Courses

Investment - Test 1


1. If the intrinsic value of a stock is greater than its market value, which of the following is a reasonable conclusion?
A. The stock has a low level of risk
B. The stock offers a high dividend payout ratio
C. The market is undervaluing the stock
D. The market is overvaluing the stock


2. A company has an 8 percent return on total assets of $300k and a net profit margin of 5 percent. What are its sales?
A. $3,750,000
B. $480k
C. $300k
D. $1,500,000


3. The dividend-payout ratio is equal to?
A. The dividend yield plus the capital gains yield
B. Dividends per share divided by earnings per share
C. Dividends per share divided by par value per share
D. Dividends per share divided by current price per share


4. Which of the following would NOT improve the current ratio?
A. Borrow short term to finance additional fixed assets
B. Issue long-term debt to buy inventory
C. Sell common stock to reduce current liabilities
D. Sell fixed assets to reduce accounts payable


5. A company has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company:
A. Will not experience any difficulty with its creditors
B. Has less liquidity than other firms in the industry
C. Will be viewed as having high creditworthiness
D. Has greater than average financial risk when compared to other firms in its industry


6. Which of the following would be included in a cash budget?
A. Depreciation charges
B. Dividends
C. Goodwill
D. Patent amortization


7. The call price of a convertible bond is generally
A. Equal to the conversion ratio times the market price per share of common stock
B. Greater than the face value of the bond
C. Equal to the face value of the bond divided by the conversion ratio
D. Equal to the value at maturity


8. Treasury stock is:
A. Common stock issued by the U.S. government
B. Preferred stock issued by the U.S. government
C. Common stock that has been repurchased and is being held by the issuing company
D. A corporation's outstanding common stock


9. Which of the following marketable securities is the obligation of a commercial bank?
A. Commercial paper
B. Negotiable certificate of deposit
C. Repurchase agreement
D. T-bills


10. The trade terms '2/15, net 30' indicate that:
A. 2% discount is offered if payment is made within 15 days
B. 15% discount is offered if payment is made within 30 days
C. 2% discount is offered if payment is made within 30 days
D. 30% discount is offered if payment is made within 15 days






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