Unit 4 - Practice Quiz

1 Which of the following best defines return in a financial context?

2 What is the formula for calculating the Holding Period Return (HPR) on a stock?

3 If you bought a share for 110, and received a dividend of $5, what is your percentage return?

4 Which statistical measure is most commonly used to quantify the total risk of a single asset?

5 The Expected Return () of a single asset given various economic scenarios is calculated as:

6 An investment has a 50% chance of earning a 20% return and a 50% chance of earning a 10% return. What is the Expected Return?

7 Which coefficient measures the risk per unit of return, allowing for comparison between assets with different expected returns?

8 Risk that represents the portion of an asset's risk that can be eliminated through diversification is called:

9 In financial management, Leverage generally refers to:

10 Which type of leverage is associated with the relationship between Sales and EBIT (Earnings Before Interest and Taxes)?

11 What is the formula for Degree of Operating Leverage (DOL) at a specific level of sales?

12 If a firm has High Operating Leverage, it implies:

13 Calculate the Contribution if Sales are $100,000$ and Variable Costs are $40,000$.

14 A company has Sales of $200,000$, Variable Costs of $100,000$, and Fixed Operating Costs of $50,000$. What is the Degree of Operating Leverage (DOL)?

15 Financial Leverage arises due to the presence of:

16 The Degree of Financial Leverage (DFL) measures the sensitivity of:

17 What is the formula for Degree of Financial Leverage (DFL) assuming no preference capital?

18 If a company has EBIT of $100,000$ and Interest expenses of $20,000$, what is the DFL?

19 Combined Leverage (DCL) is calculated as:

20 Combined Leverage measures the relationship between changes in Sales and changes in:

21 Which of the following formulas represents the Degree of Combined Leverage (DCL)?

22 If DOL is 2.5 and DFL is 2.0, what is the Degree of Combined Leverage?

23 What is the Variance () of returns if the returns are 5%, 10%, and 15% with equal probability (Mean = 10%)?

24 Operating leverage is a measure of:

25 Financial leverage is a measure of:

26 If a company has no debt and no preference shares, its Financial Leverage will be:

27 A firm with high fixed operating costs and low variable costs is said to be:

28 Which of the following is true regarding Trading on Equity?

29 In the calculation of DFL, how is Preference Dividend (PD) treated if corporate tax rate is ?

30 If Sales increase by 10% and EPS increases by 40%, what is the Degree of Combined Leverage (DCL)?

31 If the Break-even point is high, the Operating Leverage is generally:

32 The percentage change in EBIT divided by the percentage change in Sales is the definition of:

33 If a stock price is 2, and the expected growth rate is 5%, what is the expected return using the Gordon Growth Model ()?

34 Which of the following reduces the Degree of Operating Leverage?

35 What indicates a favorable financial leverage?

36 In a probability distribution of returns, a "tight" distribution (peaked curve) implies:

37 Given: Contribution = $500,000$, Fixed Costs = $200,000$, Interest = $100,000$. Calculate DFL.

38 If a firm has a DOL of 3 and Sales increase by 5%, EBIT will increase by:

39 Systematic risk is measured by:

40 If an asset's return moves in the exact opposite direction to the market return, the correlation coefficient is:

41 Company A has high operating leverage and Company B has low operating leverage. In an economic downturn (falling sales), which company will suffer a sharper decline in EBIT?

42 The Indifference Point in financial management refers to the level of EBIT where:

43 Calculation: Sales = $1,000$, VC = $600$, FC = $200$, Interest = $100$. Calculate DCL.

44 Why is debt interest considered a "tax shield"?

45 Real Return differs from Nominal Return because Real Return adjusts for:

46 If Probability and . What is the variance?

47 Which leverage explains the relationship between % change in EBT and % change in EBIT?

48 A firm has a negative DFL. This implies:

49 Which of the following is NOT required to calculate Operating Leverage?

50 Total Risk of a firm is composed of: