Question 7 An investor believes Stock M will rise from a current price of $20 per share to

A.investors can lend any amount of money at the risk-free rate.

B.all investors desire to be the same location on the efficient frontier.

C.all investors have the same one-period time horizon.

D.it is possible to buy or sell fractional shares of an investment.

A.increase by 22.5%.

B.increase by $4.00.

C.decrease by $22.50.

D.increase by $34.00.

A.market segmentation theory.

B.preferred habitat theory.

C.liquidity preference theory.

D.pure expectations theory.

s primarily concerned with the effective duration of the measure. The bond is a 15-year semiannual pay bond with a 9% coupon that is currently priced at $1,076.50 to yield 8.11%. If the yield changes by 25 basis points, the effective duration of this bond is closest to:

A.12.25.

B.8.41.

C.7.42.

D.9.53.

o. To achieve this goal, she has purchased a 7%, 15-year corporate bond at a discount price of 93.50. What amount of reinvestment income will she need to earn over this 15-year period to achieve a compound return of 7% on a semiannual basis?

A.$624.

B.$724.

C.$459.

D.$574.

ds rise, the price of putable bonds will fall less quickly than similar option-free bonds (beyond a critical point) due to the increase in value of the embedded put option. Statement 2: As yields fall, the price of putable bonds will rise more quickly than similar option-free bonds (beyond a critical point) due to the increase in value of the embedded put option. Are these statements correct or incorrect? Statement 1 Statement 2

A.Correct Incorrect

B.Correct Correct

C.Incorrect Incorrect

D.Incorrect Correct

llowing conditions? Capital projects are accepted at any point along a firm’s investment opportunity schedule that is:

A.below the firm’s marginal cost of capital curve.

B.above the firm’s average cost of capital curve.

C.above the firm’s marginal cost of capital curve.

D.below the firm’s average cost of capital curve.

A.Replacement projects that will lead to cost reductions.

B.Projects that involve a new product or a new market.

C.Replacement projects that maintain the existing business.

D.Expansion projects.

A.common equity.

B.retained earnings.

C.debt.

D.preferred equity.

a rate of 40%, has gains on the sale of long-term assets at 20%, and exempts interest income from any taxation. Dalrymple’s net income before taxes is derived from the following sources: Net Income from Ordinary Activities $2,000,000 Net Income from Sale of Long-term Asset 1,000,000 Net Interest Income 1,000,000 Net Income before Taxes 4,000,000 On its income statement, Dalrymple should:

A.apply an effective tax rate of 25%.

B.show its income in different categories and apply the appropriate tax rate to each.

C.apply an effective tax rate of 40% and add $600,000 to its deferred tax liability account.

D.apply an effective tax rate of 40% and add $600,000 to its deferred tax asset account.