Fin 5200 Sample ExamName:Student number:AnswersFINE 5200Managerial Finance Winter 2016, Professor Yelena LarkinSample Midterm ExamPart 1: Multiple choice (30 points). Circle the correct answer on this question paper.1. Equity with differential voting rights and/or dividend payment claims is called: A. Dual class stock.B. Preemptive right stock.C. Preferred stock.D. Common stock.2. You just won the lottery. You and your heirs will receive $25,000 per year forever, beginning one year from now. If the present value of the lottery is $416,667, what is the discount rate used to value this perpetuity? A. 4.0%B. 5.0%C. 6.0%D. 7.0%E. 8.0%3. If operating cash flow is negative, then __________________. A) the firm is bankrupt B) the firm can pay no dividends C) cash flow to bondholders must be negative D) cash flow to stockholders must be positive E) cash flow from assets may be positive4. A corporation, potentially, has infinite life because: it is a legal entityof separation of ownership and managementit has limited liabilityall of the above5. The yield to maturity on a 20-year corporate bond is determined by:I. the real rate of interest
II. the term structure of interest ratesIII. the default risk premiumIV. expected future inflationI onlyI and II onlyI, II and III onlyAll four factors 6. The legal document that includes the basic terms and details of a bond is called the: A. Indenture agreement.B. Call provision.C. Debenture agreement.D. Registration form.E. Articles of incorporation.7. Which one of the following statements is true concerning bond ratings? A. Bond ratings are based on both the risk of default and the interest rate risk.B. A bond rated BBB or lower is considered a junk bond.C. All else equal, a bond rated BB should pay a higher return than a bond rated B.D. Bond ratings are based only on the risk of default.E. By mutual agreement, DBRS and Standard & Poors issue comparable ratings on all bonds.
7. S&P 500
[1] Bond rating CTS: http://research.house.gov/data/BondRiskStandard/BondRiskStandard.htm;
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