4. Which of the following financial ratios indicates the extent to which current

Question

4. Which of the following financial ratios indicates the extent to which current assets can be
converted to cash to meet current obligations?
a. Acid-test ratio
b. Quick ratio
c. Current ratio
d. Net profit ratio

5. A $1,000 par value bond pays 4% coupon semiannually and matures in 10 years. You are
deciding whether to invest in this bond. Currently your money is invested in a portfolio which
generates return at the rate of 10% per year, compounded semiannually. What maximum
current market price of the bond are you willing to pay?
a. $875.38
b. $877.11
c. $1,000.00
d. $1,148.60

6. Wal-Mart bonds with 5 full years remaining to maturity, a $1,000 par value, a 12% annual
coupon rate, and semiannual interest payments can be purchased today for $977.22. What is
the semiannual Yield to Maturity?
a. 7.4%
b. 5.2%
c. 4.1%
d. 6.3%

7. You purchased a stock on June 1, 2004 for $21 per share. You sold this stock 3 years later
for $38. Assuming that the stock paid no dividends, calculate your compound annual rates of
return.
a. 16.0%
b. 21.9%
c. 27.0%
d. 81.0%

8. Which of the following is the accounting equation?
a. Income - Expenses = Gross Income
b. Income - Cost of Goods Sold = Gross Income
c. Assets + Owners

Explanation / Answer

4) a. Acid-test ratio

5) c. $1,000.00

6) b. 5.2%

7) c. 27.0%

8)c. Assets + Owners

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