Mid-Term Exam Spring 2002 FINC 6532 Answers
Closed Book
1. c. Shareholder Wealth Maximization.
2. What is a bond?
Debt instrument, has limited life, usually makes fixed payments to investors during term of bond,
has priority over equity in bankruptcy.
3 b. Exposure to taxation of corporate earnings and stockholder dividend income.
4. b. False
5. A, note this question is from Chapter 3
6. equal to. less than, note this question is from Chapter 3
7. List the four required financial statements required for external reporting purposes for publicly
traded companies in the United States.
Balance Sheet, Income Statement, Statement of Cash Flows, Statement of Retained Earnings.
8. Not covered in this edition of the textbook
9. See the list in the textbook.
10. d. Purchase additional inventory on credit (accounts payable).
11. (4 points, circle the correct answer) Interpret the below ratios by performing a trend analysis.
1999 2000 Industry This ratio is:
Current Ratio 3.1 3.3 2.7 improving
Fixed Charge Coverage 4.0 3.0 4.5 getting worse
Return on Assets 3.7% 9.2% 6.1% improving
P/E 17.2 21.3 25.0 improving
12. e. Short-term debt securities.
13. C, note this question is from Chapter 3
14. a. The SML would shift up and the slope would increase, note this question is from Chapter
3
15. a. A Treasury bond paying 6.2% interest = __4.03_________% after-tax yield.
b. A Municipal bond paying 7.2% interest = __7.2_________% after-tax yield.
c. A Corporate bond paying 8.2% interest = __5.33____% after-tax yield.
16. 3000+4000-5000-600=1400, hint, check the format of the Statement of Cash Flows
17. (4 points) What is the nominal risk-free rate, kRF? 3+8=11
Assume a liquid market in long-term treasury bonds exists, what is the interest rate on a 20-year
Treasury securities, or T-bonds? 3+8+1=12
