decrease
If the total asset turnover? decreases, then the return on equity will ___
Cost of Goods Sold
A decrease in? ________ will increase gross profit margin
Inventories are omitted from the numerator of the ratio because they are generally the least liquid of the? firm's current assets
Why is the quick ratio a more refined measure of liquidity than the current? ratio?
Net operating income? (EBIT)
On the income? statement, sales? revenue, minus cost of goods sold and operating? expenses, equals ___
the U. S. Treasury
All of the following operate as financial intermediaries EXCEPT
They may only invest their reserves in interest paying bank accounts under Federal law.
All of the following are true about insurance companies EXCEPT
stock brokerages
All of the following are classified as non-bank financial intermediaries except
Operating Income
Which of the following streams of income is not affected by how a firm is financed? (whether with debt or? equity)?
dividends
Which of the following is NOT included in computing EBT? (earnings before? taxes)?
leverage
Which of the following is NOT a component of return on assets? (ROA)?
the investment is discounted for fewer years
&
the investment is discounted at a lower interest rate
All else? constant, the present value of an investment will increase if
International? equities, U.S. government? bonds, treasury bills
Which of the following sequences is arranged in the correct? order, from highest long-term returns to? lowest?
false
True or False. The arithmetic average rate of return takes compounding into effect.
false
True or False. If an investor earns? 10% on her investment in the first year and loses? 10% the next? year, she will have neither a gain nor a loss.
semi-strong, weak, and strong
Jayden spends a lot of time studying charts of stocks past? performance, but his investment return are only average. This outcome supports ___ form efficient market hypothesis
False
True or False. If a market is weak form? efficient, an investor can make higher than expected profits by studying the past price patterns of a stock.
Risk resulting from a general decline in the stock market
You are considering buying some stock in Continental Grain. Which of the following is an example of nondiversifiable? risk?
asset returns tend to move in opposite directions
A negative coefficient of correlation implies that
true
True or False. When assets are positively? correlated, they tend to rise or fall together.
false
True or false. Adequate portfolio diversification can be achieved by investing in several companies in the same industry.
true
True or False. The standard deviation of returns on Warchester stock is? 20% and on Shoesbury stock it is? 16%. The coefficient of correlation between the stocks is .75. The standard deviation of any portfolio combining the two stocks will be less than? 2
false
True or False. Portfolio returns can be calculated as the geometric mean of the returns on the individual assets in the portfolio.
.
provides a risk-return trade-off in which risk is measured in terms of beta.
The capital asset pricing model ___
Risk resulting from uncertainty regarding a possible strike against Ford
You are considering investing in Ford Motor Company. Which of the following is an example of diversifiable? risk?
A risk-free asset
Which of the following has a beta of? zero?
the line of best fit for a plot of ABC Co. returns against the returns of the market portfolio for the same period.
The beta of ABC Co. stock is the slope of ___
management risk
Which of the following is NOT an example of systematic? risk?
equal to 1.0
?Currently, the expected return on the market is? 12.5% and the required rate of return for? Alpha, Inc. is? 12.5%. Therefore,? Alpha's beta must be ___
20%
Tanzlin? Manufacturing's common stock has a beta of 1.5. If the expected risk-free return is? 2% and the expected return on the market is? 14%, what is the expected return on the? stock?
The SML line would shift up
The security market line? (SML) relates risk to? return, for a given set of market conditions. If expected inflation? increases, which of the following would most likely? occur?
The market risk premium would increase.
The security market line? (SML) relates risk to? return, for a given set of market conditions. If risk aversion? increases, which of the following would most likely? occur?
market return less risk-free rate
The market risk premium is measured by ___
true
True or False. In a perfectly efficient? market, all assets would plot on the Security Market Line
false
true or false. If investors became more risk averse The SML would shift downward and the slope of the SML would fall.
Restrictive Covenants
Advantages of privately placing debt include all of the following except ___
all of the above
The issuance of bonds to raise capital for a corporation ___
the call provision
Which of the following features allows a borrower to redeem or repurchase a bond issue before its maturity? date?
an investment banking firm
Businesses that wish to issue public debt will usually seek help from ___
false
True or False. The par value of a corporate bond indicates the level of interest payments that will be paid to investors.
the recorded value of the? firm's assets
All of the following affect the value of a bond EXCEPT
7.19%
The Blackburn Group has recently issued 20-?year, unsecured bonds rated BB by? Moody's. These bonds yield 443 basis points above the U.S. Treasury yield of? 2.76%. The yield to maturity on these bonds is
1220
?Caldwell, Inc. sold an issue of 30-year, ?$1,000 par value bonds to the public. The bonds carry a? 10.85% coupon rate and pay interest semiannually. It is now 12 years later. The current market rate of interest on the Caldwell bonds is? 8.45%. What is th
1,213.19
MI has a? $1,000 par? value, 30-year bond outstanding that was issued 20 years ago at an annual coupon rate of? 10%, paid semiannually. Market interest rates on similar bonds are? 7%. Calculate the? bond's price.
12.28%
What is the yield to maturity of a nine-year bond that pays a coupon rate of? 20% per? year, has a? $1,000 par? value, and is currently priced at? $1,407? Assume annual coupon payments.
7.28%
What is the expected rate of return on a bond that pays a coupon rate of? 9% paid semi-?annually, has a par value of? $1,000, matures in five? years, and is currently selling for? $1071?
spread over the Treasury yield
Bond ratings directly affect a? bond's ___
1,114.70
Terminator Bug Company bonds have a? 14% coupon rate. Interest is paid semiannually. The bonds have a par value of? $1,000 and will mature 10 years from now. Compute the value of Terminator bonds if? investors' required rate of return is? 12%.
8.50%
You are considering the purchase of Hytec bonds that were issued 14 years ago. When the bonds were originally? sold, they had a 30-year maturity and a? 14.375% coupon interest rate that is payable semiannually. The bond is currently selling for? $1,508.72
market interest rates are expected to fall
The expected yield of a bond will be less than its yield to maturity when ___
7.8%
You paid? $865.50 for a corporate bond that has a? 6.75% coupon rate. What is the? bond's current? yield?
will sell at a discount from par.
When a? bond's coupon rate is lower than the required rate of? return, the bond ___
false
True or False. Miller Motorworks has a? $1,000 par? value, 8% annual coupon bond with interest payable semiannually with a remaining term of 15 years. The annual market yield on similar bonds is? 6%. This bond will at a discount from par.
true
true or false. A basis point is equal to one hundredth of a percentage point.
false
true or false. A? bond's "spread" refers to the difference between? it's Moody's rating and its Standard? & Poors rating.
true
true or false. A AAA rated? bond's yield to maturity will be very close to? it's expected yield.
true
true or false. The longer the time to? maturity, the more sensitive a? bond's price to changes in market interest rates.
true
true or false. The sensitivity of a? bond's value to changing interest rates depends on both the? bond's time to maturity and its pattern of cash flows.
the yield to maturity decreases
If the market price of a bond? increases, then ___
it will fall
If current market interest rates? rise, what will happen to the value of outstanding? bonds?
it will rise
If current market interest rates? fall, what will happen to the value of outstanding? bonds?
A bond will sell at a premium if the prevailing required rate of return is less than the? bond's coupon rate
Which of the following statements is? true?
The bonds will sell at a premium and decline in value until maturity
Quirk Drugs sold an issue of 30-year, ?$1,000 par value bonds to the public that carry a? 10.85% coupon? rate, payable semiannually. It is now 10 years? later, and the current market rate of interest is? 9.00%. If interest rates remain at? 9.00% until? Qu
A bond that matures in 10 years
Interest rates have increased by 50 basis points? (0.5%). Which of the following bonds will decline most in? price? All of the bonds have AA ratings.
if market interest rates? change, long-term bonds will fluctuate more in value than short-term bonds
Which of the following statements about bonds is? true?
If market interest rates are above a? bond's coupon interest? rate, then the bond will sell below its par value
Which of the following statements about bonds is? true?
The market value of a bond moves in the opposite direction of market interest rates.
Which of the following statements about bonds is? true?
bonds with distant maturity dates when interest rates are expected to decline
A bond investor seeking capital gains should purchase
If market interest rates are below a? bond's coupon interest? rate, then the bond will sell above its par value
Which of the following statements about bonds is? true?
false
true or false. Bonds cannot be worth less than their book value.
true
true or false. As bond approaches? maturity, discounts and premiums become less and less significant.
false
true or false. Shorter-term bonds have greater interest rate risk than do longer-term bonds.
true
true or false. Debentures are unsecured long-term debt.
includes inflation and the real rate of interest.
The nominal interest rate ___
agency problem
CEOs naming friends to the board of directors and paying them more than the norm is an example of the ___
because stock prices increase when an underperforming CEO is unexpectedly replaced
Evidence that agency costs exists ___
often represent the interests of the managers who nominated them for directorships
Evidence exists that directors ___
110
?ABC, Inc. just paid a dividend of? $2. ABC expects dividends to grow at? 10%. The return on stocks like? ABC, Inc. is typically around? 12%. What is the most you would pay for a share of ABC? stock?
all of the above
Common stockholders expect greater returns than bondholders because ___
all of the above
Which of the following factors will influence a? firm's P/E? ratio?
the current stock price by earnings per share.
The? P/E ratio is calculated by dividing ___
6,577
ABC Service can purchase a new assembler for? $15,052 that will provide an annual net cash flow of? $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is? 12%. (Round your answer to the nearest? $1.)
They may only invest their reserves in interest paying bank accounts under Federal law
All of the following are true about insurance companies EXCEPT
false
true or false. The goal of profit maximization is equivalent to the goal of maximization of share value.
cost of goods sold
A decrease in? ___ will increase gross profit margin