only
Which of the following statements regarding interest tax shields is correct?
Selected
Answer: Taxes are reduced by the amount of the interest on a
firm’s debt.
Correct
Answer: Taxable income is reduced by the amount of interest on a
firm’s debt.
The term "financial ...
FIN534 FINAL EXAM
QUESTIONS AND ANSWER
• Question 1
5 out of 5 points
Which of the following variables does NOT affect the value of a stock option?
Selected
Answer:
The predicted future price of the
underlying stock
Correct
Answer:
The predicted future price of the
underlying stock
• Question 2
5 out of 5 points
What is the holding period return for the year on a bond with a par value of $1,000
and a coupon rate of 8.5% if its price at the beginning of the year was $1,215 and its
price at the end of the year was $1,020? Assume interest is paid annually.
Selected
Answer:
−9.05
%
Correct
Answer:
−9.05
%
• Question 3
5 out of 5 points
The price of a call option tends to be lower when which of the following is higher (all else
equal)?
Selected
Answer:
The strike
price
Correct
Answer:
The strike
price
• Question 4
0 out of 5 points
Which of the following statements related to market efficiency tend to be supported by
current evidence?
I. Markets tend to respond quickly to new information.
II. It is difficult for the typical investor to earn above-average returns without taking
above-average risks.
III. Short-run prices are difficult to predict accurately based on public information.
IV. Markets are most likely strong-form efficient.
, FIN534 FINAL EXAM
QUESTIONS AND ANSWER
Selected
Answer:
I and IV only
Correct
Answer:
I, II, and
III
only
• Question 5
0 out of 5 points
Which of the following securities has a purely fixed claim against a firm’s cash flows?
Selected
Answer:
None of the options are
correct.
Correct
Answer:
bonds
• Question 6
0 out of 4 points
JKL Corporation has a projected times-interest-earned ratio of 4.0 for next year. What
percentage could EBIT decline next year before JKL’s times-interest-earned ratio would
fall below 1.0?
Selected
Answer:
Insufficient information is
provided.
Correct
Answer:
75%
• Question 7
4 out of 4 points
According to the pecking order theory of capital structure, why do firms avoid issuing
equity?
Selected
Answer:
Because equity issuance signals that managers believe their stock is
overvalued, which causes the price of the stock to fall
Correct
Answer:
Because equity issuance signals that managers believe their stock is
overvalued, which causes the price of the stock to fall
• Question 8
4 out of 4 points
Which of the following factors favor the issuance of equity in the financing decision?
I. Market signaling
II. Distress costs
III. Management incentives IV. Financial flexibility
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