ACCT3004
FINAL EXAM REVIEW – 2021 Winter Term
Final Exam Review Sheet
1. You are comparing stock A to stock B. Given the following information, which one of these
two stocks should you prefer and why?
State of
Economy
Boom
Recession
Probability of State of Economy
70%
30%
Returns if State Occurs
Stock A
Stock B
11%
7%
19%
-12%
A. Stock A; Stock A has a slightly lower expected return but appears to be significantly less
risky than stock B.
B. Stock A; Stock A has an expected return of 10.2% and appears to be less risky.
C. Stock A; Stock A has a higher expected return and appears to be less risky than stock B.
D. Stock B; Stock B has a higher expected return and appears to be just slightly more risky than
stock A.
E. Stock B; Stock B has a much higher return which compensates for the additional risk.
2. The common stock of Cross Country Homes has an expected return of 15.18%. The return on
the market is 11.6% and the risk-free rate of return is 4.3%. What is the beta of Cross Country
Homes stock?
A. 1.37
B. 1.42
C. 1.49
D. 1.51
E. 1.56
ACCT3004
FINAL EXAM REVIEW – 2021 Winter Term
3. What is the standard deviation of a portfolio with weights of 60% in security A and the
remainder in security B?
A. 0.5%
B. 0.9%
C. 1.5%
D. 2.3%
E. 6.4%
4. Your portfolio has a beta of 1.08. The portfolio consists of 20% Treasury bills, 45% in stock
A, and 35% in stock B. Stock A has a risk-level equivalent to that of the overall market. What is
the beta of stock B?
A. .79
B. 1.25
C. 1.54
D. 1.61
E. 1.80
5. Which one of the following portfolios should have the most systematic risk?
A. 50% invested in Treasury bills and 50% in a market index fund.
B. 20% invested in Treasury bills and 80% invested in a stock with a beta of.80.
C. 10% invested in a stock with a beta of 1.0 and 90% invested in a stock with a beta of 1.40.
D. 100% invested in a mutual fund which mimics the overall market.
E. 100% invested in Treasury bills.
6.
Security
A
B
Risk-free asset
Return
15%
12%
5%
Standard Deviation
8%
14%
???
Beta
1.2
0.9
???
ACCT3004
FINAL EXAM REVIEW – 2021 Winter Term
What is the portfolio expected return and the portfolio beta if you invest 30% in A, 30% in B and
40% in the risk-free asset?
A. 9.6%; 1.32
B. 9.6%; 1.00
C. 10.1%; 0.95
D. 10.1%; 0.72
E. 10.1%; 0.63
7. You own 189 shares of Hi-Tek, Inc. stock. The company has stated that it plans on issuing a
dividend of $.30 per share at the end of this year and then issuing a final liquidating dividend of
$1.05 per share at the end of next year. Your required rate of return is 15 percent. Ignoring taxes,
what is the value of one share of Hi-Tek stock today?
A. $1.01
B. $1.05
C. $1.17
D. $1.21
E. $1.35
8. BDJ, Inc. has 31,000 shares of stock outstanding with a market price of $15 per share. If net
income for the year is $155,000 and the retention ratio is 80%, what is the dividend per share on
BDJ Inc.'s stock?
A. $0.68
B. $1.00
C. $1.25
D. $1.55
E. $1.89
ACCT3004
FINAL EXAM REVIEW – 2021 Winter Term
9. The spot rate of the U.S. dollar is C$1 = $.94US while the forward rate for one year is C$1 =
$.92US. The nominal risk-free rate is 3% in the U.S. and 2% in Canada. How much profit can
you make given this situation using covered interest arbitrage?
A. -$.04
B. -$.01
C. $.01
D. $.03
E. $.05
10. The current spot rate is C$1.1578 and the one-year forward rate is C$1.1397. The nominal
risk-free rate in Canada is 7 % while it is 6.5 % in the U.S. Using covered interest arbitrage you
can earn an extra profit over that which you would earn if you invested $1 in the U.S.
A. $.0022
B. $.0025
C. $.0220
D. $.0239
E. $.0250
11. Suppose the indirect exchange rate for the Canadian dollar is 0.93. Based on this, you know
you can buy:
A. $1 U.S. for $0.93 Canadian.
B. $1.93 U.S. for $1 Canadian.
C. $1 U.S. for $1.08 Canadian.
D. $1.08 U.S. for $1 Canadian.
E. $1 U.S. for $1.93 Canadian.
12. You are considering a project in Poland, which has an initial cost of 250,000PLN. The
project is expected to return a one-time payment of 400,000PLN 5 years from now. The risk-free
rate of return is 3 % in Canada and 4 % in Poland. The inflation rate is 2 % in Canada and 5 % in
Poland. Currently, you can buy 375PLN for $100. How much will the payment 5 years from now
be worth in dollars?
A. $101,490
B. $142,060
C. $1,462,350
D. $1,489,025
E. $1,576,515
ACCT3004
FINAL EXAM REVIEW – 2021 Winter Term
13. Suppose that the nominal risk-free rate of interest in Canada is 5%. The nominal risk-free
rate in Germany is 8% with inflation of 6%. What is the approximate inflation rate in Canada?
A. 2.0%
B. 3.0%
C. 4.0%
D. 5.0%
E. 6.8%
14. Which of the following is the best definition of cross-rate.
A. Money deposited in a financial centre outside of the country whose currency is involved.
B. International bonds issued in multiple countries but denominated in a single currency (usually
the issuer's currency).
C. Banks that make loans and accept deposits in foreign currencies.
D. The implicit exchange rate between two currencies (usually non-U.S.) quoted in some third
currency (usually the U.S. dollar).
E. Second borrower in currency swap. Counterparty borrows funds in currency desired by
principal.
15. Uncovered interest parity is defined as the condition which states that the:
A. Current forward rate is an unbiased predictor of the future spot exchange rate.
B. Exchange rate adjusts to maintain purchasing power parity among currencies.
C. Expected percentage change in the exchange rate is equal to the difference in the interest
rates.
D. Exchange rates adjust such that the real rate of interest is constant across currencies.
E. Interest rate differential between two countries is equal to the percentage difference between
the forward exchange rate and the spot exchange rate.
16. Suppose you have the following information concerning an acquiring firm (A) and a target
firm (B). Neither firm has any debt. The incremental value of the acquisition is estimated to be
$250,000. Firm B is willing to be acquired for $540,000 worth of Firm A's stock.
Number of Shares
Price per Share
Firm A
50,000
$50.00
Firm B
18,000
$22.50
ACCT3004
FINAL EXAM REVIEW – 2021 Winter Term
What is the NPV of acquiring Firm B?
A. The NPV is negative
B. $94,588
C. $102,120
D. $118,156
E. $162,015
17.
Calipers, Inc. is acquiring Johnson Warehouse for $47,000 in cash. Calipers has 2,700 shares
of stock outstanding at a market value of $32 a share. Johnson Warehouse has 3,200 shares of
stock outstanding at a market price of $14 a share. Neither firm has any debt. The net present
value of the acquisition is $1,800. What is the value of Caliper's after the acquisition?
A. $84,600
B. $86,000
C. $110,000
D. $124,800
E. $133,000
18. Tuesday's and Thursday's are all-equity firms. Tuesday's has 5,600 shares outstanding at a
market price of $28 a share. Thursday's has 4,500 shares outstanding at a price of $42 a share.
Thursday's is acquiring Tuesday's. The incremental value of the acquisition is $4,200. What is
the value of Tuesday's to Thursday's?
A. $130,200
B. $152,600
C. $156,800
D. $161,000
E. $165,400
19. The Sandwich Shoppe has 1,600 shares outstanding at a market price per share of $11. Joe's
Slop Hut has 1,800 shares outstanding at a market price of $14 a share. Neither firm has any
debt. Joe's Slop Hut is acquiring The Sandwich Shoppe. The incremental value of the acquisition
is $1,600. What is the value of The Sandwich Shoppe to Joe's Slop Hut?
A. $1,600
B. $2,200
C. $17,600
D. $19,200
E. $22,500
ACCT3004
FINAL EXAM REVIEW – 2021 Winter Term
20. You buy 15 wheat futures contracts when the futures price is $2.61 per bushel (each contract
is for 5,000 bushels). The price on the maturity date is $2.21. What is your payoff?
A. -$30,000
B. -$2,000
C. $0
D. $2,000
E. $30,000
21.
Raoul purchased both a call and a put on 125,000 bushels of soybeans. Both options have a
strike price of 510 and a common expiration date. Soybean contracts are based on 5,000 bushels.
The price of soybeans on the expiration date is 530. Ignore the costs of the options and all
transaction costs. What is Raoul's profit or loss on these two option contracts?
A. -$25,000
B. -$12,500
C. $0
D. $12,500
E. $25,000
22. Given the following information, what is the price per troy ounce that will be used for today's
marking-to-market for the September silver contract?
Silver - 5,000 troy oz.; $ per troy oz.
Jul
Sep
A. $.10428
B. $.10511
C. $10.428
D. $10.511
E. $10.553
Open
High
Low
10.451
10.529
10.502
10.553
10.397
10.474
Settle Change Lifetime Lifetime
Open
High
Low Interest
10.428 -0.016 10.509 10.378
7,980
10.511 -0.013 10.557 10.468
4,609
ACCT3004
FINAL EXAM REVIEW – 2021 Winter Term
23. You are a jewelry maker and purchase four June 540 calls on gold. What is the total price
you will pay to acquire this gold? Ignore transaction costs.
Gold - 100 troy oz.; $ per troy oz.
Price
540
550
Call
Apr
16.70
9.10
Call
May
17.40
9.90
Call
Jun
17.70
10.20
Put
Apr
.80
5.10
Put
May
.80
5.30
Put
Jun
.90
5.40
A. $208,920
B. $212,000
C. $212,360
D. $220,080
E. $223,080
24. DogChew Products needs to replace its rawhide tanning and molding equipment. It can be
used for five years and will have no salvage value. The equipment costs $930,000. The firm can
lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 9%. The
firm's tax rate is 39%. The CCA rate is 20% (Class 8).
What is the net advantage to leasing?
A. -$88,132
B. -$20,592
C. $1,269
D. $13,706
E. $15,062
25. Knight Motors is considering either leasing or buying some new equipment. The lease
payments would be $14,500 a year for 3 years. The purchase price is $52,000. The equipment
has a 3-year life and then is expected to have a resale value of $12,000. Knight Motors uses
straight-line depreciation, borrows money at 9 percent, and has a 35 percent tax rate. What is the
net advantage to leasing?
A. -$2,742
B. -$2,212
C. -$1,611
D. $3,529
E. $3,898
ACCT3004
FINAL EXAM REVIEW – 2021 Winter Term
26. Daily Enterprises is contemplating the acquisition of some new equipment. The purchase
price is $47,000. The company expects to sell the equipment at the end of year 4 for $5,000. The
firm uses MACRS depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent,
and 7.41 percent depreciation over years 1 to 4, respectively. The equipment can be leased for
$12,500 a year for 4 years. The firm can borrow money at 7.5 percent and has a 34 percent tax
rate. What is the incremental annual cash flow for year 4 if the company decides to lease the
equipment rather than purchase it?
A. -$14,434
B. -$12,734
C. -$10,266
D. -$9,434
E. -$8,766