Mock exam 2

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Financial Knowledge Challenge

Test your financial acumen with this comprehensive quiz designed for students, professionals, and finance enthusiasts alike. With 40 thought-provoking multiple-choice questions, this quiz covers a wide range of topics from EPS calculations to bond pricing and portfolio management.

Get ready to challenge yourself and enhance your understanding of financial concepts!
- 40 Questions
- Ranging from basic to advanced levels
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40 Questions10 MinutesCreated by CalculatingFinance92

For its fiscal year-end, Sublyme Corporation reported net income of $200 million and a weighted average of 50,000,000 common shares outstanding. There are 2,000,000 convertible preferred shares outstanding that paid an annual dividend of $5. Each preferred share is convertible into two shares of the common stock. The diluted EPS is closest to:

3.90

3.65

3.52

3.70

During 20X6, ZZZ reported net income of $4,350,000 and had 2,000,000 shares of common stock outstanding for the entire year. ZZZ’s 7%, $5,000,000 par value preferred stock is convertible into common stock at a conversion rate of 1.1 shares for every $10 of par value. Compute basic EPS.

2.10

2.04

2.02

Dan Motors reported a net income of $1 million for the year ended December 31, 2012. The company had 50,000 common shares outstanding for the year, and 15,000 shares of preferred stock paying $17 dividend per share. Each share is convertible into 1 share of common stock. What is the diluted EPS for the company?

14.90

18.90

11.46

15.38

What is the missing item in this formula? Return on Equity (ROE) = ? x Equity multiplier

Return on assets (ROA)

Asset turnover

Tax burden

None of answers

Paragon Co. Has an operating profit margin (EBIT / revenue) of 11%; an asset turnover ratio of 1.2; a financial leverage multiplier of 1.5 times; an average tax rate of 35%; and an interest burden of 0.7. Paragon’s return on equity is closest to:

0.09

0.14

0.10

0.11

A 5% bond makes coupon payments on June 15 and December 15 and is trading with a YTM of 4%. The bond is purchased and will settle on August 21 when there will be four coupons remaining until maturity. Calculate the full price of the bond using actual days.

1021.50

1000

1026.46

1082.58

A Swiss 2-year corporate bond matures on 30 December 2015. The coupon rate is 5% paid semiannually on June 30 and December 30. The annual yield to maturity on 30 September 2014 is 4.25%. This bond uses the 30/360 convention. Which of the following is most likely to be the flat price of this bond on September 30, 2014?

100.90

105

102.15

100

A 6% corporate bond is priced for settlement on 15 September 2015. The bond matures on 30 June 2018 and makes semiannual coupon payments on 30th June and 31st December. The bond is currently trading at 7.0% yield to maturity. Based on the above information, the full price of the bond on the settlement date is closest to:

973.36

975.52

987.47

1056

Current yield in market are as follows: 4- year, U.S. Treasury bond, YTM 2.5% 4-year, A rated corporate bond, YTM 3.5% 6-year, U.S. Treasury bond, YTM 3.00% 6-year, A rated corporate bond, YTM 4.75% 5-year, U.S. Treasury bond, YTM 2.75% Using matrix pricing, the yield on a 5 year A rated corporate bond is closest to:

3.125

4.125

5.125

Consider the following market yields: 5-year, U.S. Treasury bond, YTM 1.48% 5-year, A rated corporate bond, YTM 2.64% 7-year, U.S. Treasury bond, YTM 2.15% 7-year, A rated corporate bond, YTM 3.55% 6-year U.S. Treasury bond, YTM 1.74% Estimate the required yield on a newly issued 6-year, A rated corporate bond.

3.45

4.50

3.02

3.20

Of the alternatives available, the bond that has the longest duration is the bond with a:

None of answers

20-year maturity and a 13% coupon

30-year maturity and a 11% coupon

28-year maturity and a 0% coupon

An investor buys a 6% annual payment bond with three years to maturity. The bond has a yield-to-maturity of 8% and is currently priced at 94.845806 per 100 of par. The bond’s Macaulay duration is closest to:

2.62

3.10

2.78

2.83

Jayco, Inc., sells 10,000 units at a price of $5 per unit. Jayco’s fixed costs are $8,000, interest expense is $2,000, variable costs are $3 per unit, and EBIT is $12,000.Jayco’s degree of financial leverage (DFL) is closest to:

1.67

1.20

2.10

Jayco, Inc., sells blue ink for $4 a bottle. The ink’s variable cost per bottle is $2. Ink has fixed operating costs of $4,000 and fixed financing costs of $6,000. What is Jayco’s breakeven quantity of sales, in units?

2500

2000

5000

3000

Brad has a portfolio which is fully diversified. Which performance measure is most appropriate for him?

Jensen’s alpha

None of answers

M-squared

Sharpe ratio

Portfolio managers who are maximizing risk-adjusted returns will seek to invest more in securities with:

None of answers

Lower values of Jensen’s alpha

Values of Jensen’s alpha equal to 0

Higher values of Jensen’s alpha

Which of the following statements is least likely to be correct about Jensen’s alpha?

None of answers

It is the excess risk-adjusted return on a portfolio

It is based on systematic risk

It is the slope of the security market line

Which of the following best describes "Market Value Added"?

The difference between the market value of the firm and the amount of contributed capital.

None of answers

The value added to the product the firm produces above and beyond the costs of the inputs

The difference between the book value of equity and debt versus the market value of the firm

If after-tax operating income is $185000, weighted average cost of capital is 11%, total assets are $485000 and total current liabilities are $167000, then economic value added would be:

140020

160020

170020

The capital allocation line is a straight line from the risk-free asset through:

The optimal risky portfolio

None of answers

The global maximum-return portfolio

The global minimum-variance portfolio

Which of the following statements about correlation is least accurate?

None of answers

If the correlation coefficient is 0, a zero variance portfolio can be constructed.

Diversification reduces risk when correlation is less than +1

The lower the correlation coefficient, the greater the potential benefits from diversification

Which of the following statements is least accurate?

A zero variance portfolio can be constructed by combining two securities with a correlation coefficient of 0.

None of answers

If you add a stock to a portfolio where the risk of the stock is equal to the risk of the portfolio and the correlation is 0.6, the overall risk of the new portfolio will be lower

The correlation coefficient and potential benefits from diversification are inversely related

Modern portfolio theory stresses the correlation between:

Individual securities within a portfolio

None of answers

Particular portfolio and a benchmark portfolio

Individual securities macroeconomic variables

The covariance of the market’s returns with a stock’s returns is 0.005 and the standard deviation of the market’s returns is 0.05. What is the stock’s beta?

1.50

2.50

A portfolio has a risk-free asset and two risky assets. Which of the following is most likely to be a depiction of the risk and return of this portfolio?

None of answers

Capital allocation line

Security market line

Security characteristic line

The set of risky portfolio that give the highest return at each level of risk will most likely lie on the:

Capital allocation line

None of answers

Efficient frontier

Security market line

Andrew, a portfolio manager, aims to maximize risk-adjusted returns. He is least likely to invest in securities with a nonsystematic variance of:

0.70

0.0.

0.2.

0.5.

As compared to a market portfolio, a borrowing portfolio on the capital market line is most likely to have:

Lesser returns

Equal returns

None of answers

Greater returns

Which of the following combinations is most likely to have its portfolio’s risk and return presented in the form of the capital market line, CML?

Risk-free asset and any risky portfolio

Risky asset and a leveraged portfolio

Risk-free asset and market portfolio

None of answers

Which of the following assets is most likely to have an expected return less than the risk-free rate?

An asset with beta 0.00

None of answers

An asset with beta -0.25

An asset with beta 0.25

A stock has a correlation of 1 with the market and a standard deviation of returns of 20%. If the market has a standard deviation of returns of 15%, then the beta of the stock is closest to:

1.33

0.90

0.75

0.20

Barry wishes to compute the beta of a stock that has a correlation of 0.64 with the market. The following data is available: Standard Deviation of Returns of Stock = 14.1%. Standard Deviation of Returns of Market = 9.44%. The beta is closest to:

0.96.

1.10

0.43.

0.74.

The set of portfolios on the minimum-variance frontier that dominates all sets of portfolios below the global minimum-variance portfolio is the:

None of answers

Markowitz efficient frontier

Set of optimal risky portfolios

Capital allocation line

Last year, a portfolio manager earned a return of 10%. The portfolio’s beta was 0.5. For the same period, the market return was 7% and the average risk-free rate was 4%. Jensen’s alpha for this portfolio is closest to:

0.02

0.015

-0.015

0.045

Which of the following statements most accurately defines the market portfolio in capital market theory? The market portfolio consists of all:

Tradable assets

None of answers

Risky assets

Investable assets

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