323 Exam 1

An individual has $15,000 invested in a stock with a beta of 0.6 and another $40,000 invested in a stock with a beta of 1.2. If these are the only two investments in her portfolio, what is her portfolio's beta? Round your answer to two decimal places.

1.03

Last year Janet purchased a $1,000 face value corporate bond with an 8% annual coupon rate and a 15-year maturity. At the time of the purchase, it had an expected yield to maturity of 7.47%. If Janet sold the bond today for $980.84, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places.

1.33

Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.52. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 1.08. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places.

1.52

Bond X is noncallable and has 20 years to maturity, a 10% annual coupon, and a $1,000 par value. Your required return on Bond X is 8%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 10.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at the end of 5 years.) Do not round intermediate calculations. Round your answer to the nearest cent.

1054.69

You have $35,318.65 in a brokerage account, and you plan to deposit an additional $3,000 at the end of every future year until your account totals $210,000. You expect to earn 12% annually on the account. How many years will it take to reach your goal? Round your answer to two decimal places at the end of the calculations.

12

If you deposit $11,000 in a bank account that pays 3% interest annually, how much will be in your account after 5 years? Round your answer to the nearest cent.

12,752.01

HR Industries (HRI) has a beta of 2.4, while LR Industries's (LRI) beta is 0.4. The risk-free rate is 6%, and the required rate of return on an average stock is 13%. The expected rate of inflation built into rRF falls by 1.5 percentage points; the real risk-free rate remains constant; the required return on the market falls to 10.5%; and all betas remain constant. After all of these changes, what will be the difference in the required returns for HRI and LRI? Round your answer to two decimal places.

12.0

Nine years ago the Templeton Company issued 26-year bonds with an 12% annual coupon rate at their $1,000 par value. The bonds had an 8% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places.

12.53

What is the present value of a security that will pay $41,000 in 20 years if securities of equal risk pay 4% annually? Round your answer to the nearest cent.

18,711.86

Your parents will retire in 20 years. They currently have $350,000 saved, and they think they will need $1,150,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds? Round your answer to two decimal places.

6.13

If you deposit money today in an account that pays 11% annual interest, how long will it take to double your money? Round your answer to two decimal places.

6.64

If the market's required rate of return is 9% and the risk-free rate is 6%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

7.07

Madsen Motors's bonds have 19 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 6.5%; and the yield to maturity is 8%. What is the bond's current market price? Round your answer to the nearest cent.

855.95

Assume that the risk-free rate is 5.5% and the required return on the market is 9%. What is the required rate of return on a stock with a beta of 1? Round your answer to two decimal places.

9

C

A rookie quarterback is negotiating his first NFL contract. His opportunity cost is 10%. He has been offered three possible 4-year contracts. Payments are guaranteed, and they would be made at the end of each year. Terms of each contract are as follows: a. Contract 3 gives the quarterback the highest present value; therefore, he should accept Contract 3. b. Contract 1 gives the quarterback the highest present value; therefore, he should accept Contract 1. c. Contract 2 gives the quarterback the highest present value; therefore, he should accept Contract 2. d. Contract 3 gives the quarterback the highest future value; therefore, he should accept Contract 3. e. Contract 1 gives the quarterback the highest future value; therefore, he should accept Contract 1

Last year Carson Industries issued a 10-year, 15% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,075 and it sells for $1,180. A. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places. Would an investor be more likely to earn the YTM or the YTC? B. What is the current yield? (Hint: Refer to Footnote 7 for the definition of the current yield and to Table 7.1.) Round your answer to two decimal places. C. What is the expected capital gains (or loss) yield for the coming year? Use amounts calculated in above requirements for calculation, if required. Round your answer to two decimal places. Enter a loss percentage, if any, with a minus sign.

A: 11.71 11.65 Since YTM is above the YTC, the bond is likely to be called. B: 12.71 C: -1.07

Your client is 27 years old. She wants to begin saving for retirement, with the first payment to come one year from now. She can save $11,000 per year, and you advise her to invest it in the stock market, which you expect to provide an average return of 6% in the future. A.If she follows your advice, how much money will she have at 65? Round your answer to the nearest cent. B. How much will she have at 70? Round your answer to the nearest cent. C. She expects to live for 20 years if she retires at 65 and for 15 years if she retires at 70. If her investments continue to earn the same rate, how much will she be able to withdraw at the end of each year after retirement at each retirement age? Round your answers to the nearest cent. Annual withdrawals if she retires at 65: Annual withdrawals if she retires at 70:

A: 1494946.26 B:2062583.35 C: 65: 130336.23 70: 212369.28

A stock has a required return of 15%; the risk-free rate is 7%; and the market risk premium is 3%. A. What is the stock's beta? Round your answer to two decimal places. B. If the market risk premium increased to 9%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. I. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium. II. If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium. III. If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium. IV. If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. V. If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium. New stock's required rate of return will be

A: 2.67 B: I 31.03

You have saved $3,000 for a down payment on a new car. The largest monthly payment you can afford is $450. The loan will have a 8% APR based on end-of-month payments. A. What is the most expensive car you can afford if you finance it for 48 months? Do not round intermediate calculations. Round your answer to the nearest cent. B. What is the most expensive car you can afford if you finance it for 60 months? Do not round intermediate calculations. Round your answer to the nearest cent.

A: 21432.86 B: 25193.29

A. What's the future value of a 6%, 5-year ordinary annuity that pays $400 each year? Round your answer to the nearest cent. B.If this was an annuity due, what would its future value be? Round your answer to the nearest cent.

A: 2254.84 B:2390.13

Simon recently received a credit card with an 13% nominal interest rate. With the card, he purchased an Apple iPhone 5 for $490. The minimum payment on the card is only $20 per month. A.If Simon makes the minimum monthly payment and makes no other charges, how many months will it be before he pays off the card? Do not round intermediate calculations. Round your answer to the nearest month. B. If Simon makes monthly payments of $60, how many months will it be before he pays off the debt? Do not round intermediate calculations. Round your answer to the nearest month. C. How much more in total payments will Simon make under the $20-a-month plan than under the $60-a-month plan. Do not round intermediate calculations. Round your answer to the nearest cent.

A: 29 B: 9 C: 56.20

A bond has a $1,000 par value, 20 years to maturity, and a 8% annual coupon and sells for $1,110. A.What is its yield to maturity (YTM)? Round your answer to two decimal places. B. Assume that the yield to maturity remains constant for the next 5 years. What will the price be 5 years from today? Do not round intermediate calculations. Round your answer to the nearest cent.

A: 6.96 B: 1094.96

An investment will pay $50 at the end of each of the next 3 years, $250 at the end of Year 4, $350 at the end of Year 5, and $550 at the end of Year 6. A. If other investments of equal risk earn 11% annually, what is its present value? Round your answer to the nearest cent. B.If other investments of equal risk earn 11% annually, what is its future value? Round your answer to the nearest cent.

A:788.63 B: 1475.07

Bank A pays 4.5% interest compounded annually on deposits, while Bank B pays 4% compounded daily. Based on the EAR (or EFF%), which bank should you use? I. You would choose Bank A because its EAR is higher. II. You would choose Bank B because its EAR is higher. III.You would choose Bank A because its nominal interest rate is higher. IV. You would choose Bank B because its nominal interest rate is higher. V. You are indifferent between the banks and your decision will be based upon which one offers you a gift for opening an account.

I Effective Annual Rate= 4.0808%

A: 14.50 B: 12.34 C: 1.35

A. Calculate the expected rate of return, rB, for Stock B (rA = 11.20%.) Do not round intermediate calculations. Round your answer to two decimal places. B. Calculate the standard deviation of expected returns, σA, for Stock A (σB = 19.52%.) Do not round intermediate calculations. Round your answer to two decimal places. C. Now calculate the coefficient of variation for Stock B. Round your answer to two decimal places.

Pelzer Printing Inc. has bonds outstanding with 10 years left to maturity. The bonds have a 7% annual coupon rate and were issued 1 year ago at their par value of $1,000. However, due to changes in interest rates, the bond's market price has fallen to $810.40. The capital gains yield last year was -18.96%. A. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places. B. For the coming year, what is the expected current yield? (Hint: Refer to footnote 7 for the definition of the current yield and to Table 7.1.) Do not round intermediate calculations. Round your answer to two decimal places. For the coming year, what is the expected capital gains yield? (Hint: Refer to footnote 7 for the definition of the current yield and to Table 7.1.) Do not round intermediate calculations. Round your answer to two decimal places.

A: 10.10 B: 8.64 1.46

Assume that the risk-free rate is 4% and the market risk premium is 7%. A. What is the required return for the overall stock market? Round your answer to two decimal places. B. What is the required rate of return on a stock with a beta of 1.4? Round your answer to two decimal places.

A: 11 B: 13.80

Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 40% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of 1.2, and a 20.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%. A. Calculate each stock's coefficient of variation. Round your answers to two decimal places. Do not round intermediate calculations. CVx= CVy= B. Calculate each stock's required rate of return. Round your answers to two decimal places. rx= ry= C. Calculate the required return of a portfolio that has $10,000 invested in Stock X and $3,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places. rp= D. If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?

A: 4.21 1.6 B: 10 12 C: 12.5 D: Stock Y

A.You plan to make five deposits of $1,000 each, one every 6 months, with the first payment being made in 6 months. You will then make no more deposits. If the bank pays 6% nominal interest, compounded semiannually, how much will be in your account after 3 years? Round your answer to the nearest cent. B. One year from today you must make a payment of $5,000. To prepare for this payment, you plan to make two equal quarterly deposits (at the end of Quarters 1 and 2) in a bank that pays 6% nominal interest compounded quarterly. How large must each of the two payments be? Round your answer to the nearest cent.

A: 5468.41 B: 2408.59