If all the plots on a scatter diagram lie on a straight line, what is the standard error of estimate?

A. Infinity

B. None of these answers

C. 0

D. +1

E. -1

"Fractional Reserve Banking" refers to:

A. The Federal Reserve System.

B. All of these answers.

C. The banking system where part of the reserves are derived in the form of loans from the Central Bank.

D. The banking system where banks hold less than 100% reserves against deposits.

Which of the following best describes an option that gives the owner the right to sell 100 shares of stock only on the expiration date three months from now at a strike price of $35, when the current stock price is $25? This option is an:

A. out-of-the-money American put option.

B. in-the-money European put option.

C. out-of-the-raoney European put option.

Kaylee Sumners, Level 1 CFA candidate, has just finished reviewing flash cards for the reading on the efficient market hypothesis (EMH). Confused by the different tests for the different forms of the EMH, she outlines the information (of which four summary points appear below) from memory. It appears that Sumners should review the material because three of the points are incorrect. Which of her summary points is CORRECT?

A. Early tests of the semi-strong form used the equation: ReturnAbnormal = ReturnActual - (RMarket * BetaStock).

B. The superior historical performance of exchange specialists and corporate insiders rejects the semi-strong form of the EMH.

C. Cross-sectional tests such as the price-earnings ratio, neglected firms tests, and book value to market value tests support the semi-strong form of the EMH.

D. Statistical and trading rule tests support the weak-form of the EMH.

Two mutually exclusive projects each have a cost of $10,000. The total, undiscounted cash flows from Project L are $15,000, while the undiscounted cash flows from Project S total $13,000. Their NPV profiles cross at a discount rate of 10 percent. Which of the following statements best describes this situation?

A. To determine if a ranking conflict will occur between the two projects the cost of capital is needed as well as an additional piece of information.

B. Project L should be selected at any cost of capital, because it has a higher IRR.

C. The NPV and IRR methods will select the same project if the cost of capital is greater than 10 percent; for example, 18 percent.

D. The NPV and IRR methods will select the same project if the cost of capital is less than 10 percent; for example, 8 percent.

E. Project S should be selected at any cost of capital, because it has a higher IRR.

Consider the following information:

Borrowing Rate 10%

Marginal Tax Rate 40%

Preferred Stock Par Price $50

Preferred Dividend $5 Preferred Stock floatation cost 2.0% Cost of common equity 15.0% Preferred Stock issued at Par The Optimal Capital Structure is 45% debt, 50% common equity, and 5% preferred stock. Credit Rating BB + What is the firm's Weighted Average Cost of Capital (WACC)?

A. 9.0%

B. 7.14%

C. 9.06%

D. 10.71%

E. 2.5%

F. 28.00%

A company currently sells 75,000 units annually. At this sales level, its EBIT is $4 million, and its degree of total leverage is 2.0. The firm's debt consists of $15 million in bonds with a 9.5 percent coupon. The company is considering a new production method which will entail an increase in fixed costs but adecrease in variable costs, and will result in a degree of operating leverage of 1.6. The president, who is concerned about the stand-alone risk of the firm, wants to keep the degree of total leverage at 2.0. If EBIT remains at $4 million, what amount of bonds must be retired to accomplish this?

A. $9.19 million

B. $8.42 million

C. $6.58 million

D. $4.44 million

E. $7.63 million

An independent investment advisor is examining shares of Claypool Manufacturing, Inc. for possible investment. In her examination, this investment advisor has gathered the following information:

Market discount rate: 12.5% per year Observed Price/Earnings ratio: 14.25

Given this information, what is the Franchise Price/Earnings ratio for Claypool Manufacturing?

A. None of these answers is correct.

B. 6.25

C. 24.25

D. The answer cannot be calculated from the information provided.

E. 12.67

F. 16.28

An investor had purchased 66 shares of firm X on January 1, at a price of $236 per share. On May 16th, the stock underwent a 2-for-1 split. On December 31, the stock price stood at $156. If the investor realized a return of 35% during the year, his total dividend income during the year was:

A. $435.60

B. $250.80

C. $501.60

D. $156.00

The P/E ratio is determined by the expected ________ and by k and g.

A. dividend payout ratio

B. stock ratio

C. earnings ratio

D. g/k ratio