This document provides a quiz for a finance course (FINC600) covering topics like compound interest, net present value, capital structure, bond pricing, portfolio returns, and cost of capital. It contains 25 multiple choice questions testing understanding of these concepts. Contact information is provided to purchase the quiz answers.

1. FINC600 Midterm Quiz/FINC 600
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FINC600 Midterm Quiz
Part 1 of 1 – Week 4 REQUIRED Quiz 93.5/ 100.0 Points
Question 1 of 25
4.0/ 4.0 Points
The conceptof compound interestis mostappropriatelydescribed as:
A.Interest earned on an investment
B.The total amountof interestearned over the life of an investment
Correct C.Interestearned on interest
D.None of the above
Question 2 of 25
4.0/ 4.0 Points
Which of the following investmentrules does notuse the time value of the money concept?
A.Net presentvalue
B.Internal rate of return
Correct C.The payback period
D.All of the above use the time value concept
Question 3 of 25
4.0/ 4.0 Points
The unique risk is also called the:

2. A.Unsystematic risk
B.Diversifiable risk
C.Firm specific risk
Correct D.All of the above
Question 4 of 25
2.0/ 4.0 Points
What are some ofthe importantpoints to remember while estimating the cash flows ofa project?
The mostimportantpoints are
1) They are estimates.So there can be deviations
2) Some huge loss maycompletelychange the return from product.
3) Other risks like marketrisks,reinvestmentrisk etc. may affect the cash flow pattern
Question 5 of 25
4.0/ 4.0 Points
A bond with duration of 10 years has yield to maturity of 10%. This bond’s volatilityis:
Correct A.9.09%
B.6.8%
C.14.6%
D.6.0%
Question 6 of 25
4.0/ 4.0 Points
Major disadvantages ofthe Sarbanes-Oxley Act of 2002 (SOX) are the following except:
Correct A.good investor protection
B.increase in compliance costs
C.that it constrains managers’ abilityto run the firm
D.that it may discourage developmentofhuman capital in the firm
Question 7 of 25
4.0/ 4.0 Points
According to the net presentvalue rule,an investmentin a projectshould be made ifthe:
A.Net presentvalue is greater than the costof investment
B.Net presentvalue is greater than the presentvalue of cash flows
Correct C.Net presentvalue is positive
D.Net presentvalue is negative

3. Question 8 of 25
0.0/ 4.0 Points
If the Wall Street Journal Quotation for a companyhas the following values close:55.14;Net chg: = + 1.04; then the
closing price for the stock for the previous trading day was?
A.$56.18
B.$54.10
Incorrect C.$55.66
D.None of the above.
Question 9 of 25
4.0/ 4.0 Points
For example,in the case of an electric car project, which of the following cash flows should be treated as incremental
flows when deciding whether to go ahead with the project?
A.The cost of research and developmentundertaken for developing the electric car in the pastthree years
B.The annual depreciation charge
Correct C.Tax savings resulting from the depreciation charges
D.Dividend payments
Question 10 of 25
4.0/ 4.0 Points
The following are some ofthe actions shareholders can take if the corporation is notperforming well:
A.Replace the board of directors in an election.
B.Force the board of directors to change the managementteam.
C.Sell their shares ofstock in the corporation.
Correct D.Any of the above
Question 11 of 25
4.0/ 4.0 Points
The mixture of debt and equity, used to finance a corporation is also known as:
A.Capital budgeting
Correct B.Capital structure
C.Investing
D.Treasury
Question 12 of 25
3.5/ 4.0 Points
Discuss the general principle in the valuation of a common stock.

4. Question 13 of 25
4.0/ 4.0 Points
The managers ofa firm can maximize stockholder wealth by:
Correct A.Taking all projects with positive NPVs
B.Taking all projects with NPVs greater than the cost of investment
C.Taking all projects with NPVs greater than presentvalue of cash flow
D.All of the above
Answer Key: A
Question 14 of 25
4.0/ 4.0 Points
Florida Company(FC) and Minnesota Company(MC) are both service companies.Their historical return for the past
three years are: FC: – 5%,15%,20%; MC: 8%, 8%, 20%.If FC and MC are combined in a portfolio with 50% of the
funds invested in each, calculate the expected return on the portfolio.
A.12%
B.10%
Correct C.11%
D.None of the above.
Question 15 of 25
4.0/ 4.0 Points
The marketvalue of XYZ Corporation’s common stock is 40 million and the marketvalue of the risk-free debt is 60
million.The beta of the company’s common stock is 0.8,and the expected m arketrisk premium is 10%.If the
Treasury bill rate is 6%, whatis the firm’s costof capital? (Assume no taxes.)
Correct A.9.2%
B.14%
C.8.1%
D.None of the above
Question 16 of 25
4.0/ 4.0 Points
The following are importantfunctions offinancial markets: I) Source of financing;II) Provide liquidity; III) Reduce risk;
IV) Source of information
A.I only
B.I and II only
Correct C.I, II, III, and IV
D.IV only
Question 17 of 25
4.0/ 4.0 Points

5. Which of the following portfolios have the leastrisk?
Correct A.A portfolio of Treasurybills
B.A portfolio of long-term United States Governmentbonds
C.Portfolio of U.S. common stocks ofsmall firms
D.None of the above
Question 18 of 25
4.0/ 4.0 Points
PresentValue of $100,000 that is,expected, to be received at the end of one year at a discountrate of 25% per year
is:
Correct A.$80,000
B.$125,000
C.$100,000
D.None of the above
Question 19 of 25
4.0/ 4.0 Points
Discuss some ofthe disadvantages ofthe payback rule.
The disadvantages are thatit does not take the time value of moneyinto accountand also does notuse all the cash
flow. It has limited applications such as small projects
Feedback:The disadvantages are thatit does nottake the time value of money into account and also does notuse
all the cash flow. It has limited applications such as small projects.
Question 20 of 25
4.0/ 4.0 Points
What is the relationship between interestrates and bond prices?
Question 21 of 25
4.0/ 4.0 Points
Spill Oil Company’s stocks had -8%,11% and 24% rates of return during the lastthree years respectively; calculate
the average rate of return for the stock.
A.8% per year
Correct B.9% per year
C.11% per year
D.None of the above
Question 22 of 25
4.0/ 4.0 Points

6. Which of the following statements regarding the discounted payback period rule is true?
Correct A.The discounted payback rule uses the time value of moneyconcept.
B.The discounted payback rule is better than the NPV rule.
C.The discounted payback rule considers all cash flows.
D.The discounted payback rule exhibits the value additive property.
Question 23 of 25
4.0/ 4.0 Points
The NPV value obtained by discounting nominal cash flows using the nominal discountrate is the: I) same as the
NPV value obtained by discounting real cash flows using the real discountrate II) same as the NPV value obtained
by discounting real cash flows using the nominal discountrate III) same as the NPV value obtained by discounting
nominal cash flows using the real discountrate
Correct A.I only
B.II only
C.III only
D.II and III only
Question 24 of 25
4.0/ 4.0 Points
Market risk is also called:I) systematic risk,II) undiversifiable risk,III) firm specific risk.
A.I only
B.II only
C.III only
Correct D.I and II only
Question 25 of 25
4.0/ 4.0 Points
The costof a resource thatmay be relevant to an investmentdecision even when no cash changes hand is called a
(an):
A.Sunk cost
Correct B.Opportunity cost
C.Working capital
D.None of the above