FIN 501 CHAPTER 4, 5, 6 LATEST EXAM QUESTIONS AND 100% CORRECT ANSWERS

FIN 501 CHAPTER 4, 5, 6 LATEST EXAM
QUESTIONS AND 100% CORRECT ANSWERS
capital loss is computed by
A) subtracting the original cost of an investment from the proceeds received from the sale
of that investment minus any income from the investment.
B) subtracting the original cost of an investment from the proceeds received from the sale
of that investment plus any income from the investment.
C) subtracting the proceeds received from the sale of an investment from the original cost
of the investment.
D) subtracting the original cost of an investment from the proceeds received from the sale
of that investment.
D
Rational investor's are motivated to purchase an asset because of its
A) expected returns.
B) past returns.
C) emotional benefits.
D) all of the above.
A
The most predictable component of stock returns is
A) capital gains.
B) capital losses.
C) inflation adjusted return.
D) dividend income.
D
Kelly bought a stock at a price of $22.50. She received a $1.75 dividend and sold the stock
for $24.75. What is Kelly's capital gain on this investment?
A) $4.00
B) $3.75
C) $2.25
D) $1.75
C
Ashley purchased a stock at a price of $27 a share. She received quarterly dividends of
$0.75 per share. After one year, Ashley sold the stock at a price of $29.25 a share. What is
her percentage holding period return on this investment?
A) 10.3%
B) 11.1%

,C) 17.9%
D) 19.4%
D
Inflation tends to have a particularly negative impact on the price of
A) real estate.
B) bonds.
C) gold.
D) crude oil.
B
Historically, what is the correct ranking of the following securities from lowest rate of
return to the
highest?
A) Short-term government bills, long-term government bonds, stocks.
B) Long-term government bonds, short-term government bills, stocks.
C) Stocks, short-term government bills, long-term government bonds.
D) Historical returns do not exhibit a consistent pattern.
A
Which of the following internal characteristics should cause investors to expect the highest
rate of return?
A) a steady record of past dividends
B) interest and principal guaranteed by the U.S. government
C) a record of excellent management and consistent dividend payments
D) poor management and excessive use of debt financing
D
Which of the following investments may be impacted by government actions?
A) stocks
B) corporate bonds
C) government bonds
D) all of the above
D
Over the long term, which one of the following has historically had the lowest risk and
lowest average annual rate of return?
A) common stock
B) long-term government bonds
C) real-estate
D) corporate bonds
B

,The time value of money concept best supports the idea of
A) the sooner the better.
B) better late than never.
C) a bird in hand is worth two in the bush.
D) good things come to those who wait.
A
The present value of $10,000 discounted at 5% per year and received at the end of 5 years
is
A) $10,000/1.25.
B) $10,000(1.05)5.
C) $10,000/(1.05)5.
D) $10,000 (1.05)1/5.
C
Bob's house has doubled in value since he bought it 30 years ago. The house's value has
increased by an annual rate of
A) 2.34%.
B) 3.33%.
C) 6.67%.
D) 100%.
A
Which one of the following statements is correct concerning the time value of money?
A) The future value of $1 at the end of two years is equal to $1 plus the first year's interest
times 1 plus the annual interest rate.
B) As the interest rate increases for any given year, the future value interest factor will
decrease.
C) The future value of $1 decreases with the passage of time.
D) The future value interest factor is equal to zero if the interest rate is zero.
A
Christopher invests $400 today at a 4% rate of return which is compounded annually.
What is the future value of this investment after four years?
A) $342
B) $416
C) $464
D) $468
D
Roy is going to receive a payment of $5,000 one year from today. He earns an average of
6% on his investments. What is the present value of this payment?
A) $4,717

, B) $4,821
C) $5,000
D) $5,300
A
Which of the following statements are correct concerning the present value of $1.00 five
years from today discounted at 5%?

I. The present value is equal to $1.00 divided by 1.05 to the 5th power.
II. If the discount rate were less than 5%, the present value would be smaller.
III. If the discount rate were more than 5%, the present value would be smaller.
IV. If the $1.00 were to be received 6 years from today, the present value would be larger.
I and III only
Camille purchased a bond 5 years ago for $1,050. The bond paid $50 in annual interest and
returned the $1,000 principal at the end of the fifth year. Camille used the interest payment
to
pay for college textbooks.
A) Her internal rate of return was exactly than 5%.
B) Her internal rate of return was greater than 5%.
C) Her internal rate of return was less than 5%.
D) Her internal rate of return cannot be determined.
C
When calculating the present value of either a future single sum or a future annuity, the
applicable interest rate is usually called the
A) yield to maturity.
B) compound interest rate.
C) internal rate of return.
D) discount rate.
D
When the rate of return is equal to the discount rate
A) the present value of an investment's benefits must be greater than its cost.
B) the cost of an investment equals the sum of its benefits.
C) the cost of an investment equals the future value of its benefits.
D) the cost of an investment equals the present value of its benefits.
D
If the present value of an investment's benefits equals the present value of the investment's
costs, then the investor would earn a
A) return equal to the discount rate.
B) negative rate of return.