tax surrenders should be discounted at the unlevered require of equity.
The prize of a growing tax surrender is elder than the prize of a continuous tax surrender.
For a surrendern D/S, the levered require of equity is elder than the levered require of equity inferior MM’s ancient (behind a ageliness tax) assumptions.
For a surrendern D/S, the WACC is elder than the WACC inferior MM’s ancient (behind a ageliness tax) assumptions.
The aggregate prize of the unshaken is rebellious of the size of something-due it uses.
8 points
Question 27
1.  Which of the forthcoming statements is CORRECT?
Answer
Tests penetratetain shown that the betas of single stores are unstpotent balance occasion, but that the betas of broad portfolios are reasonably stpotent balance occasion.
Richard Roll has argued that it is practicable to proof the CAPM to see if it is reform.
Tests penetratetain shown that the induce/retaliate connection appears to be rowar, but the tower of the connection is elder than that predicted by the CAPM.
Tests penetratetain shown that the betas of single stores are stpotent balance occasion, but that the betas of broad portfolios are considerable halt perpetual.
The most broadly cited consider of the sinew of the CAPM is one manufactured by Modigliani and Miller.
8 points
Question 28
1.  Which of the forthcoming is NOT a undeveloped bearing behind a ageliness beta and its tone?
Answer
Sometimes a pledge or contrivance does not penetratetain a late fact which can be used as a premise for circumspect beta.
Sometimes, during a date when the community is inferiorgoing a exexfluctuate such as inside balance leverage or induceier property, the congenial beta accomplish be drastically unanalogous than the “true” or “expected coming” beta.
The beta of “the communicate,” can exexfluctuate balance occasion, sometimes drastically.
Sometimes the late postulates used to blame beta do not muse the mitigated induce of the unshaken for the coming owing stipulations penetratetain exchanged.
There is a broad reliance cessation environing a natural store’s estimated beta.
8 points
Question 29
1.  Which of the forthcoming are NOT ways induce government can be used to outdevelopment the prize of a unshaken?
Answer
Risk government can outdevelopment something-due cleverness.
Risk government can succor a unshaken detain its optimal chief budget.
Risk government can hitheren the foreseeed requires of financial mortify.
Risk government can succor unshakens minimize taxes.
Risk government can assign managers to prolong acknowledgment of their bonuses and thus prorogue tax reimbursements.
8 points
Question 30
1.  Which of the forthcoming is not reform?
Answer
Collection government is how a unshaken goes encircling gathering late-due statements.
A balance aggressive collation government accomplish hitheren bad something-due expenses, but may as-well hitheren sales.
Collection government usually has tiny application on sales gone gathering late-due statements occurs solely behind the customer has already acquisitiond.
Typically a unshaken accomplish hinge balance an statement to a collation production solely behind it has mature diverse occasions on its own to gather the statement.
A lax collation government accomplish regularly carry to an outdevelopment in statements receivable.
8 points
Question 31
1. The Kimberly Corporation is a naught outdevelopment unshaken behind a ageliness an foreseeed EBIT of $100,000 and a corpoobjurgate tax objurgate of 30%. Kimberly uses $500,000 of 12.0% something-due, and the require of equity to an unlevered unshaken in the selfselfsimilar induce assort is 16.0%.
What is the unshaken's require of equity?
Answer
21.0%
23.3%
25.9%
28.8%
32.0%
8 points
Question 32
1.  Calculate the required objurgate of retaliate for Mercury, Inc., assuming that (1) endowors foresee a 4.0% objurgate of inflation in the coming, (2) the genuine induce-frank objurgate is 3.0%, (3) the communicate induce guerdon is 5.0%, (4) Mercury has a beta of 1.00, and (5) its genuineized objurgate of retaliate has middled 15.0% balance the ultimate 5 years.
Answer
10.29%
10.83%
11.40%
12.00%
12.60%
8 points
Question 33
1. XYZ Community needs to borrow $200,000 from its bank. The bank has offered the community a 12-month installment hypothecation (monthly reimbursements) behind a ageliness 9 percent add-on curiosity-behalf. What is the movablesive annual objurgate (EAR) of this hypothecation?
Answer
16.22%
17.97%
17.48%
18.67%
18.00%
8 points
Question 34
1. Picard Orchards requires a $100,000 annual hypothecation in dispose to pay laborers to conduce and production its production bud. Picard borrows on a discount curiosity-behalf premise at a ostensible annual objurgate of 11 percent. If Picard must in-effect assent-to $100,000 net proceeds to finance its bud, then what must be the visage prize of the voicelessness?
Answer
$111,000
$100,000
$112,360
$ 89,000
$108,840
8 points
Question 35
1. Oklahoma Instruments (OI) is because a contrivance determined F-200 that has an up-front require of $250,000. The contrivance’s posterior specie flows are critically relative on whether another of its emanations, F-100, beseems an perseverance mould. There is a 50% accident that the F-100 accomplish beseem the perseverance mould, in which instance the F-200’s foreseeed specie flows accomplish be $110,000 at the end of each of the exhibit 5 years. There is a 50% accident that the F-100 accomplish not beseem the perseverance mould, in which instance the F-200’s foreseeed specie flows accomplish be $25,000 at the end of each of the exhibit 5 years. Wear that the require of chief is 12%.
Based on the aloft advice, what is the F-200’s foreseeed net give prize?
Answer
-$6,678
-$3,251
$15,303
$20,004
$45,965
8 points