FIN 6100 FINAL EXAMS ANSWERS AND QUESTIONS
SET A+
✔✔Inventory Turnover - ✔✔COGS/Average Inventory
✔✔Days in inventory - ✔✔365/inventory turnover
✔✔Payables Turnover - ✔✔COGS/Accounts Payable
✔✔Days Payable Outstanding - ✔✔365/Accounts Payable Turnover
✔✔Expected Rate of Return - ✔✔(Dividend/P0)+(P1-P0/P0)
✔✔Stock Price - ✔✔Dividend/WACC-growth
✔✔Cost of Debt (Interest Expense) - ✔✔Interest expense/long term debt
✔✔Cost of Debt - YTM Approach - ✔✔PV
✔✔ A bond that makes no coupon payments and is initially priced at a deep discount is
called a _____ bond. - ✔✔zero coupon
✔✔The written agreement between a corporation and the bondholder's representative is
called the - ✔✔indenture
✔✔Bonds below BBB or Baa are called - ✔✔junk bonds
✔✔If a bond was issued at par, the quoted price of the bond will not necessarily equal
the par value of the bond after issuance because - ✔✔market interest rates have
changes and or interest have accrued
✔✔The call policy that maximizes shareholder wealth is to call a bond issue when the -
✔✔bond's price equals or exceeds the call price
, ✔✔Floating rate bonds are bonds with - ✔✔floating coupon rates tied to an interest rate
index
✔✔A bond has a call provision. The call provision allows the _________ to _________
the bonds before maturity - ✔✔issuer; call in
✔✔If its yield to maturity is less than its coupon rate, a bond will sell at a _____, and
increases in market interest rates will _____ - ✔✔premium; decrease this premium
✔✔Debt ratings issued by companies such as Moody's and Standard and Poor's
depend on - ✔✔the probability of firm default and protection given in the indenture in
case of default
✔✔All else constant, a bond will sell at ______ when the yield to maturity is _____ the
coupon rate - ✔✔discount; higher than
✔✔Suppose that a bond is issued at its par value or face value. If market interest rates
rise after the issue, the price of the bond will likely - ✔✔fall below its par value
✔✔The efficient portfolios - ✔✔provide highest returns for a given level of risk and
provide least risk for a given level of returns
✔✔The correlation meausres the - ✔✔direction of movement between the returns of two
stocks
✔✔Maximum diversification is obtained by combining two stocks with a correl.
coefficient equal to - ✔✔-1
✔✔Beta of the market portfolio is - ✔✔+1
✔✔Beta of treasury bills portfolio is - ✔✔0
✔✔The CAPM states that - ✔✔the expected risk premium on an investment is
proportion to beta
✔✔Bet measure indicates - ✔✔the change in the rate of return on an investment for a
given change in the market return
✔✔T/F Financial leverage affects the risk of the firm's assets - ✔✔False
✔✔A stock with a beta of zero would be expected to - ✔✔have a rate of return equal to
the risk-free rate
SET A+
✔✔Inventory Turnover - ✔✔COGS/Average Inventory
✔✔Days in inventory - ✔✔365/inventory turnover
✔✔Payables Turnover - ✔✔COGS/Accounts Payable
✔✔Days Payable Outstanding - ✔✔365/Accounts Payable Turnover
✔✔Expected Rate of Return - ✔✔(Dividend/P0)+(P1-P0/P0)
✔✔Stock Price - ✔✔Dividend/WACC-growth
✔✔Cost of Debt (Interest Expense) - ✔✔Interest expense/long term debt
✔✔Cost of Debt - YTM Approach - ✔✔PV
✔✔ A bond that makes no coupon payments and is initially priced at a deep discount is
called a _____ bond. - ✔✔zero coupon
✔✔The written agreement between a corporation and the bondholder's representative is
called the - ✔✔indenture
✔✔Bonds below BBB or Baa are called - ✔✔junk bonds
✔✔If a bond was issued at par, the quoted price of the bond will not necessarily equal
the par value of the bond after issuance because - ✔✔market interest rates have
changes and or interest have accrued
✔✔The call policy that maximizes shareholder wealth is to call a bond issue when the -
✔✔bond's price equals or exceeds the call price
, ✔✔Floating rate bonds are bonds with - ✔✔floating coupon rates tied to an interest rate
index
✔✔A bond has a call provision. The call provision allows the _________ to _________
the bonds before maturity - ✔✔issuer; call in
✔✔If its yield to maturity is less than its coupon rate, a bond will sell at a _____, and
increases in market interest rates will _____ - ✔✔premium; decrease this premium
✔✔Debt ratings issued by companies such as Moody's and Standard and Poor's
depend on - ✔✔the probability of firm default and protection given in the indenture in
case of default
✔✔All else constant, a bond will sell at ______ when the yield to maturity is _____ the
coupon rate - ✔✔discount; higher than
✔✔Suppose that a bond is issued at its par value or face value. If market interest rates
rise after the issue, the price of the bond will likely - ✔✔fall below its par value
✔✔The efficient portfolios - ✔✔provide highest returns for a given level of risk and
provide least risk for a given level of returns
✔✔The correlation meausres the - ✔✔direction of movement between the returns of two
stocks
✔✔Maximum diversification is obtained by combining two stocks with a correl.
coefficient equal to - ✔✔-1
✔✔Beta of the market portfolio is - ✔✔+1
✔✔Beta of treasury bills portfolio is - ✔✔0
✔✔The CAPM states that - ✔✔the expected risk premium on an investment is
proportion to beta
✔✔Bet measure indicates - ✔✔the change in the rate of return on an investment for a
given change in the market return
✔✔T/F Financial leverage affects the risk of the firm's assets - ✔✔False
✔✔A stock with a beta of zero would be expected to - ✔✔have a rate of return equal to
the risk-free rate
