Question 1

What is a competitive market?

Accepted Answer

A) a market in which goods can be bought at the ask price and sold at bid price 
B) a market in which a good can be bought and sold at the same price 
C) a market in which a good is sold at a lower price than that for which it can be bought 
D) a market in which a good is bought for a lower price than that for which it can be sold 
E) a market in which buyers do not have to shop around for the cheapest price 
A) a market in which goods can be bought at the ask price and sold at bid price 
B) a market in which a good can be bought and sold at the same price 
C) a market in which a good is sold at a lower price than that for which it can be bought 
D) a market in which a good is bought for a lower price than that for which it can be sold 
E) a market in which buyers do not have to shop around for the cheapest price

Question 2

What are the the three rules of valuing cash flows at different points in time?

Accepted Answer

1.It is only possible to compare or comb

Question 3

A coin collector treasures his 1969-S Lincoln cent with a doubled die obverse because he found it in his pocket change,rather than purchasing it.He can sell it on the open market for $35,000,but would only sell it for at least twice that price,due to its sentimental value to him.It is anticipated that the coin will increase in market value in the foreseeable future.What is the value of the coin?

Accepted Answer

A) Nothing,since he paid nothing to obtain the coin. 
B) $35,000,since this is the price that the coin would fetch on the open market. 
C) At least $35,000,since he could replace the coin for $35,000,but the coin he owns has additional intangible value due to its sentimental value. 
D) At least $35,000,since the value of the coin will increase in the future. 
E) $0.01 since this is the face value of the coin. 
A) Nothing,since he paid nothing to obtain the coin. 
B) $35,000,since this is the price that the coin would fetch on the open market. 
C) At least $35,000,since he could replace the coin for $35,000,but the coin he owns has additional intangible value due to its sentimental value. 
D) At least $35,000,since the value of the coin will increase in the future. 
E) $0.01 since this is the face value of the coin.

Question 4

Why should you approach every problem by drawing a timeline?

Accepted Answer

A) Timelines allow you to quickly sum cash flows over time. 
B) Timelines eliminate the majority of flawed financial decisions. 
C) Timelines can be used to schedule events which are yet to occur. 
D) Timelines identify events in a transaction or investment that might otherwise be easily overlooked. 
E) Timelines give present values at each time period. 
A) Timelines allow you to quickly sum cash flows over time. 
B) Timelines eliminate the majority of flawed financial decisions. 
C) Timelines can be used to schedule events which are yet to occur. 
D) Timelines identify events in a transaction or investment that might otherwise be easily overlooked. 
E) Timelines give present values at each time period.

Question 5

Use the table for the question(s)below.
Consider the following prices from a McDonald's Restaurant:
  
-A McDonald's Big Mac value meal consists of a Big Mac sandwich,large Coke,and a large fry.Assuming that there is a competitive market for McDonald's food items,at what price must a Big Mac value meal sell to ensure the absence of an arbitrage opportunity and uphold the Law of One Price?

Accepted Answer

A) $4.08 
B) $4.38 
C) $5.47 
D) $5.77 
E) $5.00 
A) $4.08 
B) $4.38 
C) $5.47 
D) $5.77 
E) $5.00

Question 6

Walgreen Company (NYSE: WAG)is currently trading at $48.75 on the NYSE.Walgreen Company is also listed on NASDAQ and assume it is currently trading on NASDAQ at $48.50.Does an arbitrage opportunity exist and,if so,how would you exploit it and how much would you make on a block trade of 100 shares?

Accepted Answer

A) No,no arbitrage opportunity exists. 
B) Yes,buy on NASDAQ and sell on NYSE,make $25. 
C) Yes,buy on NYSE and sell on NASDAQ,make $25. 
D) Yes,buy on NASDAQ and sell on NYSE,make $250. 
E) Yes,buy on NYSE and sell on NASDAQ,make $250. 
A) No,no arbitrage opportunity exists. 
B) Yes,buy on NASDAQ and sell on NYSE,make $25. 
C) Yes,buy on NYSE and sell on NASDAQ,make $25. 
D) Yes,buy on NASDAQ and sell on NYSE,make $250. 
E) Yes,buy on NYSE and sell on NASDAQ,make $250.

Question 7

Whenever a good trades in a competitive market,the ________ determines the value of the good.

Accepted Answer

A) supply 
B) price 
C) demand 
D) cost 
E) quantity 
A) supply 
B) price 
C) demand 
D) cost 
E) quantity

Question 8

If the future value (FV)in two years of $100,000 invested in a certain fund that compounds it at a fixed rate annually is $116,640,at what rate has it been compounded?

Accepted Answer

A) 8.00% 
B) 11.66% 
C) 16.00% 
D) 24.20% 
E) 10.00% 
A) 8.00% 
B) 11.66% 
C) 16.00% 
D) 24.20% 
E) 10.00%

Question 9

What is one of the main obstacles in cost benefit analysis?

Accepted Answer

One of the main obstacles in c

Question 10

Which of the following statements best describes the effect of transaction costs on arbitrage and the Law of One Price?

Accepted Answer

A) As long as the market is competitive,transaction costs will have no effect. 
B) When there are transaction costs,there will never be arbitrage opportunities. 
C) Prices can deviate but not by more than the amount of the transaction costs. 
D) Prices will be different in different competitive markets,and this difference usually exceeds the amount of the transaction costs. 
E) Arbitrage possibilities increase in the presence of transaction costs. 
A) As long as the market is competitive,transaction costs will have no effect. 
B) When there are transaction costs,there will never be arbitrage opportunities. 
C) Prices can deviate but not by more than the amount of the transaction costs. 
D) Prices will be different in different competitive markets,and this difference usually exceeds the amount of the transaction costs. 
E) Arbitrage possibilities increase in the presence of transaction costs.

Question 11

What is the present value (PV)of $85,000 received 15 years from now,assuming the interest rate is 3% per year?

Accepted Answer

A) $54,558 
B) $85,000 
C) $82,524 
D) $132,427 
E) $5,502 
A) $54,558 
B) $85,000 
C) $82,524 
D) $132,427 
E) $5,502

Question 12

Samantha has holdings of 250 troy ounces of platinum,currently valued at $815 dollars per ounce.She estimates that the price of platinum will rise to $850 per ounce in the next year.If the interest rate is 8%,should she sell the platinum today?

Accepted Answer

A) Yes,as the difference between selling now and selling in one year is $7550 dollars one year from now. 
B) Yes,as the difference between selling now and selling in one year is $6991 dollars one year from now. 
C) Yes,as the difference between selling now and selling in one year is $5513 dollars one year from now. 
D) No,as the difference between selling now and selling in one year is -$6988 dollars one year from now. 
E) No,the difference between selling now and selling in one year is -$8750 dollars one year from now. 
A) Yes,as the difference between selling now and selling in one year is $7550 dollars one year from now. 
B) Yes,as the difference between selling now and selling in one year is $6991 dollars one year from now. 
C) Yes,as the difference between selling now and selling in one year is $5513 dollars one year from now. 
D) No,as the difference between selling now and selling in one year is -$6988 dollars one year from now. 
E) No,the difference between selling now and selling in one year is -$8750 dollars one year from now.

Question 13

Use the information for the question(s)below.
   As an oil refiner,you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS)crude oil.Because of its lower sulfur content,you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI)crude.
-Assuming you currently have 10,000 Bbls of WTI crude,the added benefit (cost)to you if you were to sell the 10,000 Bbls of WTI crude and use the proceeds to purchase and refine ANS crude is closest to:

Accepted Answer

A) ($1400) 
B) $1400 
C) ($3908) 
D) $3908 
E) $2508 
A) ($1400) 
B) $1400 
C) ($3908) 
D) $3908 
E) $2508

Question 14

Whenever a good trades in a competitive market,the price the good trades for determines the value of the good.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is an example of arbitrage?

Accepted Answer

A) An inventor of a new hydrocarbon cracking technology based on palladium buys this metal knowing that its price will rise when the technology is adopted. 
B) A metals merchant is offered $108,000 in one year for $100,000 of palladium today,when the interest rate is 10%. 
C) An investor,seeing that the price of palladium on the metals exchange in two different countries is slightly different,buys on one and sells on the other to make a profit. 
D) A firm buys $250,000 of palladium today,with an option to sell it at $275,000 in one year if interest rates rise above 10%. 
E) An investor buys palladium today hoping the price will increase and it can be sold for a profit. 
A) An inventor of a new hydrocarbon cracking technology based on palladium buys this metal knowing that its price will rise when the technology is adopted. 
B) A metals merchant is offered $108,000 in one year for $100,000 of palladium today,when the interest rate is 10%. 
C) An investor,seeing that the price of palladium on the metals exchange in two different countries is slightly different,buys on one and sells on the other to make a profit. 
D) A firm buys $250,000 of palladium today,with an option to sell it at $275,000 in one year if interest rates rise above 10%. 
E) An investor buys palladium today hoping the price will increase and it can be sold for a profit.

Question 16

The one-year discount factor is the discount at which we can purchase money in the future.

Accepted Answer

A) True 
 B)False

Question 17

Use the information for the question(s)below.
   Coloma Cooper Incorporated is able to produce $640 worth of copper from one ton of low-grade copper ore.Because of its higher copper content,Coloma can produce $940 worth of copper from one ton of high-grade copper ore.
-A company that manufactures copper piping is offering to trade you 5925 tons of low-grade copper ore for 4000 tons of high-grade copper ore.Assuming you currently have 4000 tons of high-grade ore,what are the total benefits and added benefits of taking the trade?

Accepted Answer

Total Benefits No trade and refine high-

Question 18

A manufacturer of breakfast cereals has the opportunity to purchase barley at $3.00 a bushel for 10,000 bushels,if it also buys 5,000 bushels of wheat at $16.00 per bushel.However,the manufacturer does not use any barley in its products,and currently needs 20,000 bushels of wheat.If the current market price of barley is $3.80 per bushel,and wheat is $15.80 per bushel,should this opportunity be taken,and why?

Accepted Answer

A) Because the company has no need of barley,the opportunity should not be taken. 
B) Because the opportunity does not meet the company's need for wheat,the opportunity should not be taken. 
C) Because the value of the opportunity is positive,the opportunity should be taken. 
D) Because the value of the opportunity is negative the opportunity should not be taken. 
E) Because the company will have to pay more for wheat,the opportunity should not be taken. 
A) Because the company has no need of barley,the opportunity should not be taken. 
B) Because the opportunity does not meet the company's need for wheat,the opportunity should not be taken. 
C) Because the value of the opportunity is positive,the opportunity should be taken. 
D) Because the value of the opportunity is negative the opportunity should not be taken. 
E) Because the company will have to pay more for wheat,the opportunity should not be taken.

Question 19

Jeff has the opportunity to receive lump-sum payments either now or in the future.Which of the following opportunities is the best,given that the interest rate is 7% per year?

Accepted Answer

A) one that pays $1,000 now 
B) one that pays $1,200 in two years 
C) one that pays $1,500 in five years 
D) one that pays $1,800 in ten years 
E) one that pays $5,000 in 25 years 
A) one that pays $1,000 now 
B) one that pays $1,200 in two years 
C) one that pays $1,500 in five years 
D) one that pays $1,800 in ten years 
E) one that pays $5,000 in 25 years

Question 20

What is the future value (FV)of $10,000 in 50 years,assuming the interest rate is 4% per year?

Accepted Answer

A) $100,804 
B) $52,000 
C) $520,000 
D) $20,000 
E) $71,067 
A) $100,804 
B) $52,000 
C) $520,000 
D) $20,000 
E) $71,067

What is a competitive market?

What are the the three rules of valuing cash flows at different points in time?

Why should you approach every problem by drawing a timeline?

Walgreen Company (NYSE: WAG)is currently trading at $48.75 on the NYSE.Walgreen Company is also listed on NASDAQ and assume it is currently trading on NASDAQ at $48.50.Does an arbitrage opportunity exist and,if so,how would you exploit it and how much would you make on a block trade of 100 shares?

Whenever a good trades in a competitive market,the ________ determines the value of the good.

If the future value (FV)in two years of $100,000 invested in a certain fund that compounds it at a fixed rate annually is $116,640,at what rate has it been compounded?

What is one of the main obstacles in cost benefit analysis?

Which of the following statements best describes the effect of transaction costs on arbitrage and the Law of One Price?

What is the present value (PV)of $85,000 received 15 years from now,assuming the interest rate is 3% per year?

Samantha has holdings of 250 troy ounces of platinum,currently valued at $815 dollars per ounce.She estimates that the price of platinum will rise to $850 per ounce in the next year.If the interest rate is 8%,should she sell the platinum today?

Whenever a good trades in a competitive market,the price the good trades for determines the value of the good.

Which of the following is an example of arbitrage?

The one-year discount factor is the discount at which we can purchase money in the future.

Jeff has the opportunity to receive lump-sum payments either now or in the future.Which of the following opportunities is the best,given that the interest rate is 7% per year?

What is the future value (FV)of $10,000 in 50 years,assuming the interest rate is 4% per year?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters

Exam 3: The Valuation Principle: the Foundation of Financial Decision Making

What is a competitive market?

What are the the three rules of valuing cash flows at different points in time?

Why should you approach every problem by drawing a timeline?

Walgreen Company (NYSE: WAG)is currently trading at $48.75 on the NYSE.Walgreen Company is also listed on NASDAQ and assume it is currently trading on NASDAQ at $48.50.Does an arbitrage opportunity exist and,if so,how would you exploit it and how much would you make on a block trade of 100 shares?

Whenever a good trades in a competitive market,the ________ determines the value of the good.

If the future value (FV)in two years of $100,000 invested in a certain fund that compounds it at a fixed rate annually is $116,640,at what rate has it been compounded?

What is one of the main obstacles in cost benefit analysis?

Which of the following statements best describes the effect of transaction costs on arbitrage and the Law of One Price?

What is the present value (PV)of $85,000 received 15 years from now,assuming the interest rate is 3% per year?

Samantha has holdings of 250 troy ounces of platinum,currently valued at $815 dollars per ounce.She estimates that the price of platinum will rise to $850 per ounce in the next year.If the interest rate is 8%,should she sell the platinum today?

Whenever a good trades in a competitive market,the price the good trades for determines the value of the good.

Which of the following is an example of arbitrage?

The one-year discount factor is the discount at which we can purchase money in the future.

Jeff has the opportunity to receive lump-sum payments either now or in the future.Which of the following opportunities is the best,given that the interest rate is 7% per year?

What is the future value (FV)of $10,000 in 50 years,assuming the interest rate is 4% per year?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters