Oregon State BA240 Midterm 1 (Adams)

Luxury Properties offers bonds with a coupon rate of 8.8 percent paid semiannually. The yield to maturity is 11.2 percent and the maturity date is 11 years from today. What is the market price of this bond if the face value is $1,000?

$850.34

What is the future value of $1,575 a year for 25 years at 6.3 percent interest, compounded annually?

$90,152.04

What is the future value of $453 invested for 16 years at an interest rate of 4.5% if the interest is compounded monthly?

$929.41

What is the correct way to input a cash OUTFLOW of $100 at the beginning of the investment period?

-100, PV.

Towne Station is saving money to build a new loading platform. Three years ago, they set aside $23,000 for this purpose. Today, that account is worth $31,406. What rate of interest is Towne Station earning on this investment?

10.94 percent

An annuity that pays $12,500 a year at an annual interest rate of 5.45 percent costs $150,000 today. What is the length of the annuity time period?

20 years

A credit card company quotes you an APR of 18.9 percent. What is the actual rate of interest you are paying if interest is computed monthly?

20.63 percent

Which of these correctly represents a 3-year $100 ordinary annuity on a timeline? $100 at time zero, $100 in year 1, $100 in year 2, $0 in year 3 $100 at time zero, $100 in year 1, $100 in year 2, $100 in year 3 $0 at time zero, $100 in year 1, $100 in year 2, $100 in year 3

$0 at time zero, $100 in year 1, $100 in year 2, $100 in year 3

Dexter Mills issued 20-year bonds one year ago at a coupon rate of 10.2 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM is 8.2 percent, what is the current bond price?

$1,190.93

You just signed a consulting contract that will pay you $38,000, $42,000, and $45,000 annually at the end of the next three years, respectively. What is the present value of this contract given a discount rate of 10.5?

$102,138.76

What is the present value of 19 annual payments of $821 discounted at 3.5 percent? Round your answer to the nearest cent.

$11,255.78

Shore Hotels just paid an annual dividend of $1.50 per share. The company will increase its dividend by 7 percent next year and will then reduce its dividend growth rate by 2 percentage points per year until it reaches the industry average of 3 percent dividend growth, after which the company will keep a constant growth rate forever. What is the price of this stock today given a required return of 14 percent?

$14.85

You borrowed $185,000 for 30 years to buy a house. The interest rate is 4.35 percent, compounded monthly. If you pay all of your monthly payments as agreed, how much total interest will you pay on this mortgage? (Round the monthly payment to the nearest whole cent.)

$146,542

What is the future value of $273 invested for 66 years at 10.2 percent compounded annually? Round your answer to the nearest cent.

$166,015.21

A firm has a current EPS of $1.63 and a benchmark PE of 11.7. Earnings are expected to grow 2.6 percent annually. What is the target stock price in one year?

$19.57

Kris borrowed $25,000 with an interest-only, 4-year loan at 4.75 percent. What is the amount of the loan payment in Year 4 if payments are made annually?

$26,187.50

Currently, a firm has an EPS of $2.08 and a benchmark PE of 12.7. Earnings are expected to grow by 3.8 percent annually. What is the estimated current stock price?

$26.42

Gee-Gee's is going to pay an annual dividend of $2.05 a share next year. This year, the company paid a dividend of $2 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth six years from now if the applicable discount rate is 11.2 percent?

$27.33

Today, you have two coins each of which is valued at $100. One coin is expected to appreciate by 5.2 percent annually while the other coin should appreciate by 5.7 percent annually. What will be the difference in the value of the two coins 50 years from now?

$337.43

What is the future value of $11,600 invested for 17 years at 7.25 percent compounded annually?

$38,125.20

You just received a $5,000 gift from your grandmother which you have decided to save and then gift to your grandchildren 50 years from now. How much additional money will you gift if you earn 7.5 percent interest rather than 7 percent interest over the next 50 years?

$38,663.60

A newly issued 10-year, $1,000, zero coupon bond just sold for $311.05. What is the implicit interest, in dollars, for the first year of the bond's life? Assume semiannual compounding.

$38.53

Your grandmother will be gifting you $150 at the end of each month for four years while you attend college. At a discount rate of 3.7 percent, what are these payments worth to you on the day you enter college?

$6,682.99

The Distribution Point plans to save $2,000 a month for the next 3 years for future emergencies. The interest rate is 4.5 percent compounded monthly. The first monthly deposit will be made today. What would today's deposit amount have to be if the firm opted for one lump sum deposit that would yield the same amount of savings as the monthly deposits after 3 years?

$67,485.97

You own one share of a cumulative preferred stock that pays quarterly dividends. The firm has recently suffered some financial setbacks and has failed to pay the last two dividends. However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter. As a preferred shareholder, you should expect to receive the equivalent of ____ quarter(s) of dividends when the next dividend is paid.

3

The $1,000 par value bonds of Uptown Tours have a coupon rate of 6.5 and a current price quote of 101.23. What is the current yield?

6.42 percent

A new sports coupe costs $33,383 and the finance office has quoted you an APR of 8.09% compounded monthly, for 36 months. What is the EAR? Round your answer to the nearest hundredth of a percent (e.g. "8.01").

8.4

The decision to issue additional shares of stock is an example of:

A capital structure decision

Which of the following is NOT an advantage of using multiples to value stock? -Always more accurate than discounting future dividends -Generally easy to obtain the necessary information -Can be used for firms that don't pay regular dividends

Always more accurate than discounting future dividends

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? Cost analysis Capital structure Cash management Working capital management Capital budgeting

Capital Structure

In which case can you use the Dividend Growth Model (DGM) to calculate the value of a stock? -Common stock that pays dividends that are expected to grow inconsistently. -Common Stock that pays dividends that are expected to grow at a constant rate -Common Stock that pays no dividends -Preferred Stock

Common Stock that pays dividends that are expected to grow at a constant rate

Which one of the following relationships applies to a par value bond? -Coupon rate > Current yield > Yield to maturity -Coupon rate > Yield to maturity > Current yield -Yield to maturity > Current yield > Coupon rate -Coupon rate = Current yield = Yield to maturity -Coupon rate < Yield to maturity < Current yield

Coupon rate = Current yield = Yield to maturity

Working capital management decisions include determining: -Determining the best method of producing a product.-Determining the number of employees needed to work during a particular shift -Determining when to replace obsolete equipment. -Determining if a competitor should be acquired. -Determining the minimum level of cash to be kept in a checking account.

Determining the minimum level of cash to be kept in a checking account.

The par value payment to be received at maturity is entered into you calculator as...

FV (Future Value)

In any timeline, "time zero" is always the present moment. True/False

False

Simple interest= compound interest + interest on interest True/False

False

Stockholders enjoy the benefits of ownership without any of the risk. True/False

False

To calculate the appropriate per period rate, divide the EAR by the number of compounding periods per year. True/False

False

When an organization issues bonds, they are essentially lending money. True/False

False

You can solve for the future value of a set of uneven cash flows using the CF function on your calculator. True/False

False

Jen owns 30 shares of stock in Delta Fashions and wants to win a seat on the board of directors. The firm has a total of 100 shares of stock outstanding. Each share receives one vote. Presently, the company is voting to elect three new directors. Which one of the following statements must be true given this information? -Regardless of the voting procedure, Jen does not own enough shares to gain a seat on the board. -If straight voting applies, Jen is assured a seat on the board. -If straight voting applies, Jen can control all of the open seats. -If cumulative voting applies, Jen is assured one seat on the board. -If cumulative voting applies, Jen can control all of the open seats.

If cumulative voting applies, Jen is assured one seat on the board.

Jing is going to receive $20,000 six years from now. Yun is going to receive $20,000 nine years from now. Which one of the following statements is correct if both individuals apply a discount rate of 7 percent? -In present value, Jing's money is worth more than Yun's. -Twenty years from now, the value of Jing's money will equal the value of Yun's money. -The present values of Jing's and Yun's money are equal. -In future value, Yun's money is worth more than Jing's money. -Yun's money is worth more than Jing's money given the 7 percent discount rate.

In present value, Jing's money is worth more than Yun's.

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

Limited Partner

What tends to change over the life of a bond?

Market price

The current yield is defined as the annual interest on a bond divided by the:

Market price.

You are comparing two investment options that each pay 6 percent interest, compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. (No calculations needed.) -Both options are of equal value since they both provide $12,000 of income. -Option A has the higher future value at the end of Year 3. -Option B has a higher present value at Time 0. -Option B is a perpetuity. -Option A is an annuity.

Option B has a higher present value at Time 0.

Which of the following loan types is repaid entirely (principal & interest) with a single payment? -Interest Only -Pure Discount -Amortized -Balloon

Pure Discount

The entire repayment of a(n) _____ loan is computed simply by computing one single future value.

Pure discount

Which one of the following is a working capital management decision? How many shares of stock should the firm issue to fund an acquisition? What type(s) of equipment is (are) needed to complete a current project? Should the firm pay cash for a purchase or use the credit offered by the supplier? What amount of long-term debt is required to complete a project? Should a project be accepted?

Should the firm pay cash for a purchase or use the credit offered by the supplier?

Which best describes an appropriate input for the white "PMT" key on your calculator? - The amount of a single annuity cash flow - The sum total of annuity cash flows - The number of annuity cash flows to be received (or paid)

The amount of a single annuity cash flow

Which one of the following statements concerning interest rates is correct? -Savers would prefer annual compounding over monthly compounding given the same annual percentage rate. -The effective annual rate decreases as the number of compounding periods per year increases. -The effective annual rate equals the annual percentage rate when interest is compounded annually. -Borrowers would prefer monthly compounding over annual compounding given the same annual percentage rate. -For any positive rate of interest, the annual percentage rate will always exceed the effective annual rate.

The effective annual rate equals the annual percentage rate when interest is compounded annually.

A Net Present Value of zero means that the project cash flows provide a return that is exactly equal to the discount rate used. True/False

True

A nominal rate of return measures growth of money, whereas the real rate measures growth of purchasing power? True/False

True

Firms do not receive any cash as a result of secondary market transactions. True/False

True

Identifying annuity cash flows can be a time-saving short cut. True/False

True

In the context of bond pricing, a "premium" is a higher expected return that a bondholder can expect in exchange for bearing addition risk. True/False

True

Net present value analysis allows complex investment options to be compared. True/False

True

The ICONV functions allows you to solve for APR if you know EAR and the number of compounding periods per year. True/False

True

Which of the questions below relate to capital structure? -How much cash do I need to keep on hand? -What assets will generate cash? How much cash do I need to generate? -What interest rate will I have to pay? What rate of return will investors demand? Do I want to share the risk? Do I want to share the reward?

What interest rate will I have to pay? What rate of return will investors demand? Do I want to share the risk? Do I want to share the reward?

An example of a capital budgeting decision is deciding: -How many shares of stock to issue. -Whether or not to purchase a new machine for the production line. -How to refinance a debt issue that is maturing. -How much inventory to keep on hand. -How much money should be kept in the checking account.

Whether or not to purchase a new machine for the production line.

A firm's short-term assets and its short-term liabilities are referred to as the firm's:

Working Capital