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Finance 25 multiple choice questions




Question;Question 1;Which of the following statements is most;correct?;A. An option?s value is determined by its;exercise value, which is the market price of the stock less its strike;price. Thus, an option can?t sell for;more than its exercise value.;B. The;potential loss on a call option increases as the underlying stock sells at;higher and higher prices because the profit margin gets bigger.;C.;Issuing options provides companies with a low cost method of raising capital;D. The market value of an option;depends in part on the option?s time to maturity and on the variability of the;underlying stock?s price.;Question 2;An analyst is interested in using the;Black-Scholes model to value call options on the stock of QU, Inc. The analyst has accumulated the following;information;Stock price;$40;Strike price;$40;Time until maturity;6;months;Standard deviation of the stock;12%;Risk free rate of return;16%;Using the Black-Scholes model, what is the;value of the call option?;A.;$1.94;B.;$0.30;C.;$3.76;D. $3.38;E. $2.12.;Question 3;A ______ is a contract that requires the;holder to buy or sell a stated commodity at a specified price at a specified;time in the future.;A. option;B.;convertible contract;C.;futures;D.;warrant.;Question 4;The intrinsic value of a call option equals;A. X-P0;B.;P0-X;C.;c0-(P0-X);D.;p0-(X-P0).;Question 5;The price at which the stock or asset may;be purchased from (or sold to) the option writer is referred to as the;A.;option premium;B. open;interest;C.;exercise value;D.;strike price.;Question 6;A stock is currently selling for $20. In three months (91 days), the stock price;will be either $30 or $11. If you are;considering a call option for this stock with an exercise price of $21, what;would be the value of this option today?;The risk free rate of return is 4.5%.;A.;$18.79;B.;$4.32;C.;$8.90;D.;$9.23.;4 points;Question 7;Google?s closing price today was;$501.71. You think it?s now a bargain;so you?re looking to buy a call option with a strike price of $600. Those LEAP things sound good, and you can get;a call with an expiration date of August 2015.;If GOOG?s standard deviation of returns is 25% annually and the;risk-free rate is 3.5%, what would be the value of the LEAP today?;A.;$49.05;B.;$132.24;C.;$57.73;D.;$0.;Question 8;What is the exercise value of a 6-month put;option that has an exercise price of $50, a corresponding call option value of;$4.17 and a current market price of the underlying stock of $43.50? Assume that the annual risk-free rate is 5;percent.;A. $0;B.;$2.33;C.;$9.44;D.;$6.50.;Question 9;You own a call option. The underlying common stock is selling for;$15 and the option?s exercise price is $12.;This option;A.;must be sold to the call writer.;B. is;out-of-the-money.;C. must;be bought by the call holder.;D. is in-the-money..;Question 10;Considering each action independently and;holding other things constant, which of the following actions would reduce a;firm's need for additional capital?;A.;an increase in the dividend payout ratio;B.;a decrease in the profit margin;C. a;decrease in expected sales growth;D. a;decrease in the accrual accounts (accrued wages and taxes).;Question 11;Which of the following statements is most;correct?;A.;One reason that companies tend to avoid stock repurchases is that;dividend payments are taxed more favorably than stock repurchases;B.;One advantage of dividend reinvestment plans is that they allow shareholders to;avoid paying taxes on the dividends that they choose to reinvest;C. If a;company announces a 2-for-1 stock split and the overall value of the firm;remains unchanged, the company?s stock price must have doubled;D.;None of the statements above is correct..;Question 12;Which of the following lists events in;chronological order from earliest to latest?;A.;Date of Record, Declaration Date, Ex-dividend Date;B. Date;of Record, Ex-dividend Date, Declaration Date;C.;Declaration Date, Date of Record, Ex-dividend Date;D. Declaration Date, Ex-dividend;Date, Date of Record.;Question 13;How can a gold futures contract be used as;a hedge against a potential decrease in the price of gold for a firm that uses;gold in making computer chips?;A.;the company should sell gold futures contracts;B.;the company should buy gold futures contracts;C. this would be a situation that shouldn?t;be hedged;D.;the company should lower the price it pays for gold.;Question 14;A futures trader who bets on the future;direction of prices by taking either a long or a short position is called a;A.;hedger;B.;short seller;C.;speculator;D.;dealer.;Question 15;Ledbetter?s Sweaters has a mutually;exclusive project, to produce and sell wool sweaters or to produce and sell;cashmere sweaters. The investment into;production of wool sweaters is $110,000.;The investment into cashmere sweaters is $125,000. The projects? respective DCF?s given future;sales projections are;What is the NPV of the wool line?;A.;$41,000;B.;$6,000;C.;$56,000;D.;$21,000.;Question 16;It is now August 2013 (in case you;forgot). The cost to stage Pirates of;the Caribbean on Ice is $3 million. This;cost won?t be incurred until 2015. The;company will stage the show in 2016 and 2017, generating cash inflows of $2;million each year. In 2018, the show;will be cancelled at an overall net cost of $500,000. What is the IRR of this project?;A. 14.36%;B.;21.53%;C.;10.17%;D.;12.7%.;Question 17;The _____ designates the date on which the;corporation lists the shareholders who are entitled to receive a dividend;payment.;A.;declaration date;B.;ex-dividend date;C. date;of record;D. payment date.;Question 18;What is the fundamental purpose of a stock;split?;A. A;split shows the company?s preference for retaining funds.;B. A;split increases the threat of a hostile takeover.;C.;A split immediately increases the investor?s wealth.;D.;A split immediately brings the stock price to a lower trading range..;Question 19;Which of the following is a spontaneous;source of financing?;A.;accrued expenses;B.;notes payable;C.;common stock;D.;retained earnings.;Question 20;Which of the following accounts would not;normally or be least likely to increase in proportion with a planned increase;in sale?;A.;Accounts receivable;B.;Inventory;C.;Accounts payable;D.;Accrued expenses;E. Notes payable.;Question 21;Which of the following dividend policies;would cause dividends per share to fluctuate the least?;A.;Constant Payout Ratio;B.;Constant Dollar;C.;Small regular plus special;D. Residual Dividend Method.;Question 22;The first step involved in predicting a;firm?s financial needs is;A.;projecting the firm?s sales and expenses over the planning period;B. estimating the levels of;investment in current and fixed assets that are necessary to support the;projected sales;C.;determining the firm?s financing needs throughout the planning period;D. none of the above.;Question 23;Which of the following is not consistent;with the life cycle theory of a dividend policy?;A.;In the maturing stage, a company should pay dividends;B. In;the infancy stage, a company should pay dividends;C. In;the declining stage, a company should pay dividends;D. In the growth stage, a company;could pay a low dividend.;Question 24;Norman Necktie Company?s balance sheet;showed the following as of December 31;Cash;$800;Accounts payable;$350;Accounts receivable;450;Accruals;150;Inventory;950;Notes payable;2000;Total current assets;$2200;Total current liabilities;$2500;Net fixed assets;$34000;LT;debt;$26500;Common;stock;3200;Retained earnings;4000;Total assets;$36200;Total liabilities & equity;$36200;The company expects sales to double, from;$10,000 to $20,000. Net income is;anticipated to be $1000. Current assets, accounts payable and accruals will;grow in proportion to sales. There is;no anticipated change in net fixed assets.;Will the company need any additional funds, if there are no dividends;paid next year? If so, how much?;A.;No, $0;B.;Yes, $7,700;C. Yes;$1,700;D.;Yes, $700.;Question 25;Albany Motors recently completed a 3-for-1;stock split. Prior to the split, the company had 10 million shares outstanding;and its stock price was $150 per share. After the split, the total market value;of the company?s stock equaled $1.5 billion. What was the price of the company?s;stock following the stock split?;A.;$15;B. $45;C. $450;D. $50;E. $150


Paper#48080 | Written in 18-Jul-2015

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