Any stock mutual fund investing in a variety of industries in the United States.

1) Which of the following statements is true?
a) The Principle of Diversification states that investors arebetter off by investing in two or three good assets even within thesame industry.
b) The Principle of Diversification states that investors arebetter off by investing in different types of assets.
c) The Principle of Diversification states that investors arebetter off by investing in risk-free assets.
d) The Principle of Diversification states that investors arebetter off by investing in an industry of their choice.

2) Which of the following investments is more likely to give you adiversified common stock portfolio?
a) An index fund investing in stocks in the S&P 500 and in amoney market fund.
b) Any stock mutual fund investing in a variety of industries in the United States.
c) A mutual fund investing in European and Asian stocks.
d) An international mutual fund investing in a wide variety ofstocks within and outside one’s country.

3) Which of the following assets would pay a dividend?
a) U.S. Treasury security
b) Municipal bond
c) Share of preferred stock
d) Corporate bond

4) The market price of a bond in today’s dollars is the futurevalue of its promised future coupon and principal paymentsT/F

5) The dot-com bubble reminds us about what?
a) Capital markets are probably never efficient.
b) Capital markets are always inefficient.
c) Capital markets are not always efficient.
d) All of these

6) A stock with a beta less than 1.0 will rise or fall more thanthe market. T/F

7) Which of the following statements is false?
a) Treasury bills (T-bills) have an original maturity of one yearor less when they are issued.
b) Treasury notes and bonds have an original maturity of one yearor more.
c) Negotiable CDs are time deposits issued by domestic or foreigncommercial banks that can be sold to a third party.
d) Munis are long-term securities, issued by state and localgovernments, and are exempt from federal taxation.

8) The weighted average cost of capital (WACC) can be computedusing the formula: WACC = (1 – L)re + L(1 – T)rd. Which (if any) ofthe following statements is true?
a) L is equity divided by firm value.
b) T is the personal tax rate.
c) re is the required return on debt.
d) None of these

9) Net present value (NPV) is the difference between:
a) What a capital budgeting project produces and what it is worth(its market value)
b) What a capital budgeting project costs and what it is worth (itsmarket value)
c) What a capital budgeting project produces and what it ispays
d) Cash flows before taxes and cash flows after taxes

10) The NPV for a project equals the present value of the futurecash flows divided by the initial investment. T/F

11) Firms that use debt financing .
a) Can always claim the interest deductions.
b) Must generate sufficient income from operations to claim thededuction.
c) Must have high operating leverage.
d) All of these

12) The use of debt in the firm’s capital structure is called:
a) Homemade leverage.
b) Operating leverage.
c) Financial leverage.
d) Decreasing leverage.

13) A firm’s capital structure policy is an established guide forthe firm to determine the amount of money it will pay out asdividends. T/F

14) Because zero-coupon bonds make only a single payment atmaturity, they are the deepest-discount bonds possible.T/F

15) Which of the below is an example of one acting on the Principle of Market Efficiency.
a) You are going through Wal-Mart and the sacker tells you about a“hot” Brazilian fund. You call up your broker and order 100shares.
b) Your sister-in-law is visiting. She tells you that her boss toldher to invest in IBM. You go out and buy 100 shares of IBM.
c) You are at a barbeque and an acquaintance tells you they justread in The Wall Street Journal that Acme, Inc. has increased itsdividend. Two days later you buy 100 shares of Acme.
d) Whenever you hear a “hot” tip, you assume it is too late for youto expect to make a profit.

16) A yield curve or term structure of interest rates is:_________
a) Upward sloping if yields increase with maturity.
b) Downward sloping if yields decrease with maturity
c) Upward sloping if yields decrease with maturity
d) Both a & b are correct

17) If the yield to maturity for a bond is less than the bond’scoupon rate, then the market value of the bond is: _______
a) Greater than the par value.
b) Less than the par value.
c) Equal to the par value.
d) Cannot tell

1) Which of the following statements is true?
a) The Principle of Diversification states that investors arebetter off by investing in two or three good assets even within thesame industry.
b) The Principle of Diversification states that investors arebetter off by investing in different types of assets.
c) The Principle of Diversification states that investors arebetter off by investing in risk-free assets.
d) The Principle of Diversification states that investors arebetter off by investing in an industry of their choice.

2) Which of the following investments is more likely to give you adiversified common stock portfolio?
a) An index fund investing in stocks in the S&P 500 and in amoney market fund.
b) Any stock mutual fund investing in a variety of industries inthe United States.
c) A mutual fund investing in European and Asian stocks.
d) An international mutual fund investing in a wide variety ofstocks within and outside one’s country.

3) Which of the following assets would pay a dividend?
a) U.S. Treasury security
b) Municipal bond
c) Share of preferred stock
d) Corporate bond

4) The market price of a bond in today’s dollars is the futurevalue of its promised future coupon and principal paymentsT/F

5) The dot-com bubble reminds us about what?
a) Capital markets are probably never efficient.
b) Capital markets are always inefficient.
c) Capital markets are not always efficient.
d) All of these

6) A stock with a beta less than 1.0 will rise or fall more thanthe market. T/F

7) Which of the following statements is false?
a) Treasury bills (T-bills) have an original maturity of one yearor less when they are issued.
b) Treasury notes and bonds have an original maturity of one yearor more.
c) Negotiable CDs are time deposits issued by domestic or foreigncommercial banks that can be sold to a third party.
d) Munis are long-term securities, issued by state and localgovernments, and are exempt from federal taxation.

8) The weighted average cost of capital (WACC) can be computedusing the formula: WACC = (1 – L)re + L(1 – T)rd. Which (if any) ofthe following statements is true?
a) L is equity divided by firm value.
b) T is the personal tax rate.
c) re is the required return on debt.
d) None of these

9) Net present value (NPV) is the difference between:
a) What a capital budgeting project produces and what it is worth(its market value)
b) What a capital budgeting project costs and what it is worth (itsmarket value)
c) What a capital budgeting project produces and what it ispays
d) Cash flows before taxes and cash flows after taxes

10) The NPV for a project equals the present value of the futurecash flows divided by the initial investment. T/F

11) Firms that use debt financing .
a) Can always claim the interest deductions.
b) Must generate sufficient income from operations to claim thededuction.
c) Must have high operating leverage.
d) All of these

12) The use of debt in the firm’s capital structure is called:
a) Homemade leverage.
b) Operating leverage.
c) Financial leverage.
d) Decreasing leverage.

13) A firm’s capital structure policy is an established guide forthe firm to determine the amount of money it will pay out asdividends. T/F

14) Because zero-coupon bonds make only a single payment atmaturity, they are the deepest-discount bonds possible.T/F

15) Which of the below is an example of one acting on the Principleof Market Efficiency.
a) You are going through Wal-Mart and the sacker tells you about a“hot” Brazilian fund. You call up your broker and order 100shares.
b) Your sister-in-law is visiting. She tells you that her boss toldher to invest in IBM. You go out and buy 100 shares of IBM.
c) You are at a barbeque and an acquaintance tells you they justread in The Wall Street Journal that Acme, Inc. has increased itsdividend. Two days later you buy 100 shares of Acme.
d) Whenever you hear a “hot” tip, you assume it is too late for youto expect to make a profit.

16) A yield curve or term structure of interest rates is:_________
a) Upward sloping if yields increase with maturity.
b) Downward sloping if yields decrease with maturity
c) Upward sloping if yields decrease with maturity
d) Both a & b are correct

17) If the yield to maturity for a bond is less than the bond’scoupon rate, then the market value of the bond is: _______
a) Greater than the par value.
b) Less than the par value.
c) Equal to the par value.
d) Cannot tell

1) Which of the following statements is true?
a) The Principle of Diversification states that investors arebetter off by investing in two or three good assets even within thesame industry.
b) The Principle of Diversification states that investors arebetter off by investing in different types of assets.
c) The Principle of Diversification states that investors arebetter off by investing in risk-free assets.
d) The Principle of Diversification states that investors arebetter off by investing in an industry of their choice.

2) Which of the following investments is more likely to give you adiversified common stock portfolio?
a) An index fund investing in stocks in the S&P 500 and in amoney market fund.
b) Any stock mutual fund investing in a variety of industries inthe United States.
c) A mutual fund investing in European and Asian stocks.
d) An international mutual fund investing in a wide variety ofstocks within and outside one’s country.

3) Which of the following assets would pay a dividend?
a) U.S. Treasury security
b) Municipal bond
c) Share of preferred stock
d) Corporate bond

4) The market price of a bond in today’s dollars is the futurevalue of its promised future coupon and principal paymentsT/F

5) The dot-com bubble reminds us about what?
a) Capital markets are probably never efficient.
b) Capital markets are always inefficient.
c) Capital markets are not always efficient.
d) All of these

6) A stock with a beta less than 1.0 will rise or fall more thanthe market. T/F

7) Which of the following statements is false?
a) Treasury bills (T-bills) have an original maturity of one yearor less when they are issued.
b) Treasury notes and bonds have an original maturity of one yearor more.
c) Negotiable CDs are time deposits issued by domestic or foreigncommercial banks that can be sold to a third party.
d) Munis are long-term securities, issued by state and localgovernments, and are exempt from federal taxation.

8) The weighted average cost of capital (WACC) can be computedusing the formula: WACC = (1 – L)re + L(1 – T)rd. Which (if any) ofthe following statements is true?
a) L is equity divided by firm value.
b) T is the personal tax rate.
c) re is the required return on debt.
d) None of these

9) Net present value (NPV) is the difference between:
a) What a capital budgeting project produces and what it is worth(its market value)
b) What a capital budgeting project costs and what it is worth (itsmarket value)
c) What a capital budgeting project produces and what it ispays
d) Cash flows before taxes and cash flows after taxes

10) The NPV for a project equals the present value of the futurecash flows divided by the initial investment. T/F

11) Firms that use debt financing .
a) Can always claim the interest deductions.
b) Must generate sufficient income from operations to claim thededuction.
c) Must have high operating leverage.
d) All of these

12) The use of debt in the firm’s capital structure is called:
a) Homemade leverage.
b) Operating leverage.
c) Financial leverage.
d) Decreasing leverage.

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