Mid Term
Name ________________________________
Multiple Choice Qs (55 questions, 1.81 points / each question)
Chapter 5
1. You want to buy a dream car. For this car, you plan to pay $500 every month for the next
five years to a loan company who is charging you @ 0.5% interest rate every month. What
kind of car can you afford based on your payment plan?
a. $25,000
b. $25,672
c. $25,992
d. $25,863
2. Your dream car’s price is $26,000. You applied for a five year bank loan @ 0.5% monthly
interest rate. How much do you plan to pay back to the bank every month?
a. $502.65
b. $483.32
c. $497.62
d. $501.03
3. Your dream car’s price is $26,000. You applied for a bank loan @ 0.5% monthly interest
rate. You plan to pay $500 back to the bank every month. How long does it take to pay off
your debt?
a. 62.05 months
b. 63.22 months
c. 60.37 months
d. 60.68 months
4. Your dream car’s price is $25,000. You applied for a five year bank loan. You plan to pay
$500 back to the bank every month. Calculate the monthly interest rate?
a. 0.62%
b. 0.63
c. 0.60%
d. 0.61%
5. You want to buy a dream car. For this car, you plan to pay $500 every month for the next
five years to a loan company who is charging you @ 0.5% interest rate every month. How
much is the effective annual rate? Hint: APR = 0.5%*12=6%
a. 6.00%
b. 6.17%
c. 6.58%
d. 6.34%
6. You want to buy a dream car. For this car, you plan to pay $500 every month for the next
five years to a loan company who is charging you @ 0.5% interest rate every month. How
much is the effective annual rate? Hint: APR = 0.5%*12=6%
a. 6.19%
b. 6.17%
c. 6.14%
d. 6.12%
7. If a loan company charges you APR = 6%, but compounded quarterly. How much is the
effective annual rate?
a. 6.19%
b. 6.17%
c. 6.14%
d. 6.12%
8. If a loan company charges you APR = 6%, but compounded semi-annually. How much is
the semi-annual rate?
a. 0.5%
b. 6%
c. 1.5%
d. 3%
9. Calculate NPV given the following cash flows. The interest rate is 6%.
Cash flow in year 1 = $3000
Cash flow in year 1 = $3500
Cash flow in year 1 = $3800
Cash flow in year 1 = $4100
a. $12,383.31
b. $11,400
c. $12,687.41
d. $12,605.29
10. Calculate NPV given the following cash flows. The interest rate is 6%.
Cash flows in year 1 = 0
Cash flows in year 2 = 0
Cash flows in year 3 = 0
Cash flow in year 4 = $3000
Cash flow in year 5 = $3500
Cash flow in year 6 = $3800
Cash flow in year 7 = $4100
a. $10,128.43
b. $9,570.71
c. $10,397.27
d. $10,618.02
11. You want to buy a dream car. For this car, you plan to pay $500 every month at the
beginning of the month for the next five years to a loan company who is charging you @
0.5% interest rate every month. What kind of car can you afford based on your payment
plan? (note: This is annuity due question) =abs(pv(0.5%, 60, 500, 0, 1))
a. $25,000
b. $25,672
c. $25,992
d. $25,863
12. How much money does Sara need to deposit into her investment account today if she wishes to withdraw
$8,000 a year
for 20 years? She expects to earn a return of 8.5%.
a. $72,993.23
b. $71,561.32
c. $76,141.76
d. $75,706.69
13. What is the effective annual rate of 9 percent compounded quarterly?
a. 9.20 percent
b. 9.31 percent
c. 9.48 percent
d. 9.65 percent
Chapter 3
Dividend paid in 2009 to investors is $200.
Based on the above information, work on problems 1-10.
1. For
a.
b.
c.
d.
MM Foods Company, calculate its operating income in 2009.
$1,912
$2,571
$2,192
$1,242
2. For
a.
b.
c.
d.
MM Foods Company, calculate its net income in 2009.
$1,912
$2,571
$2,192
$1,242
3. What is the taxable income of MM Co. in 2009? (hint: taxable income is EBT)
a. $1,912
b. $2,571
c. $2,192
d. $1,242
4. Calculate the tax rate of MM Co. in 2009. (Hint: tax rate = tax / taxable income)
a. 33%
b. 34%
c. 35%
d. 36%
5. Accounts receivables have increased from $1,092 to $1,162.
a. This is an example of cash inflow (source)
b. This is an example of cash outflow (use)
6. Inventories have increased from $1,495 to $1,521.
a. This is an example of cash inflow (source)
b. This is an example of cash outflow (use)
7. Long term debt have decreased from $2,400 to $1,100.
a. This is an example of cash inflow (source)
b. This is an example of cash outflow (use)
8. Calculate the cash flow from operation.
a. $1,573
b. $1,602
c. $1,521
d. $1,630
9. Calculate cash flow from investment.
a. -$239
b. -$251
c. -$249
d. -$204
10. Calculate cash flow from financing.
a. -$1,200
b. -$1,300
c. -$1,400
d. -$1,500
11. Firm AAA’s sales = $1,000, costs = $400. Interest expense = $100 and depreciation =
$100. The tax rate = 30%. If the company distribute $100 to shareholders as dividends,
calculate the tax payment.
A. $280
B. $400
C. $550
D. $450
12. Firm AAA’s sales = $1,000, costs = $400. Interest expense = $100 and depreciation =
$100. The tax rate = 30%. Net income=?
A. $180
B. $80
C. $150
D. $120
13. A firm has total debt of $1,000 and a debt-equity ratio of 0.5. What is the value of the total
assets?
A. $2,000
B. $3,000
C. $4,000
D. $5,000
14. A firm has total equity of $1,000 and a debt-equity ratio of 2. What is the value of the total
assets?
A. $2,000
B. $3,000
C. $4,000
D. $5,000
15. The Co. has sales = $29 million, total assets = $43 million, and total debt = $13 million.
The profit margin = 11%. What is the return on equity (ROE)?
A. 7.4%
B. 11.1%
C. 10.6 %
D. 13.3%
16. The company has a debt-equity ratio = 2.05. Return on assets (ROA) = 9.2%, and total
equity = $560,000. What is the net income?
A. $105,616
B. $148,309
C. $157,136
D. $161,008
17. Which one of the following is the financial statement that summarizes a firm's revenue
and expenses over a period of time?
A. income statement
B. balance sheet
C. statement of cash flows
D. tax reconciliation statement
18. Which one of the following accounts is the most liquid?
A. inventory
B. building
C. accounts receivable
D. equipment
19. Shareholders probably have the most interest in which one of the following sets of ratios?
A. return on assets and profit margin
B. long-term debt and total assets
C. price-earnings and debt-equity
D. return on equity and price-earnings
Extra Point Q (5 points)
1.
For MM. Co, prepare its cash flow statement (5 points)
Chapter 6
1/1/2015
12/1/2014
11/1/2014
10/1/2014
9/1/2014
company 1
company 2
company 3
company 4
20%
20%
30%
30%
40%
10%
40%
30%
50%
40%
10%
10%
50%
30%
20%
50%
40%
30%
20%
10%
market
10%
20%
30%
40%
50%
Refer to the above table to answer questions 1-12.
1. How much is company 1’s average return in the past five months?
a. 26%
b. 27%
c. 28%
d. 29%
2. How much is company 1’s risk level in the past five months (standard deviagtion) if it is
evaluated individually?
a. 8.37%
b. 15.17%
c. 6.73%
d. 9.19%
3. What is the beta of the company 1? (hint: check slope)
a. 0.3
b. 0.4
c. 0.5
d. 0.6
4. What is the correlation between company 1 and company 2?
a. 0.47
b. -0.50
c. 0.43
d. -0.53
5. What is the correlation between company 1 and company 3?
a. 0.47
b. -0.50
c. 0.43
d. -0.53
6. What is the correlation between company 1 and company 4?
a. 0.47
b. -0.50
c. 0.43
d. -0.93
7. If you must hold company 1, which other company is a better option than the others to be
added to your portfolio?
a. Company 2
b. Company 3
c. Company 4
d. All equally important
8. What is the beta of the company 2? (hint: check slope)
a. 0.6
b. 0.7
c. 0.8
d. 0.9
9. What is the beta of the company 3? (hint: check slope)
a. 0.3
b. 0.4
c. 0.5
d. 0.6
10. What is the beta of the company 4? (hint: check slope)
a. 1
b. -1
c. 1.5
d. 0.6
11. Among company 1, 2, and 3, which one is the most risky one, based on beta?
a. Company 1
b. Company 2
c. Company 3
d. All equal
12. The correlation between a pair of stocks should range between
a. 0 and 1
b. -1 and 0
c. -1 and 1
d. Could be any numbers
13. Assume that market return = 10%, risk free rate = 3%. If Beta of company 1 = 1.5, what is
company 1’s expected return?
a. 13%
b. 13.5%
c. 18%
d. 10%
14. Assume that market return = 10%, risk free rate = 3%. If Beta of company 1 = 0.5, what is
company 1’s expected return?
a. 3.5%
b. 8.5%
c. 6.5%
d. 9.5%
Refer to the following graph and answer questions 15-16.
15. Assume that market return = 10%, risk free rate = 3%. What is the rate at the intercept of the
security market line.
a. 3%
b. 8%
c. 6%
d. 7%
16. Assume that market return = 10%, risk free rate = 3%. What is the rate at the slope of the
security market line.
a. 3%
b. 8%
c. 6%
d. 7%
Stock A has the following returns for various states of the economy:
Economy
Probability
Stock A's Return
Recession
20%
-30%
Average
40%
10%
Boom
40%
40%
Stock A's expected return is?
a. 10%
b. 11%
c. 12%
d. 14%
17.
18.
The stock prices of company XXX are as follows. If you bought the stock in February and
sold it in March, what is your holding period return?
Month End Price
January $10.00
February 13
March
12
a. 30%
b. 20%
c. -7.69%
d. -8.33%
Calculate the portfolio’s beta
Amount invested in each stock
$1000
$2000
$2000
19.
stock’s beta
1.2
0.5
0.8
a.
b.
c.
d.
0.83
0.68
0.95
0.76
20. Calculate the return and the standard deviation.
Invest $1,000 in the three month Treasury bill with a guaranteed return of 3%.
a. 3% is return and 3% is standard deviation
b. 3% is return and 0% is standard deviation
c. Insufficient information as given
21. Which of the followings is an example of the systematic risk.
a. Winter storm in New York area
b. Flood in mid west
c. Recession
d. Strike in auto industry
22. Via diversification, we can eliminate all risks in the market.
True / False
23. Low risk investment is always preferable to high risk options.
True / False
Extra Credit of chapter 6(3 points)
Calculate standard deviation.
Stock A has the following returns for various states of the economy:
Economy
Probability
Stock A's Return
Recession
20%
-30%
Average
40%
10%
Boom
40%
40%
Stock A's risk is?