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BU5201 Past Year Mid-Term Test Practice Questions(1)

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81 views

BU5201 Past Year Mid-Term Test Practice Questions(1)

Uploaded by

mile4chan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BU5201: Business Finance

Past Year Mid-Term Questions

(1) Which of the following statement(s) is/are true?


(i) Bond prices are inversely related to interest rates
(ii) Long-term bonds have a lower reinvestment risk than short-term bonds
(iii) Longer term bonds are less sensitive to changes in interest rates

(A) (i) is true


(B) (i) and (ii) are true
(C) (i) and (iii) are true
(D) (ii) and (iii) are true
(E) (i), (ii) and (iii) are true
(F) None of the above is true

(2) Which of the following statement(s) is/are true?


(i) Market efficiency requires the market price of a stock to be equal to its intrinsic
value at any point in time
(ii) The size of the company can affect market efficiency
(iii) If a market is efficient, it is not possible to consistently outperform the market

(A) (i) is true


(B) (i) and (ii) are true
(C) (i) and (iii) are true
(D) (ii) and (iii) are true
(E) (i), (ii) and (iii) are true
(F) None of the above is true

(3) Your dad has decided to give you $1,000 every year perpetually, with the first payment
starting today. If the banks are paying an annual interest rate of 9%, how much is this
stream of cashflows worth to you today? (rounded to the nearest thousand dollars)

(A) $ 7,000
Perpetuities: PMT/I
(B) $ 8,000 1,000/0.09 = 11,111
(C) $ 9,000
(D) $10,000
(E) $11,000
(F) $12,000

(4) A company has issued a bond that pays 5% coupons annually, matures in 10 years, and
has a par value of $1,000. The expected return for this bond is 6%, while your required
return is 8%. How much would you be willing to pay for this bond if you intend to sell
it after 5 years? (rounded to the nearest ten dollars)

(A) $800
(B) $850
(C) $870
(D) $880
(E) $930
(F) $960
(5) You recently sold 1,000 shares of Microsoft stock, and made the transfer through a
broker. This is a type of:

(A) Money market transaction.


(B) Futures market transaction.
(C) Primary market transaction.
(D) Secondary market transaction
(E) Over-the-counter market transaction.
(F) None of the above.

(6) BF Corporation has been incorporated recently by 5 investors, each of whom will
receive 20% of the company. The firm expects to earn $1,000,000 after corporate taxes
each year. The corporate tax rate and personal tax rate is 20% and 30%, respectively.
All of the firm’s after-tax income will be paid out as dividends to its investors. The
investors will be subjected to personal taxes on whatever they receive. How much
additional spendable income will each investor receive if the business is organized as a
partnership rather than as a corporation?

(A) $14,000
(B) $28,000
(C) $35,000
(D) $140,000
(E) $175,000
(F) None of the above is true.

(7) Chicago Corporation has the following income statement.

What is the after-tax operating income of BFF Corporation?

(A) $2,408.38
(B) $3,705.20
(C) $4,434.95
(D) $5,790.20
(E) $6,500
(F) None of the above.

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