Quantitative
Methods
Methods
The minimum rate of return that an investor must receive in order to invest in a project is most likely known as the:
required rate of return.
The short-term shutdown point of production for a firm operating under perfect competition will most likely occur when:
marginal revenue is equal to average variable costs.
Which of the following will most likely decrease an issuer’s cash conversion cycle? An increase in its days:
payable outstanding
The existence of a positive risk-return relationship is representative of what type of investor behavior?
Risk-averse
The most stringent test of a company’s liquidity is its:
cash ratio.
Which of the following risk premiums is most relevant in explaining the difference in yields between 30-year bonds issued by the US Treasury and 30-year bonds issued by a small, private US corporate issuer?
Liquidity
An economic diffusion index is most appropriately used to identify:
trend change.
Which of the following types of capital is most likely to have an after-tax cost that is less than its before-tax cost?
Debt
With respect to the mean–variance theory, the optimal portfolio is determined by each individual investor’s:
risk preference.
An investor worried about a company’s long-term solvency would most likely examine its:
debt-to-equity ratio.
An analyst compares portfolios in which the amount invested changes each year. Which of the following is the most appropriate measure for the analyst to use in comparing the portfolios' returns over a multiyear period?
Geometric mean return
An oligopolist's pricing strategy includes anticipating competitor reactions and acting in the firm's self-interest. This firm is most likely pursuing which of the following pricing strategies?
Nash equilibrium
A manufacturer with industry-average financial leverage is issuing debt to fund expansion of production capacity. All else equal, the stakeholder group most likely to benefit from the increase in financial leverage is the company's:
common shareholders.
The portfolio of a risk-free asset and a risky asset has a better risk-return tradeoff than investing in only one asset type because the correlation between the risk-free asset and the risky asset is equal to:
0.0
A company has total liabilities of GBP35 million and total stockholders’ equity of GBP55 million. Total liabilities are represented on a vertical common-size balance sheet by a percentage closest to:
39%
Two AUD 50,000 investments have a 3-year term. One compounds quarterly at a stated annual rate of 2.00%. The other compounds at a continuous rate of 1.75%. The difference in their future values (in AUD) at the end of 3 years is closest to:
389
An analyst gathers the following market share data for an industry:
Company Sales (in millions of euros)
ABC 300
Brown 250
Coral 200
Delta 150
Erie 100
All others 50
The industry’s four-company concentration ratio is closest to:
86%
A company has a quick ratio of 0.95. If the company reports current liabilities of HKD400 million, deferred tax liabilities due in 14 months of HKD100 million, and inventory of HKD120 million, its current ratio is closest to:
1.25
An analyst collects the following data:
Sharpe Ratio Return Standard Deviation Portfolio A 1.06 13%
Market 12% 9%
The risk-free rate is 2%. The M-squared value of Portfolio A is closest to:
11.5%
On January 1, a company has 50 million ordinary shares outstanding. During the year, the company pays INR 20 million in preferred dividends. On October 1, the company issues 30 million new ordinary shares. If the company reports INR 100 million of net income, then the company's basic earnings per share for the year is closest to:
INR 1.39
A company's most recent annual dividend is CAD 4 per share. The dividends will grow 5% each year for the next three years and 2% each year thereafter indefinitely. The required rate of return is 8%. Based on a two-stage dividend discount model, the present value of each share (in CAD) is closest to:
73.84
The following data is for a firm operating under perfect competition:
Quantity produced Total economic cost
(€) 100 510
101 511
102 513
103 516
104 520
105 525
106 531
If the price per unit is €5, economic profits are maximized when the firm produces:
105 units.
Information for a company is shown below:
Book value of assets $70 million
Market value of assets $92.5 million
Book value of equity $20 million
Market value of equity $30 million
Cost of equity 13%
Percentage of liabilities that is debt 80%
Corporate tax rate 30%
If the company's weighted average cost of capital (WACC) is 8.0%, its pretax cost of debt is closest to:
7.1%
A two-asset portfolio has the following characteristics:
Security Expected Standard Security's Deviation Portfolio Weight
Stock A 9% 80%
Stock B 10% 20%
If the correlation coefficient of returns between the two securities is 0.6, then the portfolio's expected variance is closest to:
0.0073
An analyst gathers the following information for a company:
20X8 (€ thousands)
Assets 5,000
Short-term debt 500
Long-term debt 2,000
Deferred tax liabilities 300
Deferred revenue 100
Accounts payable 100
Based on this information, the company's debt-to-capital ratio for 20X8 is closest to:
0.56