Sample valuation exam
How much will the coupon payments be of a 20-year $5,000 bond with a 7% coupon rate and semiannual payments?
C=5000*0.07/2=175
If $9,000 is invested in a certain business at the start of the year, the investor will receive $2,700 at the end of each of the next four years. What is the present value of this business opportunity if the interest rate is 3% per year?
$1,036 = PV(3%,4,-2700,0)-9,000 PMT = -$2,700 N = 4 I/Y = 3% FV = 0
A risk-free, zero-coupon bond with a face value of $5,000 has 15 years to maturity. If the YTM is 5.8%, which of the following would be closest to the price this bond will trade at?
$2,146 = PV(5.8,15,0,-5000) FV=5000 N=15 I/Y=5.8%
You are saving money to buy a car. If you save $320 per month starting one month from now at an interest rate of 6%, how much will you be able to spend on the car after saving for 5 years?
$22,326 = FV(6%/12,5*12,320,0) OR FV=320/(0.06/12)*((1+0.06/12)^60-1)
Dan buys a property for $300,000. He is offered a 30-year loan by the bank, at an interest rate of 9% per year. What is the annual loan payment Dan must make?
$29,200.91 = PMT(9%,30,-300000,0)
What must be the price of a $10,000 bond with a 6.4% coupon rate, semiannual coupons, and ten years to maturity if it has a yield to maturity of 10% APR?
$7,757=PV(5%,20,320,10000) N=2*10=20 I/Y = 10%/2 =5% PMT=6.4%*10000/2=320 FV=10000
An annuity is set up that will pay $1,400 per year for 10 years. What is the present value (PV) of this annuity given that the discount rate is 9%?
$8,985 = PV (9%,10,-1400,0) OR PV=1400/0.09*(1-1/1.09^10)
A risk-free, zero-coupon bond with a $5,000 face value has 15 years to maturity. The bond currently trades at $3,790. What is the yield to maturity of this bond?
1.864% = Rate(15,0,-3790,5000,0) N=15 PV=3790 FV=5000 PMT=0
What is the yield to maturity of a ten-year, $5,000 bond with a 5.4% coupon rate and semiannual coupons if this bond is currently trading for a price of $4,725?
6.14%=Rate(2*10,5.4%*5000/2,-4725,5000) N=2*10 PMT=5.4%*5000/2 PV=-4725 FV=5000
Clarissa wants to fund a growing perpetuity that will pay $7,000 per year to a local museum, starting next year. She wants the annual amount paid to the museum to grow by 5% per year. Given that the interest rate is 9%, how much does she need to fund this perpetuity?
7000/(0.09-0.05)=$175,000
Gremlin Industries will pay a dividend of $1.55 per share this year. It is expected that this dividend will grow by 4% per year each year in the future. The current price of Gremlin's stock is $24.00 per share. What is Gremlin's equity cost of capital?
r= D/P +g =1.55/24+.04 = 10.5%
Jumbuck Exploration has a current stock price of $2.05 and is expected to sell for $2.15 in one year's time, immediately after it pays a dividend of $0.32. Which of the following is closest to Jumbuck Exploration's equity cost of capital?
r=(D1+P1-P0)/P0)=(0.32+2.15-2.05)/2.05=20.49% D1=0.32 P1=2.15 P0=2.05
A company has stock which costs $43.75 per share and pays a dividend of $2.70 per share this year. The company's cost of equity is 9%. What is the expected annual growth rate of the company's dividends?
r=D/P+g, g=r-D/P =0.09-2.7/43.75 = 2.83%
A lender lends , which is to be repaid in annual payments of for 6 years. Which of the following shows the timeline of the loan from the lender's perspective?
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 -$10,100 $2,080 $2,080 $2,080 $2,080 $2,080 $2,080
What is the coupon rate of a eight-year, $5,000 bond with semiannual coupons and a price of $4,320.42, if it has a yield to maturity of 6.6%?
Coupon rate=PMT*2/5000 4.386% =PMT(303%,18,-4320.42,5000)*2/5000 I/Y = 6.6%/2 N = 8*2 PV = -4320.42 FV = 5000
What is the future value (FV) of $60,000 in 25 years, assuming the interest rate is 6% per year?
Fv = $257,512 PV = $60,000 N = 25 I/Y = 6%
If $18,000 is invested at 15% per year, in approximately how many years will the investment double?
N = 5 Year PV = -$18,000 FV= $36,000 I/Y = 10%
A corporation issues a bond that generates the above cash flows. If the periods shown are 1 month, which of the following best describes that bond?
N=180/12=15, APR=22.5/5000*12 = 5.4%
A stock is expected to pay $3.90 per share every year indefinitely and the equity cost of capital for the company is 11%. What price would an investor be expected to pay per share next year
P = $3.9/11% = $35.45
NoGrowth Industries presently pays an annual dividend of $2.00 per share and it is expected that these dividend payments will continue indefinitely. If NoGrowth's equity cost of capital is 12%, then the value of a share of NoGrowth's stock is closest to:
P = Div1/(r-g) = 2/ (0.12-0) = $16.67
Von Bora Corporation (VBC) is expected to pay a $3.75 dividend at the end of this year. If you expect VBC's dividend to grow by 5% per year forever and VBC's equity cost of capital is 11%, then the value of a share of VBS stock is closest to:
P = Div1/(r-g) = 3.75/ (0.11-0.05) = $62.5
What is the present value (PV) of $200,000 received 7 years from now, assuming the interest rate is 9% per year?
PV = $ 109,407 FV = $200,000 N = 7 I/Y = 9%
Consider the following timeline detailing a stream of cash flows: Date 0 1 2 3 4 Cashflow ? $5,000 $6,000 $7,000 $8,000 If the current market rate of interest is 7%, then the present value (PV) of this stream of cash flows is closest to:
PV = $21,731 = 5000/1.07 + 6000/1.07^2 + 7000/1.07^3 + 8000/1.07^4
Sara wants to have $580,000 in her savings account when she retires. How much must she put in the account now, if the account pays a fixed interest rate of 10%, to ensure that she has $580,000 in 20 years time?
PV = $86123 N = 20 I/Y = 10 FV = $580,000