FIN 534 Week 5 Midterm Exam 1 and 2 questions & answers 2022 update

FIN 534 Week 5 Midterm Exam 1 and 2 questions & answers 2022 update FIN 534 Week 5 Midterm Exam 1 and 2 Midterm Exam Part 1 Question 1 2 out of 2 points Of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero. Answer Selected Answer: Correct Answer: Question 2 2 out of 2 points Investment D pays $2,500 at the end of 10 years (just one payment). Investment D pays $2,500 at the end of 10 years (just one payment). You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment? Answer Selected Answer: Correct Answer: • Question 3 2 out of 2 points The discount rate decreases. The discount rate decreases. Which of the following statements regarding a 20-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT? Answer Selected Answer: A larger proportion of the first monthly payment will be interest, and a smaller proportion will be principal, than for the last monthly payment. Correct Answer: A larger proportion of the first monthly payment will be interest, and a smaller proportion will be principal, than for the last monthly payment. • Question 4 2 out of 2 points Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant? Answer Selected Answer: If an investment pays 10% interest, compounded quarterly, its effective annual rate will be greater than 10%. Correct Answer: If an investment pays 10% interest, compounded quarterly, its effective annual rate will be greater than 10%. • Question 5 2 out of 2 points You are considering two equally risky annuities, each of which pays $25,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT? Answer Selected Answer: A rational investor would be willing to pay more for DUE than for ORD, so their market prices should differ. Correct Answer: A rational investor would be willing to pay more for DUE than for ORD, so their market prices should differ. • Question 6 2 out of 2 points Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding? Answer Selected Answer: Correct Answer: • Question 7 2 out of 2 points $240.08 $240.08 Which of the following statements is CORRECT? Answer Selected Answer: All else equal, if a bond's yield to maturity increases, its price will fall. Correct Answer: • Question 8 2 out of 2 points All else equal, if a bond's yield to maturity increases, its price will fall. Bond A has a 9% annual coupon while Bond B has a 6% annual coupon. Both bonds have a 7% yield to maturity, and the YTM is expected to remain constant. Which of the following statements is CORRECT? Answer Selected Answer: The price of Bond A will decrease over time, but the price of Bond B will increase over time. Correct Answer: The price of Bond A will decrease over time, but the price of Bond B will increase over time. • Question 9 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer: If a coupon bond is selling at par, its current yield equals its yield to maturity. Correct Answer: If a coupon bond is selling at par, its current yield equals its yield to maturity. • Question 10 2 out of 2 points Bonds A and B are 15-year, $1,000 face value bonds. Bond A has a 7% annual coupon, while Bond B has a 9% annual coupon. Both bonds have a yield to maturity of 8%, which is expected to remain constant for the next 15 years. Which of the following statements is CORRECT? Answer Selected Answer: Correct Answer: • Question 11 2 out of 2 points One year from now, Bond A's price will be higher than it is today. One year from now, Bond A's price will be higher than it is today. A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity. Which of the following statements is CORRECT? Answer Selected Answer: If the yield to maturity remains constant, the price of the bond will decline over time. Correct Answer: If the yield to maturity remains constant, the price of the bond will decline over time. • Question 12 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer: All else equal, long-term bonds have less reinvestment rate risk than short-term bonds. Correct Answer: All else equal, long-term bonds have less reinvestment rate risk than short-term bonds. • Question 13 2 out of 2 points Which of the following statements is NOT CORRECT? Answer Selected Answer: All else equal, bonds with larger coupons have greater interest rate (price) risk than bonds with smaller coupons. Correct Answer: All else equal, bonds with larger coupons have greater interest rate (price) risk than bonds with smaller coupons. • Question 14 2 out of 2 points How would the Security Market Line be affected, other things held constant, if the expected inflation rate decreases and investors also become more risk averse? Answer Selected Answer: Correct Answer: • Question 15 2 out of 2 points The y-axis intercept would decline, and the slope would increase. The y-axis intercept would decline, and the slope would increase. Which of the following statements is CORRECT? Answer Selected Answer: During a period when a company is undergoing a change such as increasing its use of leverage or taking on riskier projects, the calculated historical beta may be drastically different from the beta that will exist in the future. Correct Answer: During a period when a company is undergoing a change such as increasing its use of leverage or taking on riskier projects, the calculated historical beta may be drastically different from the beta that will exist in the future. • Question 16 2 out of 2 points Recession, inflation, and high interest rates are economic events that are best characterized as being Answer Selected Answer: Correct Answer: • Question 17 2 out of 2 points among the factors that are responsible for market risk. among the factors that are responsible for market risk. Assume that the risk-free rate is 6% and the market risk premium is 5%. Given this information, which of the following statements is CORRECT? Answer Selected Answer: Correct Answer: • Question 18 2 out of 2 points An index fund with beta = 1.0 should have a required return of 11%. An index fund with beta = 1.0 should have a required return of 11%. Which of the following statements is CORRECT? Answer Selected Answer: If you formed a portfolio that consisted of all stocks with betas less than 1.0, which is about half of all stocks, the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, and that portfolio would have less risk than a portfolio that consisted of all stocks in the market. Correct Answer: If you formed a portfolio that consisted of all stocks with betas less than 1.0, which is about half of all stocks, the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, and that portfolio would have less risk than a portfolio that consisted of all stocks in the market. • Question 19 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer: A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations. Correct Answer: A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations. • Question 20 2 out of 2 points Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT? Answer Selected Answer: If one stock has a higher dividend yield, it must also have a lower dividend growth rate. Correct Answer: If one stock has a higher dividend yield, it must also have a lower dividend growth rate. • Question 21 2 out of 2 points The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT? Answer Selected Answer: If the market is in equilibrium, and if Stock Y has the lower expected dividend yield, then it must have the higher expected growth rate. Correct Answer: If the market is in equilibrium, and if Stock Y has the lower expected dividend yield, then it must have the higher expected growth rate. • Question 22 2 out of 2 points Which of the following statements is NOT CORRECT? Answer Selected Answer: The corporate valuation model discounts free cash flows by the required return on equity. Correct Answer: The corporate valuation model discounts free cash flows by the required return on equity. • Question 23 2 out of 2 points Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? Answer Selected Answer: Correct Answer: • Question 24 2 out of 2 points Stock X pays a higher dividend per share than Stock Y. Stock X pays a higher dividend per share than Stock Y. Franklin Corporation is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate? Answer Selected Answer: Correct Answer: • Question 25 2 out of 2 points 6.65% 6.65% Which of the following statements is CORRECT? Answer Selected Answer: The stock valuation model, P0 = D1/(rs - g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate. Correct Answer: The stock valuation model, P0 = D1/(rs - g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate. Wednesday, July 30, 2014 6:34:40 PM EDT FIN 534 Midterm Part 2 • Question 1 2 out of 2 points You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following statements best describes this transaction? Answer Selected Answer: Correct Answer: • Question 2 2 out of 2 points This is an example of a direct transfer of capital. This is an example of a direct transfer of capital. Which of the following statements is CORRECT? Answer Selected Answer: Correct Answer: • Question 3 2 out of 2 points If expected inflation increases, interest rates are likely to increase. If expected inflation increases, interest rates are likely to increase. Which of the following statements is CORRECT? Answer Selected Answer: Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones. Correct Answer: Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones. • Question 4 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer: The justification for the "light" regulation of hedge funds is that only "sophisticated" investors with high net worths and high incomes are Correct permitted to invest in these funds, and such investors supposedly can do the necessary "due diligence" on their own rather than have it done by the SEC or some other regulator. Answer: The justification for the "light" regulation of hedge funds is that only "sophisticated" investors with high net worths and high incomes are permitted to invest in these funds, and such investors supposedly can do the necessary "due diligence" on their own rather than have it done by the SEC or some other regulator. • Question 5 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer: One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. Correct Answer: One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership. • Question 6 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer: Capital market instruments include both long-term debt and common stocks. Correct Answer: • Question 7 2 out of 2 points Capital market instruments include both long-term debt and common stocks. Which of the following is a primary market transaction? Answer Selected Answer: Johnson & Johnson issues 2,000,000 shares of new stock and sells them to the public through an investment banker. Correct Answer: Johnson & Johnson issues 2,000,000 shares of new stock and sells them to the public through an investment banker. • Question 8 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer: One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. Correct Answer: One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. • Question 9 2 out of 2 points DeYoung Devices Inc., a new high-tech instrumentation firm, is building and equipping a new manufacturing facility. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years. If the legislation becomes law, which of the following would occur in the year following the change? Answer Selected Answer: Correct Answer: • Question 10 2 out of 2 points The firm's net cash flow would increase. The firm's net cash flow would increase. Analysts following Armstrong Products recently noted that the company's operating net cash flow increased over the prior year, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation? Answer Selected Answer: Correct Answer: • Question 11 2 out of 2 points The company made a large investment in a profitable new plant. The company made a large investment in a profitable new plant. Which of the following items cannot be found on a firm's balance sheet under current liabilities? Answer Selected Answer: Correct Answer: • Question 12 Cost of goods sold. Cost of goods sold. 2 out of 2 points For managerial purposes, i.e., making decisions regarding the firm's operations, the standard financial statements as prepared by accountants under Generally Accepted Accounting Principles (GAAP) are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations. Related to these modifications, which of the following statements is CORRECT? Answer Selected Answer: The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that is focused on cash flows and the operations of individual units. Correct Answer: The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that is focused on cash flows and the operations of individual units. • Question 13 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer: A typical industrial company's balance sheet lists the firm's assets that will be converted to cash first, and then goes on down to list the firm's longest lived assets last. Correct Answer: A typical industrial company's balance sheet lists the firm's assets that will be converted to cash first, and then goes on down to list the firm's longest lived assets last. • Question 14 2 out of 2 points Lucy's Music Emporium opened its doors on January 1, 2012, and it was granted permission to use the same depreciation calculations for shareholder reporting and income tax purposes. The company planned to depreciate its fixed assets over 20 years, but in December 2012 management realized that the assets would last for only 15 years. The firm's accountants plan to report the 2012 financial statements based on this new information. How would the new depreciation assumption affect the company's financial statements? Answer Selected Answer: Correct Answer: • Question 15 2 out of 2 points The firm's cash position in 2012 and 2013 would increase. The firm's cash position in 2012 and 2013 would increase. Which of the following statements is CORRECT? Answer Selected Answer: In the statement of cash flows, a decrease in accounts payable is reported as a use of cash. Correct Answer: In the statement of cash flows, a decrease in accounts payable is reported as a use of cash. • Question 16 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer: One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital. Correct Answer: One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital. • Question 17 2 out of 2 points Danielle's Sushi Shop last year had (1) a negative net cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet. Which of the following factors could explain this situation? Answer Selected Answer: Correct Answer: The company sold a new issue of common stock. The company sold a new issue of common stock. • Question 18 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer: Borrowing on a long-term basis and using the proceeds to retire short- term debt would improve the current ratio and thus could be considered to be an example of "window dressing." Correct Answer: Borrowing on a long-term basis and using the proceeds to retire short- term debt would improve the current ratio and thus could be considered to be an example of "window dressing." • Question 19 2 out of 2 points Which of the following would indicate an improvement in a company's financial position, holding other things constant? Answer Selected Answer: Correct Answer: • Question 20 2 out of 2 points The current and quick ratios both increase. The current and quick ratios both increase. Cordelion Communications is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate Cordelion pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue? Answer Selected Answer: Correct Answer: • Question 21 2 out of 2 points The tax bill will increase. The tax bill will increase. Which of the following statements is CORRECT? Answer Selected Answer: A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure. Correct Answer: A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure. • Question 22 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer: The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MVA). Correct Answer: The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MVA). • Question 23 2 out of 2 points Considered alone, which of the following would increase a company's current ratio? Answer Selected Answer: Correct Answer: • Question 24 2 out of 2 points An increase in accounts receivable. An increase in accounts receivable. A firm's new president wants to strengthen the company's financial position. Which of the following actions would make it financially stronger? Answer Selected Answer: Correct Answer: • Question 25 2 out of 2 points Increase EBIT while holding sales constant. Increase EBIT while holding sales constant. Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant? Answer Selected Answer: Correct Answer: The EBITDA coverage ratio increases. The EBITDA coverage ratio increases FIN534 QUIZ 2 • Question 1 4 out of 4 points Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined. Which of the following could explain this performance? Answer Selected Answer: Correct Answer: • Question 2 4 out of 4 points The company's depreciation and amortization expenses declined. The company's depreciation and amortization expenses declined. Lucy's Music Emporium opened its doors on January 1, 2012, and it was granted permission to use the same depreciation calculations for shareholder reporting and income tax purposes. The company planned to depreciate its fixed assets over 20 years, but in December 2012 management realized that the assets would last for only 15 years. The firm's accountants plan to report the 2012 financial statements based on this new information. How would the new depreciation assumption affect the company's financial statements? Answer Selected Answer: Correct Answer: • Question 3 4 out of 4 points The firm's cash position in 2012 and 2013 would increase. The firm's cash position in 2012 and 2013 would increase. The LeMond Corporation just purchased a new production line. Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis, but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years. Other things held constant, which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes. Answer Selected Answer: LeMond's net fixed assets as shown on the balance sheet will be higher at the end of the year. Correct Answer: LeMond's net fixed assets as shown on the balance sheet will be higher at the end of the year. • Question 4 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: If a company pays more in dividends than it generates in net income, its retained earnings as reported on the balance sheet will decline from the previous year's balance. Correct Answer: If a company pays more in dividends than it generates in net income, its retained earnings as reported on the balance sheet will decline from the previous year's balance. • Question 5 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: Interest paid to an individual is counted as income for tax purposes and taxed at the individual's regular tax rate, which in 2010 could go up to 35%, but dividends received were taxed at a maximum rate of 15%. Correct Answer: Interest paid to an individual is counted as income for tax purposes and taxed at the individual's regular tax rate, which in 2010 could go up to 35%, but dividends received were taxed at a maximum rate of 15%. • Question 6 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: Small businesses that qualify under the Tax Code can elect not to pay corporate taxes, but then their owners must report their pro rata shares of the firm's income as personal income and pay taxes on that income. Correct Answer: Small businesses that qualify under the Tax Code can elect not to pay corporate taxes, but then their owners must report their pro rata shares of the firm's income as personal income and pay taxes on that income. • Question 7 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: The income statement for a given year, say 2012, is designed to give us an idea of how much the firm earned during that year. Correct Answer: The income statement for a given year, say 2012, is designed to give us an idea of how much the firm earned during that year. • Question 8 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: EVA stands for economic value added, and it is defined as follows: EVA = EBIT(1 - T) - (Investor-supplied op. capital) x (A - T cost of capital). Correct Answer: • Question 9 4 out of 4 points EVA stands for economic value added, and it is defined as follows: EVA = EBIT(1 - T) - (Investor-supplied op. capital) x (A - T cost of capital). Which of the following items cannot be found on a firm's balance sheet under current liabilities? Answer Selected Answer: Correct Answer: • Question 10 4 out of 4 points Cost of goods sold. Cost of goods sold. Which of the following items is NOT included in current assets? Answer Selected Answer: Correct Answer: • Question 11 0 out of 4 points Bonds. Bonds. Assume that Congress recently passed a provision that will enable Barton's Rare Books (BRB) to double its depreciation expense for the upcoming year but will have no effect on its sales revenue or tax rate. Prior to the new provision, BRB's net income after taxes was forecasted to be $4 million. Which of the following best describes the impact of the new provision on BRB's financial statements versus the statements without the provision? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes. Answer Selected Answer: Correct Answer: • Question 12 4 out of 4 points Net fixed assets on the balance sheet will increase. Net fixed assets on the balance sheet will decrease. Danielle's Sushi Shop last year had (1) a negative net cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet. Which of the following factors could explain this situation? Answer Selected Answer: Correct Answer: • Question 13 4 out of 4 points The company sold a new issue of common stock. The company sold a new issue of common stock. Which of the following statements is CORRECT? Answer Selected Answer: A firm can show a large amount of retained earnings on its balance sheet yet need to borrow cash to make required payments. Correct Answer: A firm can show a large amount of retained earnings on its balance sheet yet need to borrow cash to make required payments. • Question 14 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital. Correct Answer: One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital. • Question 15 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: A typical industrial company's balance sheet lists the firm's assets that will be converted to cash first, and then goes on down to list the firm's longest lived assets last. Correct Answer: A typical industrial company's balance sheet lists the firm's assets that will be converted to cash first, and then goes on down to list the firm's longest lived assets last. • Question 16 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MVA). Correct Answer: The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MVA). • Question 17 4 out of 4 points If a bank loan officer were considering a company's request for a loan, which of the following statements would you consider to be CORRECT? Answer Selected Answer: Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm. Correct Answer: Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm. • Question 18 4 out of 4 points A firm's new president wants to strengthen the company's financial position. Which of the following actions would make it financially stronger? Answer Selected Answer: Correct Answer: • Question 19 4 out of 4 points Increase EBIT while holding sales constant. Increase EBIT while holding sales constant. Which of the following would indicate an improvement in a company's financial position, holding other things constant? Answer Selected Answer: Correct Answer: • Question 20 4 out of 4 points The current and quick ratios both increase. The current and quick ratios both increase. Which of the following statements is CORRECT? Answer Selected Answer: Borrowing on a long-term basis and using the proceeds to retire short- term debt would improve the current ratio and thus could be considered to be an example of "window dressing." Correct Answer: Borrowing on a long-term basis and using the proceeds to retire short- term debt would improve the current ratio and thus could be considered to be an example of "window dressing." • Question 21 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase. Correct Answer: If a firm increases its sales and cost of goods sold while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase. • Question 22 4 out of 4 points Cordelion Communications is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate Cordelion pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue? Answer Selected Answer: Correct Answer: • Question 23 4 out of 4 points The tax bill will increase. The tax bill will increase. Arshadi Corp.'s sales last year were $52,000, and its total assets were $22,000. What was its total assets turnover ratio (TATO)? Answer Selected Answer: Correct Answer: • Question 24 4 out of 4 points 2.36 2.36 If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., "grading" the manager), which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant. Answer Selected Answer: The division's basic earning power ratio is above the average of other firms in its industry. Correct Answer: The division's basic earning power ratio is above the average of other firms in its industry. • Question 25 4 out of 4 points You observe that a firm's ROE is above the industry average, but its profit margin and debt ratio are both below the industry average. Which of the following statements is CORRECT? Answer Selected Answer: Its total assets turnover must be above the industry average. Correct Answer: Its total assets turnover must be above the industry average. • Question 26 4 out of 4 points Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant? Answer Selected Answer: Correct Answer: • Question 27 4 out of 4 points The EBITDA coverage ratio increases. The EBITDA coverage ratio increases. Companies A and C each reported the same earnings per share (EPS), but Company A's stock trades at a higher price. Which of the following statements is CORRECT? Answer Selected Answer: Correct Answer: • Question 28 4 out of 4 points Company A trades at a higher P/E ratio. Company A trades at a higher P/E ratio. Companies Heidee and Leaudy are virtually identical in that they are both profitable, and they have the same total assets (TA), Sales (S), return on assets (ROA), and profit margin (PM). However, Company Heidee has the higher debt ratio. Which of the following statements is CORRECT? Answer Selected Answer: Correct Answer: • Question 29 4 out of 4 points Company Heidee has a higher ROE than Company Leaudy. Company Heidee has a higher ROE than Company Leaudy. Considered alone, which of the following would increase a company's current ratio? Answer Selected Answer: Correct Answer: • Question 30 0 out of 4 points An increase in accounts receivable. An increase in accounts receivable. Which of the following statements is CORRECT? Answer Selected Answer: The use of debt financing will tend to lower the basic earning power ratio, other things held constant. Correct Answer: A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure. FIN534 QUIZ 3 • Question 1 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: If a loan has a nominal annual rate of 7%, then the effective rate will never be less than 7%. Correct Answer: If a loan has a nominal annual rate of 7%, then the effective rate will never be less than 7%. • Question 2 4 out of 4 points You are considering two equally risky annuities, each of which pays $25,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT? Answer Selected Answer: A rational investor would be willing to pay more for DUE than for ORD, so their market prices should differ. Correct Answer: A rational investor would be willing to pay more for DUE than for ORD, so their market prices should differ. • Question 3 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month. Correct Answer: The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month. • Question 4 4 out of 4 points A $150,000 loan is to be amortized over 6 years, with annual end-of-year payments. Which of these statements is CORRECT? Answer Selected Answer: The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher. Correct Answer: The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher. • Question 5 4 out of 4 points Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant? Answer Selected Answer: A bank loan's nominal interest rate will always be equal to or less than its effective annual rate. Correct Answer: A bank loan's nominal interest rate will always be equal to or less than its effective annual rate. • Question 6 4 out of 4 points Your bank offers a 10-year certificate of deposit (CD) that pays 6.5% interest, compounded annually. If you invest $2,000 in the CD, how much will you have when it matures? Answer Selected Answer: Correct Answer: $3,754.27 $3,754.27 • Question 7 4 out of 4 points Of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero. Answer Selected Answer: Correct Answer: • Question 8 4 out of 4 points Investment D pays $2,500 at the end of 10 years (just one payment). Investment D pays $2,500 at the end of 10 years (just one payment). Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding? Answer Selected Answer: Correct Answer: • Question 9 4 out of 4 points $240.08 $240.08 Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 8% is CORRECT? Answer Selected Answer: A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment. Correct Answer: A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment. • Question 10 0 out of 4 points Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant? Answer Selected Answer: A bank loan's nominal interest rate will always be equal to or greater than its effective annual rate. Correct Answer: If an investment pays 10% interest, compounded quarterly, its effective annual rate will be greater than 10%. • Question 11 0 out of 4 points You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment? Answer Selected Answer: Correct Answer: • Question 12 4 out of 4 points The discount rate increases. The discount rate decreases. Which of the following statements is CORRECT? Answer Selected Answer: The present value of a 3-year, $150 annuity due will exceed the present value of a 3-year, $150 ordinary annuity. Correct Answer: The present value of a 3-year, $150 annuity due will exceed the present value of a 3-year, $150 ordinary annuity. • Question 13 4 out of 4 points You are considering two equally risky annuities, each of which pays $15,000 per year for 20 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT? Answer Selected Answer: The present value of DUE exceeds the present value of ORD, and the future value of DUE also exceeds the future value of ORD. Correct Answer: The present value of DUE exceeds the present value of ORD, and the future value of DUE also exceeds the future value of ORD. • Question 14 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: The cash flows for an annuity due must all occur at the beginning of the periods. Correct Answer: The cash flows for an annuity due must all occur at the beginning of the periods. • Question 15 4 out of 4 points How much would Roderick have after 6 years if he has $500 now and leaves it invested at 5.5% with annual compounding? Answer Selected Answer: Correct Answer: • Question 16 4 out of 4 points $689.42 $689.42 Which of the following statements is CORRECT? Answer Selected Answer: You hold two bonds. One is a 10-year, zero coupon, issue and the other is a 10-year bond that pays a 6% annual coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the larger percentage decline. Correct Answer: You hold two bonds. One is a 10-year, zero coupon, issue and the other is a 10-year bond that pays a 6% annual coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the larger percentage decline. • Question 17 4 out of 4 points A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity. Which of the following statements is CORRECT? Answer Selected Answer: If the yield to maturity remains constant, the price of the bond will decline over time. Correct Answer: If the yield to maturity remains constant, the price of the bond will decline over time. • Question 18 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: If a coupon bond is selling at par, its current yield equals its yield to maturity. Correct Answer: If a coupon bond is selling at par, its current yield equals its yield to maturity. • Question 19 4 out of 4 points Assume that interest rates on 15-year noncallable Treasury and corporate bonds with different ratings are as follows: T-bond = 7.72% A = 9.64% AAA = 8.72% BBB = 10.18% The differences in rates among these issues were most probably caused primarily by: Answer Selected Answer: Correct Answer: • Question 20 4 out of 4 points Default risk differences. Default risk differences. A 10-year bond pays an annual coupon, its YTM is 8%, and it currently trades at a premium. Which of the following statements is CORRECT? Answer Selected Answer: If the yield to maturity remains at 8%, then the bond's price will decline over the next year. Correct Answer: If the yield to maturity remains at 8%, then the bond's price will decline over the next year. • Question 21 0 out of 4 points Which of the following statements is NOT CORRECT? Answer Selected Answer: All else equal, bonds with longer maturities have more interest rate (price) risk than bonds with shorter maturities. Correct Answer: All else equal, bonds with larger coupons have greater interest rate (price) risk than bonds with smaller coupons. • Question 22 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more interest rate price risk but less reinvestment rate risk. Correct Answer: Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more interest rate price risk but less reinvestment rate risk. • Question 23 0 out of 4 points A 15-year bond has an annual coupon rate of 8%. The coupon rate will remain fixed until the bond matures. The bond has a yield to maturity of 6%. Which of the following statements is CORRECT? Answer Selected Answer: If market interest rates remain unchanged, the bond's price one year from now will be higher than it is today. Correct Answer: If market interest rates remain unchanged, the bond's price one year from now will be lower than it is today. • Question 24 4 out of 4 points An 8-year Treasury bond has a 10% coupon, and a 10-year Treasury bond has an 8% coupon. Both bonds have the same yield to maturity. If the yield to maturity of both bonds increases by the same amount, which of the following statements would be CORRECT? Answer Selected Answer: Both bonds would decline in price, but the 10-year bond would have the greater percentage decline in price. Correct Answer: Both bonds would decline in price, but the 10-year bond would have the greater percentage decline in price. • Question 25 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: All else equal, long-term bonds have less reinvestment rate risk than short-term bonds. Correct Answer: All else equal, long-term bonds have less reinvestment rate risk than short-term bonds. • Question 26 4 out of 4 points Bond A has a 9% annual coupon while Bond B has a 6% annual coupon. Both bonds have a 7% yield to maturity, and the YTM is expected to remain constant. Which of the following statements is CORRECT? Answer Selected Answer: The price of Bond A will decrease over time, but the price of Bond B will increase over time. Correct Answer: The price of Bond A will decrease over time, but the price of Bond B will increase over time. • Question 27 4 out of 4 points A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT? Answer Selected Answer: If the yield to maturity remains constant, the bond's price one year from now will be lower than its current price. Correct Answer: If the yield to maturity remains constant, the bond's price one year from now will be lower than its current price. • Question 28 4 out of 4 points Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds? Answer Selected Answer: Correct Answer: • Question 29 4 out of 4 points Market interest rates decline sharply. Market interest rates decline sharply. If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value? Answer Selected Answer: Correct Answer: • Question 30 4 out of 4 points A 10-year zero coupon bond. A 10-year zero coupon bond. Which of the following statements is CORRECT? Answer Selected Answer: Sinking fund provisions sometimes turn out to adversely affect bondholders, and this is most likely to occur if interest rates decline after the bond has been issued. Correct Answer: Sinking fund provisions sometimes turn out to adversely affect bondholders, and this is most likely to occur if interest rates decline after the bond has been issued. FIN534 QUIZ 4 • Question 1 4 out of 4 points Which of the following is most likely to be true for a portfolio of 40 randomly selected stocks? Answer Selected Answer: The beta of the portfolio is equal to the average of the betas of the individual stocks. Correct Answer: The beta of the portfolio is equal to the average of the betas of the individual stocks. • Question 2 4 out of 4 points Stock A's beta is 1.7 and Stock B's beta is 0.7. Which of the following statements must be true, assuming the CAPM is correct. Answer Selected Answer: In equilibrium, the expected return on Stock A will be greater than that on B. Correct Answer: • Question 3 4 out of 4 points In equilibrium, the expected return on Stock A will be greater than that on B. Which of the following statements is CORRECT? Answer Selected Answer: A portfolio with a large number of randomly selected stocks would have more market risk than a single stock that has a beta of 0.5, assuming that the stock's beta was correctly calculated and is stable. Correct Answer: A portfolio with a large number of randomly selected stocks would have more market risk than a single stock that has a beta of 0.5, assuming that the stock's beta was correctly calculated and is stable. • Question 4 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: The slope of the security market line is equal to the market risk premium. Correct Answer: • Question 5 4 out of 4 points The slope of the security market line is equal to the market risk premium. Stock X has a beta of 0.7 and Stock Y has a beta of 1.7. Which of the following statements must be true, according to the CAPM? Answer Selected Answer: If the expected rate of inflation increases but the market risk premium is unchanged, the required returns on the two stocks should increase by the same amount. Correct Answer: If the expected rate of inflation increases but the market risk premium is unchanged, the required returns on the two stocks should increase by the same amount. • Question 6 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: Diversifiable risk can be reduced by forming a large portfolio, but normally even highly-diversified portfolios are subject to market (or systematic) risk. Correct Answer: Diversifiable risk can be reduced by forming a large portfolio, but normally even highly-diversified portfolios are subject to market (or systematic) risk. • Question 7 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: The slope of the security market line is equal to the market risk premium, (rM - rRF). Correct Answer: The slope of the security market line is equal to the market risk premium, (rM - rRF). • Question 8 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: Suppose you plotted the returns of a given stock against those of the market, and you found that the slope of the regression line was negative. The CAPM would indicate that the required rate of return on the stock should be less than the risk-free rate for a well-diversified investor, assuming investors expect the observed relationship to continue on into the future. Correct Answer: Suppose you plotted the returns of a given stock against those of the market, and you found that the slope of the regression line was negative. The CAPM would indicate that the required rate of return on the stock should be less than the risk-free rate for a well-diversified investor, assuming investors expect the observed relationship to continue on into the future. • Question 9 0 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: If you were restricted to investing in publicly traded common stocks, yet you wanted to minimize the riskiness of your portfolio as measured by its beta, then according to the CAPM theory you should invest an equal amount of money in each stock in the market. That is, if there were 10,000 traded stocks in the world, the least risky possible portfolio would include some shares of each one. Correct Answer: If you formed a portfolio that consisted of all stocks with betas less than 1.0, which is about half of all stocks, the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, and that portfolio would have less risk than a portfolio that consisted of all stocks in the market. • Question 10 4 out of 4 points Assume that the risk-free rate remains constant, but the market risk premium declines. Which of the following is most likely to occur? Answer Selected Answer: Correct Answer: • Question 11 4 out of 4 points The required return on a stock with beta < 1.0 will decline. The required return on a stock with beta < 1.0 will decline. Which of the following statements is CORRECT? Answer Selected Answer: A security's beta measures its non-diversifiable, or market, risk relative to that of an average stock. Correct Answer: A security's beta measures its non-diversifiable, or market, risk relative to that of an average stock. • Question 12 4 out of 4 points If markets are in equilibrium, which of the following conditions will exist? Answer Selected Answer: Each stock's expected return should equal its required return as seen by the marginal investor. Correct Answer: Each stock's expected return should equal its required return as seen by the marginal investor. • Question 13 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: An investor can eliminate almost all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks. Correct Answer: An investor can eliminate almost all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks. • Question 14 4 out of 4 points Recession, inflation, and high interest rates are economic events that are best characterized as being Answer Selected Answer: Correct Answer: • Question 15 4 out of 4 points among the factors that are responsible for market risk. among the factors that are responsible for market risk. Which of the following is most likely to occur as you add randomly selected stocks to your portfolio, which currently consists of 3 average stocks? Answer Selected Answer: The diversifiable risk of your portfolio will likely decline, but the expected market risk should not change. Correct Answer: The diversifiable risk of your portfolio will likely decline, but the expected market risk should not change. • Question 16 4 out of 4 points A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price? Answer Selected Answer: Correct Answer: • Question 17 4 out of 4 points $18.29 $18.29 Which of the following statements is CORRECT, assuming stocks are in equilibrium? Answer Selected Answer: The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield. Correct Answer: The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield. • Question 18 4 out of 4 points Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? Answer Selected Answer: Correct Answer: • Question 19 4 out of 4 points A's expected dividend is $0.75 and B's expected dividend is $1.20. A's expected dividend is $0.75 and B's expected dividend is $1.20. Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT? Answer Selected Answer: If one stock has a higher dividend yield, it must also have a lower dividend growth rate. Correct Answer: If one stock has a higher dividend yield, it must also have a lower dividend growth rate. • Question 20 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock. Correct Answer: The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock. • Question 21 4 out of 4 points Franklin Corporation is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate? Answer Selected Answer: Correct Answer: • Question 22 4 out of 4 points 6.65% 6.65% Stock X has the following data. Assuming the stock market is efficient and the stock is in equilibrium, which of the following statements is CORRECT? Expected dividend, D1 $3.00 Current Price, P0 $50 Expected constant growth rate 6.0% Answer Selected Answer: The stock's expected dividend yield and growth rate are equal. Correct Answer: • Question 23 4 out of 4 points The stock's expected dividend yield and growth rate are equal. Stocks A and B have the same price and are in equilibrium, but Stock A has the higher required rate of return. Which of the following statements is CORRECT? Answer Selected Answer: If Stock A has a lower dividend yield than Stock B, its expected capital gains yield must be higher than Stock B's. Correct Answer: If Stock A has a lower dividend yield than Stock B, its expected capital gains yield must be higher than Stock B's. • Question 24 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: The preferred stock of a given firm is generally less risky to investors than the same firm's common stock. Correct Answer: The preferred stock of a given firm is generally less risky to investors than the same firm's common stock. • Question 25 4 out of 4 points Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? X Y Price $30 $30 Expected growth (constant) 6% 4% Required return 12% 10% Answer Selected Answer: One year from now, Stock X's price is expected to be higher than Stock Y's price. Correct Answer: One year from now, Stock X's price is expected to be higher than Stock Y's price. • Question 26 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock. Correct Answer: Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock. • Question 27 4 out of 4 points Merrell Enterprises' stock has an expected return of 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT? Answer Selected Answer: Correct Answer: • Question 28 4 out of 4 points The stock price is expected to be $54 a share one year from now. The stock price is expected to be $54 a share one year from now. Which of the following statements is CORRECT? Answer Selected Answer: The stock valuation model, P0 = D1/(rs - g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate. Correct Answer: The stock valuation model, P0 = D1/(rs - g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate. • Question 29 4 out of 4 points A share of Lash Inc.'s common stock just paid a dividend of $1.00. If the expected long- run growth rate for this stock is 5.4%, and if investors' required rate of return is 11.4%, what is the stock price? Answer Selected Answer: Correct Answer: • Question 30 4 out of 4 points $17.57 $17.57 A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price? Answer Selected Answer: Correct Answer: $25.57 $25.57 FIN534 QUIZ 5 • Question 1 4 out of 4 points Braddock Construction Co.'s stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10%, to $22 a share? Answer Selected Answer: The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10%. Correct Answer: The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10%. • Question 2 4 out of 4 points Suppose you believe that Basso Inc.'s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $3.10 you can buy a 5-month call option giving you the right to buy 1 share at a price of $25 per share. If you buy this option for $3.10 and Basso's stock price actually rises to $45, what would your pre-tax net profit be? Answer Selected Answer: Correct Answer: • Question 3 4 out of 4 points $16.90 $16.90 Other things held constant, the value of an option depends on the stock's price, the risk- free rate, and the Answer Selected Answer: Correct Answer: • Question 4 4 out of 4 points All of the above. All of the above. The current price of a stock is $50, the annual risk-free rate is 6%, and a 1-year call option with a strike price of $55 sells for $7.20. What is the value of a put option, assuming the same strike price and expiration date as for the call option? Answer Selected Answer: Correct Answer: • Question 5 4 out of 4 points $9.00 $9.00 Which of the following statements is CORRECT? Answer Selected Answer: An option holder is not entitled to receive dividends unless he or she exercises their option before the stock goes ex dividend. Correct Answer: An option holder is not entitled to receive dividends unless he or she exercises their option before the stock goes ex dividend. • Question 6 4 out of 4 points Which of the following statements is CORRECT? Answer Selected Answer: The market value of an option depends in part on the option's time to maturity and also on the variability of the underlying stock's price. Correct Answer: The market value of an option depends in part on the option's time to maturity and also on the variability of the underlying stock's price. • Question 7 4 out of 4 points The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binomial model, what is the option's value? (Hint: Use daily compounding.) Answer Selected Answer: Correct Answer: • Question 8 4 out of 4 points $2.99 $2.99 Which of the following statements is most correct, holding other things constant, for XYZ Corporation's traded call options? Answer Selected Answer: The price of these call options is likely to rise if XYZ's stock price rises. Correct Answer: • Question 9 4 out of 4 points The price of these call options is likely to rise if XYZ's stock price rises. Cazden Motors' stock is trading at $30 a share. Call options on the company's stock are also available, some with a strike price of $25 and some with a strike price of $35. Both options expire in three months. Which of the following best describes the value of these options? Answer Selected Answer: If Cazden's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5. Correct Answer: If Cazden's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5. • Question 10 4 out of 4 points Suppose you believe that Florio Company's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $5.10 you could buy a 5-month put option giving you the right to sell 1 share at a price of $85 per share. If you bought this