FINA 363 Exam 1
BUSI 3013
ACCOUNTING CONCEPTS FOR FINANCIAL DECISIONS
Mid-term Exam 1 - Chapters 1 8
PRACTICE
March 5, 2013
Name: ___________________________________
1.
Carter Corporation has some money to invest, and its treasurer is choosing between
City of Chicago municipal bonds and U.S. Treasury bonds. Both have the same maturity, and they are equally risky and liquid. If Treasury bonds yield 6 percent, and
Carter's marginal income tax rate is 40 percent, what yield on the Chicago municipal bonds would make Carter's treasurer indifferent between the two?
A. 2.40%
B. 3.60%
C. 4.50%
D. 5.25%
E. 6.00%
2.
Managers can increase the value of a firm by making decisions that
A. increase the future cash flows of the firm.
B. increase the amount of time required to generate future cash flows.
C. increase the riskiness of future cash flows.
D. decrease
3.
All of the following may serve to reduce the coupon rate that would otherwise be required on a bond issued at par, except a
A. Sinking fund.
B. Restrictive covenant.
C. Call provision.
D. Change in rating from Aa to Aaa.
E. None of the above (all may reduce the required coupon rate).
4.
Rollincoast Incorporated issued BBB bonds two years ago that provided a yield to maturity of 11.5 percent. Long-term risk-free government bonds were yielding 8.7 percent at that time. The current risk premium on BBB bonds versus government bonds is half what it was two years ago. If the risk-free long-term governments are currently yielding 7.8 percent, then at what rate should Rollincoast expect to issue new bonds?
A.
B.
A.
C.
D.
7.8%
8.7%
9.2%
10.2%
FINA 363 Exam 1: Ch 1 - 8
Page 1 of 4
E. 12.9%
5.
____ efficiency states that all private and publicly available information is reflected in the current market prices.
A. Weak-form
B. Semistrong-form
C . Strong-form
D. Economic
6.
If you purchase stock from a firm conducting a seasoned equity offering, this
ACCOUNTING CONCEPTS FOR FINANCIAL DECISIONS
Mid-term Exam 1 - Chapters 1 8
PRACTICE
March 5, 2013
Name: ___________________________________
1.
Carter Corporation has some money to invest, and its treasurer is choosing between
City of Chicago municipal bonds and U.S. Treasury bonds. Both have the same maturity, and they are equally risky and liquid. If Treasury bonds yield 6 percent, and
Carter's marginal income tax rate is 40 percent, what yield on the Chicago municipal bonds would make Carter's treasurer indifferent between the two?
A. 2.40%
B. 3.60%
C. 4.50%
D. 5.25%
E. 6.00%
2.
Managers can increase the value of a firm by making decisions that
A. increase the future cash flows of the firm.
B. increase the amount of time required to generate future cash flows.
C. increase the riskiness of future cash flows.
D. decrease
3.
All of the following may serve to reduce the coupon rate that would otherwise be required on a bond issued at par, except a
A. Sinking fund.
B. Restrictive covenant.
C. Call provision.
D. Change in rating from Aa to Aaa.
E. None of the above (all may reduce the required coupon rate).
4.
Rollincoast Incorporated issued BBB bonds two years ago that provided a yield to maturity of 11.5 percent. Long-term risk-free government bonds were yielding 8.7 percent at that time. The current risk premium on BBB bonds versus government bonds is half what it was two years ago. If the risk-free long-term governments are currently yielding 7.8 percent, then at what rate should Rollincoast expect to issue new bonds?
A.
B.
A.
C.
D.
7.8%
8.7%
9.2%
10.2%
FINA 363 Exam 1: Ch 1 - 8
Page 1 of 4
E. 12.9%
5.
____ efficiency states that all private and publicly available information is reflected in the current market prices.
A. Weak-form
B. Semistrong-form
C . Strong-form
D. Economic
6.
If you purchase stock from a firm conducting a seasoned equity offering, this