(10 pts. each)
1. Thomas studies charts of past stock prices as a guide to timing his purchases and sales. What does this
imply about his attitude toward market efficiency?
a. He believes in the weak form ofthe efficient markets hypothesis.
b. He believes in the semi-strong form ofthe efficient markets hypothesis.
c. He believes in the strong form ofthe efficient markets hypothesis.
None ofthe above.
furniture store's assets had an original book value of$IO million, and have been depreciated by $3
The after-tax salvage value ofthese assets (ifsold today), is $5 million. The fum has liabilities
of $2 million consisting of bonds, back wages and taxes due.
The frrm has 1,000,000 shares of stock
outstanding, and the market price ofthe stock is $8/share. What does this imply?
a. The firm's book value is $7 million.
The firm's market value is $6 million.
@The firm's liquidation value is $3 million
d. All of the above.
e. None ofthe above.
3. Supposeyou purchase a newly issued30-yearAAAcorporate bond today for $1000, havinga coupon rate
of6%. However, overthe next few years, you expect inflation(and thus the general level ofinterest rates)
to decline. What is likely to occur?
ra>lfyou hold your bond for 30 years, you will receive a yield
you sell your bond in the next few years, you will receive a yield of less than 6%.
c. Both a and b are true.
d. Neither a nor
What is an advantage oforganizing as an S-corporation instead ofa partnership?
a. Simplicity ofgetting startt:d.
Protection of personal assets from lawsuits.
Ability to pass income to owners' personal inC0me tax return!':
of the above.
Ahot1t how much
h~tion ~e~ium \~uldoshe r~ui~e
to invest in bonds of various maturities?
6. What is an advantage of investing in STRIPS?
c. Protection against inflation.
d. Both a and b.