# Multipul choice questions in finance

1. Consider a four year pure discount bond with a face value of $1000, if the current price is $850, compute the annualized yield of this pure discount bond.

a) 5.57%

b) 5.00%

c) 4.15%

d) 3.30%

e) none of the above

2. The ________________ is the discount rate that makes the present value of the bond's stream of promised cash payments equal to its price.

a) compound rate

b) yield to maturity

c) par rate

d) perperual rate

e) none of the above

3. If you use the constant dividend growth model to value a stock, which of the following is certain to cause you to increase your estimate of the current value of the stock?

a) decreasing the required rate of return for stock

b) decreasing the estimate of the amount of next year's dividend

c) decreasing the expected dividend growth rate

d) an announcement that the chief financial officer has been fired

e) none of the above

4. A firm's common stock is trading at $54 per share. in the past, the firm has paid a constant dividend of $4 per share. however, the company has just announced new investments that the market was not aware of. the market expects that with these new investments, the dividend should grow at 4% per year forever. Assuming that the discount rate remains the same, what will the price of stock be after the announcement?

a) $87.67

b) $50.00

c) $52.00

d) $122.09

e) none of the above

5. An asset profolio's expected return is identified with the ________________ of the distribution, and it's risk with the _______________.

a) variance; average

b) mean; standard deviation

c) standard deviation; average

d) median; left skewness

e) none of the above

6. In practice, returns on the vast majority of assets are positively correlated with each other, beacuse they are all affected by

a) common economic factors.

b) firm specific factors.

c) potential lawsuits.

d) managerial inefficiencies.

e) none of the above.

7. Synergy is said to exist if, when there is the combination of two companies, the value of the operating assets of comined firm will ____________________ the sum of the values of the operating assets of the two companies taken separately.

a) exceed

b) be equal to

c) be less than

d) all the above

e) none of the above

8. The Black-Scholes formula has hour parameters that are directly observable and one parameter that is not. Which parameter is not directly observable?

a) exercise price

b) stock price

c) volatility of the stock return

d) risk free interest rate

e) none of the above

9. Determine the forward price of the Deutsch Mark (DM) if the current spot price is $0.5617 per DM, the Canadian dollar interest rate is 6% per year, and the DM interest rate is 7% per year.

a) $0.6370 per DM

b) $0.5617 per DM

c) $0.5670 per DM

d) $0.55645 per DM

e) none of the abov

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#### Solution Preview

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1. consider a four year pure discount bond with a face value of $1000, if the current price is $850, compute the annualized yield of this pure discount bond.

a) 5.57%

b) 5.00%

c) 4.15%

d) 3.30%

e) none of the above

Answer: c) 4.15%

Annualized yield= 4.15% =(1000/850)^(1/4)-1

2. the ________________ is the discount rate that makes the present value of the bond's stream of promised cash payments equal to its price.

a) compound rate

b) yield to maturity

c) par rate

d) perperual rate

e) none of the above

Answer: b) yield to maturity

3. if you use the constant dividend growth model to value a stock, which of the following is certain to cause you to increase your estimate of the current value of the stock?

a) decreasing the required rate of return for stock

b) decreasing the estimate of the amount of next year's dividend

c) decreasing the expected dividend growth rate

d) an announcement that the chief financial officer has been ...

#### Solution Summary

Answers 9 Multipul choice questions in finance.