Question 1

Which of the following statements regarding the cost-benefit analysis is NOT correct?

Accepted Answer

A)  The first step in evaluating a project is to identify its costs and benefits. 
B)  In the absence of competitive markets, we can use one-sided prices to determine exact cash values. 
C)  Competitive market prices allow us to calculate the value of a decision without worrying about the tastes or opinions of the decision maker. 
D)  Because competitive markets exist for most commodities and financial assets, we can use them to determine cash values and evaluate decisions in most situations. 
A)  The first step in evaluating a project is to identify its costs and benefits. 
B)  In the absence of competitive markets, we can use one-sided prices to determine exact cash values. 
C)  Competitive market prices allow us to calculate the value of a decision without worrying about the tastes or opinions of the decision maker. 
D)  Because competitive markets exist for most commodities and financial assets, we can use them to determine cash values and evaluate decisions in most situations.

Question 2

Use the information for the question(s) below.   As an oil refiner, you are able to produce $76 worth of unleaded gasoline from one barrel of Alaska North Slope (ANS) crude oil. Because of its lower sulfur content, you can produce $77 worth of unleaded gasoline from one barrel of West Texas Intermediate (WTI) crude.
Another oil refiner is offering to trade you 10,150 bbl of Alaska North Slope (ANS) crude oil for 10,000 bbl of West Texas Intermediate (WTI) crude oil. Assuming you currently have 10,000 bbl of WTI crude, what should you do?

Accepted Answer

A)  Sell 10,000 bbl WTI crude on the market and use the proceeds to purchase and refine ANS crude. 
B)  Do nothing; refine the 10,000 bbl of WTI crude. 
C)  Trade the 10,000 bbl WTI crude with the other refiner and refine the 10,150 bbl of ANS crude. 
D)  Trade the 10,000 bbl WTI crude with the other refiner and then sell the 10,150 bbl of ANS crude. 
A)  Sell 10,000 bbl WTI crude on the market and use the proceeds to purchase and refine ANS crude. 
B)  Do nothing; refine the 10,000 bbl of WTI crude. 
C)  Trade the 10,000 bbl WTI crude with the other refiner and refine the 10,150 bbl of ANS crude. 
D)  Trade the 10,000 bbl WTI crude with the other refiner and then sell the 10,150 bbl of ANS crude.

Question 3

A 2013 Toyota Camry can be bought in Buffalo, NY, for $18,620. The same model Camry can be purchased across the Canadian border in Hamilton, ON. If cars could be freely traded across the border, what would be the expected price of a 2013 Toyota Camry in Hamilton in Canadian dollars, given that $1 U.S. is equal to $0.92 Canadian?

Accepted Answer

A)  $17,130 
B)  $24,287 
C)  $20,239 
D)  $28,335 
A)  $17,130 
B)  $24,287 
C)  $20,239 
D)  $28,335

Question 4

A metal fabrication company is pricing raw supplies of aluminum. The following are the costs to the company to receive one ton of aluminum from various sources. Which source offers the best price for aluminum per ton?

Accepted Answer

A)  3010 U.S. dollars per ton 
B)  3185 Australian dollars per ton, with $0.953 U.S. = 1 AUD 
C)  5888 Brazilian reals per ton, with $0.507 U.S. = 1 BRL 
D)  105,517 Indian rupees per ton, with $0.029 U.S. = 1 INR 
A)  3010 U.S. dollars per ton 
B)  3185 Australian dollars per ton, with $0.953 U.S. = 1 AUD 
C)  5888 Brazilian reals per ton, with $0.507 U.S. = 1 BRL 
D)  105,517 Indian rupees per ton, with $0.029 U.S. = 1 INR

Question 5

An investor has the opportunity to buy a $10,000 government bond which is guaranteed to yield 6.5% interest in one year's time. The investor decides to make the investment as there is a net difference between the absolute cost and benefit. Which of the following is NOT a reason that the investor's decision may be flawed?

Accepted Answer

A)  It does not consider the current market interest rate. 
B)  It does not consider the fact that though costs are incurred today, the benefits occur in one year's time. 
C)  It does not consider the value of the $10,000 in one year's time if invested elsewhere. 
D)  It does not consider whether the $10,000 will be needed elsewhere. 
A)  It does not consider the current market interest rate. 
B)  It does not consider the fact that though costs are incurred today, the benefits occur in one year's time. 
C)  It does not consider the value of the $10,000 in one year's time if invested elsewhere. 
D)  It does not consider whether the $10,000 will be needed elsewhere.

Question 6

Why should interest rates be generally positive?

Accepted Answer

An investor should be compensa

Question 7

Advanced Micro Devices (NYSE: AMD) is currently trading at $20.75 on the NYSE. Advanced Micro Devices is also listed on NASDAQ. Assume it is currently trading on NASDAQ at $20.50. Does an arbitrage opportunity exist and, if so, how would you exploit it and how much would you make on a block trade of 1000 shares?

Accepted Answer

Yes, buy 1,000 share

Question 8

In a trade with the government of an oil producing nation, a manufacturer will deliver 13 Caterpillar D9 tractors, with a value of $320,000 per tractor, and receive 45,000 barrels of oil, valued at $120 per barrel. What is the net benefit of this trade to the manufacturer?

Accepted Answer

A)  $744,000 
B)  $1,240,000 
C)  $992,000 
D)  $1,488,000 
A)  $744,000 
B)  $1,240,000 
C)  $992,000 
D)  $1,488,000

Question 9

Samantha has holdings of 250 troy ounces of platinum, currently valued at $820 dollars per ounce. She estimates that the price of platinum will rise to $869.20 per ounce in the next year. If the interest rate is 12%, should she sell the platinum today?

Accepted Answer

A)  Yes, as the difference between the present value of selling now and selling in one year is $12,300 dollars today. 
B)  Yes, as the difference between the present value of selling now and selling in one year is $10,982 dollars today. 
C)  Yes, as the difference between the present value of selling now and selling in one year is $9840 dollars today. 
D)  No, as the difference between the present value of selling now and selling in one year is -$8786 dollars today. 
A)  Yes, as the difference between the present value of selling now and selling in one year is $12,300 dollars today. 
B)  Yes, as the difference between the present value of selling now and selling in one year is $10,982 dollars today. 
C)  Yes, as the difference between the present value of selling now and selling in one year is $9840 dollars today. 
D)  No, as the difference between the present value of selling now and selling in one year is -$8786 dollars today.

Question 10

If an analyst incorrectly adds cash flows occurring at different points in time, what is the implied assumption in the process?

Accepted Answer

Cash flows occurring at different points

Question 11

How does arbitrage help the Law of One Price?

Accepted Answer

Any arbitrage opport

Question 12

Consider the following prices from a McDonald's Restaurant:   A McDonald's Big Mac value meal consists of a Big Mac sandwich, large Coke, and a large fries. Assuming that there is a competitive market for McDonald's food items, at what price must a Big Mac value meal sell to insure the absence of an arbitrage opportunity and uphold the Law of One Price?

Accepted Answer

A)  $4.08 
B)  $4.62 
C)  $5.44 
D)  $6.80 
A)  $4.08 
B)  $4.62 
C)  $5.44 
D)  $6.80

Which of the following statements regarding the cost-benefit analysis is NOT correct?

A metal fabrication company is pricing raw supplies of aluminum. The following are the costs to the company to receive one ton of aluminum from various sources. Which source offers the best price for aluminum per ton?

Why should interest rates be generally positive?

In a trade with the government of an oil producing nation, a manufacturer will deliver 13 Caterpillar D9 tractors, with a value of $320,000 per tractor, and receive 45,000 barrels of oil, valued at $120 per barrel. What is the net benefit of this trade to the manufacturer?

Samantha has holdings of 250 troy ounces of platinum, currently valued at $820 dollars per ounce. She estimates that the price of platinum will rise to $869.20 per ounce in the next year. If the interest rate is 12%, should she sell the platinum today?

If an analyst incorrectly adds cash flows occurring at different points in time, what is the implied assumption in the process?

How does arbitrage help the Law of One Price?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters

Exam 3: Time Value of Money: an Introduction

Which of the following statements regarding the cost-benefit analysis is NOT correct?

A metal fabrication company is pricing raw supplies of aluminum. The following are the costs to the company to receive one ton of aluminum from various sources. Which source offers the best price for aluminum per ton?

Why should interest rates be generally positive?

In a trade with the government of an oil producing nation, a manufacturer will deliver 13 Caterpillar D9 tractors, with a value of $320,000 per tractor, and receive 45,000 barrels of oil, valued at $120 per barrel. What is the net benefit of this trade to the manufacturer?

Samantha has holdings of 250 troy ounces of platinum, currently valued at $820 dollars per ounce. She estimates that the price of platinum will rise to $869.20 per ounce in the next year. If the interest rate is 12%, should she sell the platinum today?

If an analyst incorrectly adds cash flows occurring at different points in time, what is the implied assumption in the process?

How does arbitrage help the Law of One Price?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters