Finance Exam 1 Practice (FIN3403)

American Stock Exchange is an Example of:

• Over-the-Counter Market

• Primary Market

• Secondary Market

Which of the term structure theories would support the argument that the yield curve is upward sloping because investors expect future interest rates to rise?

• Term Structure of Interest Rates Theory

• Yield Curve Theory

• Liquidity Preference Theory

• Market Segmentation Theory

• Unbiased Expectations Theory

A firm selects an investing banking firm to assist with your firms $10 million stock issue. The investment banker will act a s a broker and will attempt to sell each new share of stock for a commission for each share sold. What is the distribution method?

• Underwritten Rights Offer

• Privileged Subscription

• Negotiated Purchase

• Competitive Bid

• Best Efforts

If the nominal interest rate is 9% and the real interest is 2%, what is the expected rate of inflation?

HINT: (1 + Nominal Interest Rate) = (1 + Real Interest Rate) x (1 + Anticipated Inflation Rate)

• 7.00%

• 3.33%

• 6.86%

• 11.00%

• 18.00%

Profit Maximization does not adequately describe the goal of the firm because:

• Does not consider riskiness of returns.

• Does not consider interest bond payments.

• Ignores timing of returns.

Given anticipated inflation premium of 5.75% and the real interest rate of 3.25%, what is the nominal interest rate?

• 2.4%

• 9.0%

• 18.7%

• 9.2%

• 7.7%

Taxable Income for Franklin Company for the past 2 years is as follows:

Year: Income:

2017 (20,000)

2018 180,000

What is the firm's tax payment in 2018? Tax Rate = 21%.

• $4,200

• $37,800

• $29,400

• $42,000

• $33,600

A firm had sales of of $5 million, cost of goods sold of $3 million, operating expenses of $175,000, and depreciation of $125,000. The firm received $40,000 in dividend income and paid $200,000 in interest on loans. Also, the firm sold stock during the year, receiving a $400,000 gain on stock owned 4 years. What is the firms tax rate?

• $319,200

• $310,800

• $315,000

• $323,400

• $327,600

Which of the following is true regarding a sole proprietorship?

• Owner has limited liability.

• Owner has unlimited liability.

• Firm legally functions separately and apart from owner.

Capital Market Instruments include:

• Corporate Bonds

• Treasury Bonds

• Municipal Bonds

• Corporate Stocks