FIN 3000 MIDTERM EXAM 2 REVIEW

1.
2. poor management and excessive use of debt financing
3. Time value of money
4. the short-term T-bill rate minus the inflation rate
5. 10% = 14-4 (dont need real rate of return which is 2%)
6. 19.4%
7. Alexis bought a stock for $34 a share two years ago. The stock does not pay any
dividends. Today she should the stock for 28.50. What was her IRR on this investment?
-8.44%
8. You are considering investing in US still. Which of the following is an example of nondiversifiable risk? NOTA
9. If there is a 20% chance we will get a 16% return, a 30% chance of getting a 14%
return, a 40% chance of getting a 12% return, and a 10% chance of getting an 8%
return, what is the expected rate? 13%
10. A negative coefficient of correlation implies that asset returns tend to move in opposite
directions
11. The appropriate measure for risk according to the CAPM is beta
12. If you hold a portfolio made up of the following stocks:
13. Siebling Mans common stock has a beta of .8. If the expected risk-free return is 2% and
the market offers a premium of 8% over the risk-free rate, what is the expected return on
Sieblings CS? 2% + 0.8 x 8% = 8.4%
14. SML relates risk to return, for a given set of market conditions. If expected inflation
increases, which of the following would most likely occur? The SML line would shift up
15. Which of the following are advantages of owning bonds? I. Diversification properties,
III. current income, and IV. relatively low risk
16. Which of the following types of risk affect bonds?
17. Under which bond provision is the issuer required to retire portions of the bond issue
prior to maturity? Sinking fund feature
18. When a bonds rating improves from A to AA? Both the coupon rate and the price will
rise
19. I, II, & IV
20. When the market rate of return exceeds the coupon rate, a bon will sell at? A discount
21. Debt securities issued by the Federal Home loan Bank, the student loan marketing
association and the government national mortgage are known as AGENCY BONDS
22. Pass-through securities backed by pools of auto loans, credit card bills, and computer

leases are known as ABSs

23. Which of the following is a good reason to invest in convertible bonds?
24. Rank the following taxable? B.
25. The
26. Downward sloping or flat yield curves often indicate? Recession in the near future
27. What is the yield price of a 9%, 1000 annual coupon bond that has 18 years to maturity
and a yield to maturity of 9.631%? $947
28. Which one of the following statements is true about $1000, 6% annual coupon bond that
is selling for $1012? The current yield is less than 6%
29. Yield to call on a bond with a coupon rate of 8% paid semi-annually, 10 years to
maturity, a par value of $1,000 and a selling price of 1071, callable after 5 years of 1010
is? 6.49%