An analyst gathered the following information regarding Moon Traders: Current market share price = $55 Riskfree rate = 6% Current market risk premium = 7% Beta of stock = 1.4 Target debttoequity ratio = 0.4 The company has a capital structure that includes BBrated bonds with five years to maturity. The yieldtomaturity on a comparable BBrated bond with a similar term to maturity is 8%. Given that the companys marginal tax rate is 40%, its weighted average cost of capital is closest to:

Group of answer choices

12.66%

11.40%

13.57%

Prime Systems Inc. has a substantial amount of its capital in the form of debt. The accounting estimates adopted by Prime Systems often give rise to temporary differences between the taxes payable and the income tax expense, resulting in deferred tax assets or deferred tax liabilities being reported on its balance sheet. The company anticipates an income tax rate cut and evaluates the effects. All else being equal, which of the following is the most likely consequence of this change?

Group of answer choices

A decrease in the deferred tax asset and an increase in the overall cost of debt.

A decrease in the deferred tax liability and a decrease in the overall cost of debt.

An increase in the deferred tax asset and an increase in the overall cost of debt.

The appropriate and theoretically sound capital budgeting method is NPV. Which of the following arguments will most likely support the statement?

Group of answer choices

NPV shows the amount of gain of wealth.

All managers are risk averse.

All companies have homogenous expectations.

South Corp.'s target capital structure is 50% debt, 10% preferred stock, and 40% common equity. If the beforetax costs of debt, preferred stock, and common equity are 10%, 11%, and 14%, respectively, and the marginal tax rate is 40%, the WACC is closest to:

Group of answer choices

9.3%.

9.7%.

10.3%.

Consider the following statements: Statement 1: A potential supplier of capital will provide capital to a company if the return offered by the company is equal to the return that could be earned elsewhere at a lower risk. Statement 2: The marginal cost of capital is the expected rate of return that investors demand for financing an average risk investment of the company. Which of the following is most likely?

Group of answer choices

Only Statement 2 is incorrect.

Both statements are correct.

Only Statement 1 is incorrect.

The tendency for investors to maintain lessthanoptimally diversified portfolios is most likely explained by:

Group of answer choices

Information cascades.

Overconfidence bias.

Loss aversion.

Being a qualified analyst, you are to assess the performance of financial markets and implement market regulations to mitigate risks associated with the issues you noted. Which of the following will not be one of the issues you will take note of?

Group of answer choices

Existence of fraud

Low return of investments

Agency problems

The process known as reconstitution of a security market index reduces:

Group of answer choices

portfolio turnover.

the need for rebalancing.

deviations from the target market.

A commodity index is most likely to be constructed based on:

Group of answer choices

Spot prices of commodities.

Prices that oil and gas, mining, and agricultural companies sell their production for.

Prices of futures contracts on commodities.

Edwin Anderson, an investor, identifies an arbitraging opportunity on the shares of Metis Consulting Group and he can afford to trade on 1,000 shares. The price levels and the transaction costs are as follows:

Market A	$18.00 per share
Market B	$17.50 per share
Commission charges	$30.00 per batch of 100 shares

Based solely on the information given, which of the following observations is most likely true of the market?

Group of answer choices

The market is highly inefficient and the investor can earn $500 by short selling.

The market is efficient within the bounds of arbitrage as the investor can earn only $100 by short selling.

The market is relatively efficient and the investor will incur a loss of $100 by short selling.

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Edwin Anderson, an investor, identifies an arbitraging opportunity on the shares of Metis Consulting Group and he can afford to trade on 1,000 shares. The price levels and the transaction costs are as follows:

Market A	$18.00 per share
Market B	$17.50 per share
Commission charges	$30.00 per batch of 100 shares

Based solely on the information given, which of the following observations is most likely true of the market?

Group of answer choices

The market is highly inefficient and the investor can earn $500 by short selling.

The market is efficient within the bounds of arbitrage as the investor can earn only $100 by short selling.

The market is relatively efficient and the investor will incur a loss of $100 by short selling.

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Which of the following industry classification systems uses four levels of detail?

Group of answer choices

Statistical Classification of Economic Activities in the European Community (NACE)

North American Industry Classification System (NAICS)

Australian and New Zealand Standard Industrial Classification (ANZSIC)

Jupiter Inc.s shares are currently being traded at their intrinsic value of $105 each. The company is expected to pay a dividend of $3.20 next year, which is expected to grow at a constant rate forever. Given a required rate of return of 13%, the growth rate in dividends is closest to:

Group of answer choices

9%

25%

10%

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Mikey Tan, CFA, wants to estimate the value of the following companies: Willis Apparel, a clothing businessHeadley Agency, an advertising firmVeronica Solutions, a software company For which firm is an assetbased valuation model most appropriate?

Group of answer choices

Veronica Solutions

Willis Apparel

Headley Agency

A U.K.-based investor purchases a dollardenominated ETF and pound sterling subsequently appreciates in value relative to the dollar. What will be the most likely total return for this investor?

Group of answer choices

Less than the ETF's local market total return.

Greater than the ETF's local market total return.

Equal to the ETF's local market total return.

An investor considers the following two bonds. Bond A: 7%, 10year bond selling for $100. Bond B: 7%, 5year bond selling for $100. As compared to the yieldtomaturity (YTM) for Bond A, the YTM for Bond B is:

Group of answer choices

lower.

the same.

higher.

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Dualcurrency bonds make coupon payments:

Group of answer choices

As a combination of a singlecurrency bond plus a foreigncurrency option.

In one currency and pay the par value at maturity in another currency.

As per the floating rates, which are the sum of two componentsthe reference rate and the spread.

When a bond's price rises in the market, its current yield:

Group of answer choices

declines and its yield to maturity declines.

rises and its yield to maturity declines.

rises and its yield to maturity rises.

A 7% U.S. corporate bond is priced for settlement on June 25, 2015. The bond makes semiannual coupon payments on March 11 and September 11 of each year and matures on September 11, 2026. The bond uses the 30/360 daycount convention for accrued interest. Given that stated annual yieldtomaturity is 6.3%, the full price of the bond on June 25 is closest to:

Group of answer choices

$105.6665

$108.8551

$107.5771

Which of the following is most likely an issuer of bonds?

Group of answer choices

Corporation.

Pension fund.

Hedge fund.

Which of the statements is not true?

Group of answer choices

Effective duration is the applicable interest rate risk metric for callable bonds.

Effective duration is the applicable interest rate risk metric for mortgagedbacked bonds.

Effective duration is the applicable interest rate risk metric for coupon bonds.

Calculate the approximate duration given the following information.

Maturity	6 Years
Coupon Rate (Semiannual payments)	9%
Yield-to-Maturity	10%
Change in Yield	50 bps

Group of answer choices

4.50704

4.58716

4.39889

Given a nonparallel shift in the yield curve, yield curve risk for a bond is most likely measured using:

Group of answer choices

Modified duration.

Effective duration.

Key rate duration.

Compute for the Macaulay duration given the following information.

Maturity	10 years
Coupon Rate (Annual Payments)	9%
Yield-to-Maturity	10%
Par Value	100

Group of answer choices

6.5173

6.6845

6.9952

Which of the following statements is most accurate?

Group of answer choices

When the investment horizon is greater than the Macaulay duration of a bond, market price risk dominates coupon reinvestment risk.

When the investment horizon is less than the Macaulay duration of a bond, coupon reinvestment risk dominates market price risk.

When the investment horizon is equal to the Macaulay duration of a bond, coupon reinvestment risk offsets market price risk.

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An investor purchases a share for $11 at the beginning of the year. At the end of Year 1, the stock pays a dividend of $0.75. At the beginning of the second year, the investor purchases another share of the same company for $10. At the end of the second year, the investor sells both shares for $12 each after receiving a $1 per share dividend. The moneyweighted rate of return and the timeweighted rate of return are closest to:

	MoneyWeighted Rate of Return	TimeWeighted Rate of Return
A.	101.43%	12.7%
B.	27.4%	13.3%
C.	17.3%	12.7%

Group of answer choices

Row A

Row C

Row B