Liberty University BUSI 530 Exam 3 Liberty University BUSI 530 Exam 3 Item 1 3.5/3.5 points awarded Item Scored Item 1 Item 1 3.5 of 3.5 points awarded Item Scored Which one of the following statements is incorrect concerning stock indexes? Multiple Choice Indexes have been developed for foreign stocks. Some indexes cover only a specific market sector. Most indexes include all of the publicly-traded common stocks. Correct Some indexes are equally weighted. Item 2 Item 2 3.5 of 3.5 points awarded Item Scored Macro risks are faced by all common stock investors. True or False 3 3.5/3.5 points awarded Item Scored Item 3 Item 3 3.5 of 3.5 points awarded Item Scored Although several stock indexes are available to inform investors of market changes, the Dow Jones Industrial Average: Multiple Choice is the broadest-based of the market indexes. is the only reliable market index. accounts for approximately 90% of U.S. market value. is one of the best-known of the U.S. market indexes. 3.5/3.5 points awarded Item Scored Item 4 Item 4 3.5 of 3.5 points awarded Item Scored Which one of the following firms is likely to exhibit the least macro risk exposure? Multiple Choice Construction company Airline company Gold mining company Correct Auto manufacturer Item 5 Item 5 3.5 of 3.5 points awarded Item Scored The average of the betas for all stocks is: Multiple Choice greater than 1.0; most stocks are aggressive. less than 1.0; most stocks are defensive. unknown; betas are continually changing. exactly 1.0; these stocks represent the market. Item 6 Item 6 3.5 of 3.5 points awarded Item Scored If the line measuring a stock’s historic returns against the market’s historic returns has a slope greater than 1.0, then the: Multiple Choice stock is currently underpriced. market risk premium is increasing. stock has a significant amount of specific risk. stock has a beta exceeding 1.0. Item 7 Item 7 3.5 of 3.5 points awarded Item Scored The security market line shows how the expected rate of return depends on beta. True or False 8 3.5/3.5 points awarded Item Scored Item 8 If the slope of the line measuring a stock’s returns against the market’s returns is positive, then the stock: Multiple Choice has a beta greater than 1.0. has no specific risk. has a positive beta. Correct plots above the security market line. Item 9 Item 9 4.75 of 4.75 points awarded Item Scored WACC can be used to determine the value of a firm by discounting the firm’s: Multiple Choice after-tax net profits. pretax profits. cash inflows. free cash flows. Item 10 Item 10 4.75 of 4.75 points awarded Item Scored The company cost of capital is the return that is expected on a portfolio of the company’s: Multiple Choice existing securities. Correct equity securities. debt securities. proposed securities. Item 11 Item 11 3.5 of 3.5 points awarded Item Scored If 100 million shares of common stock are issued with a par value of $2 and additional paid in capital is $800 million, the total par value of the issued shares is: Multiple Choice $200 million. Correct $600 million. $800 million. $1 billion. Explanation Total par value = 100m × $2 = $200m Item 12 Item 12 3.5 of 3.5 points awarded Item Scored Companies sometimes sell the cash flows from a bundle of loans. Such bonds are known as asset-backed bonds. True or False Item 13 Item 13 3.5 of 3.5 points awarded Item Scored Funded debt refers to those liabilities that: Multiple Choice have established a sinking fund for repayment. are not callable at the option of the firm. are secured by specific collateral. have a maturity of more than one year remaining. Item 14 Item 14 3.5 of 3.5 points awarded Item Scored Dividends represent an important component of a firm’s net book value. True or False 15 3.5/3.5 points awarded Item Scored Item 15 Item 15 3.5 of 3.5 points awarded Item Scored A stock’s par value is the: Multiple Choice m…
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