Richmond Finance Society Weekly Newsletter - Richmond - The ...

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Issue 7 Vol II Richmond, the American International University in London November 01, 2010Advisor: Dr. Ivan Cohen, Associate Professorof Finance in Richmond, the AmericanInternational University in London.Join the Society!We welcome you all to become members ofthe Finance Society. Send an email to any ofthe officers.Meet the Finance Team*!Feel free to submit a piece of work or articleyou have written to the Finance SocietyWeekly Newsletter if you would like to bepublished torachel.soufan@students.richmond.ac.uk!If you have any questions, comments orsuggestions for the Finance Society or itsweekly newsletter please send them torachel.soufan@students.richmond.ac.uk!Omar ElneserChairmanomarelneser@gmail.comHarold RosbottomVice –Chairhrosbottom@gmail.comJonathan RotenbergTreasurerrotenbergjo@hotmail.comRali GeorgievaSecretaryralitsa.georgieva@richmond.ac.ukRachelle SoufanChief Editorrachel.soufan@richmond.ac.ukwww.richmond.ac.uk 4
Issue 7 Vol II Richmond, the American International University in London November 01, 2010Weekly QuizDo you have what it takes to become a financial analyst?Prove it1. Under which measurement scale is data categorized, but not ranked?A. An ordinal scale.B. A nominal scale.C. An interval scale.2. The joint probability of events A and B is 32 percent with the probability of event A being 60 percent and the probability of event B being 50 percent. Based on thisinformation, the conditional probability of event A given event B has occurred is closest to:A. 30.0%.B. 53.3%.C. 64.0%.3. If a firm’s long-run average cost of production increases by 15 percent as a result of an 8 percent increase in production the firm is most likely experiencing:A. economies of scale.B. diseconomies of scale.C. constant returns to scale.4. A company currently has a debt-to-equity ratio of 1.25. Common shareholder’s equity is $4,000,000, consisting of 1.5 million shares outstanding with a current priceof $28/share. Part of the company’s debt currently outstanding is $1,000,000 of convertible bonds. Each $1,000 par value bond can be converted into 50 common sharesat any time during the next three years. The coupon rate on the bonds is 6 percent with interest paid annually. If all convertible bonds are converted, the company’sdebt-capital ratio is closest to:A. 42.5%.B. 44.4%.C. 80.0%.5. A company has just issued $5 million of mandatory redeemable preferred shares with a par value of $100 per share and a 7 percent dividend. The issue matures in 5years. Which of the following statements is least likely correct? The company’s:A. Debt/Total capital ratio will improve.B. interest coverage ratio will deteriorate.C. preferred shareholders will rank below debt holders should the company file for bankruptcy.6. A company’s $100 par perpetual preferred stock has a dividend rate of 7 percent and a required rate of return of 11 percent. The company’s earnings are expected togrow at a constant rate of 3 percent per year. If the market price per share for the preferred stock is $75, the preferred stock is most appropriately described as being:A. overvalued by $11.36.B. undervalued by $15.13.C. undervalued by $36.36.www.richmond.ac.uk5
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