FIN3403 Final

You invested $6,500 at 6 percent simple interest. How much more could you have earned over a 10-year period if the interest had compounded annually? A) $1,182.19 B) $1,049.22 C) $1,201.15 D) $1,240.51 E) $930.11 Quiz 3

D) $1,240.51

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? A) $102,138.76 B) $108,307.67 C) $96,422.15 D) $112,860.33 E) $92,433.27 Quiz 5

A) $102,138.76

Flo's Flowers pays an annual dividend that increases by 1.8 percent per year, commands a market rate of return of 13.8 percent, and sells for $19.08 a share. What is the expected amount of the next dividend? A) $2.29 B) $2.37 C) $2.17 D) $2.24 E) $2.32 Quiz 7

A) $2.29 Growth rate, g = 1.8% Current Price, P0 = $19.08 Market rate of return, r = 13.8% Rate of Return = Next Year Dividend / Current Price + growth rate 0.138 = D1 / $19.08 + 0.018 .12 = D1 / $19.08 D1 = $2.29

Over the next three years, Distant Groves will pay annual dividends of $.65, $.70, and $.75 a share, respectively. After that, dividends are projected to increase by 2 percent per year. What is one share of this stock worth today at a required return of 14.5 percent? A) $5.68 B) $5.55 C) $5.49 D) $5.86 E) $5.94 Quiz 7

A) $5.68

You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.46 and the total portfolio is equally as risky as the market. What is the beta of the second stock? A) 1.54 B) .87 C) 1.94 D) 1.38 E) 1.72 Quiz 10

A) 1.54 risk free asset has beta of 0 market beta = 1 1=1/3*0 +1/3*1.46 +1/3*beta (might just be 3-1.46= 1.54) If risk-free = 0 and stock 1 = 1.7, then 1.3 is needed to average a beta of 1 among all three.

World Travel has 7 percent, semiannual, coupon bonds outstanding with a current market price of $1,023.46, a par value of $1,000, and a yield to maturity of 6.72 percent. How many years is it until these bonds mature? A) 12.53 years B) 12.26 years C) 24.37 years D) 18.49 years E) 25.05 years Quiz 6

A) 12.53 years

Hydro Systems has bonds outstanding with a face value of $1,000, 13 years to maturity, and a coupon rate of 6.5 percent, paid annually. What is the company's pretax cost of debt if the bonds currently sell for $1,056? A) 5.87 percent B) 5.55 percent C) 4.71 percent D) 5.36 percent E) 6.42 percent Quiz 11

A) 5.87 percent PV= -1,056 (being the current market price) FV=1000 (being the face value) N= 13(Number of years) PMT=1000*6.5%=65 (Annual payment) Click CPT on the calculator Click I/Y= 5.87%

Which one of these statements is correct? Quiz 6

A) Bonds often provide tax benefits to issuers

A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith Inc. What is the return that these individuals require on this investment called? Quiz 11

A) Cost of equity

Allison just received the semiannual payment of $35 on a bond she owns. Which term refers to this payment? Quiz 6

A) Coupon

Which one of the following is an agency cost? Quiz 1

A) Hiring outside accountants to audit the company's financial statements

Public offerings of debt and equity must be registered with the: Quiz 1

A) Securities and Exchange Commission.

An example of a negative covenant that might be found in a bond indenture is a statement that the company: Quiz 6

A) cannot lease any major assets without bondholder approval

The growth of both sole proprietorships and partnerships is frequently limited by the firm's: Quiz 1

A) inability to raise cash.

The dividend growth model: Quiz 7

A) requires the growth rate to be less than the required return.

The expected risk premium on a stock is equal to the expected return on the stock minus the: Quiz 10

A) risk-free rate.

Three Corners Markets paid an annual dividend of $1.42 a share last month. Today, the company announced that future dividends will be increasing by 1.3 percent annually. If you require a return of 14.6 percent, how much are you willing to pay to purchase one share of this stock today? A) $9.68 B) $10.82 C) $11.57 D) $11.23 E) $10.68 Quiz 7

B) $10.82

You would like to provide $125,000 a year forever for your heirs. How much money must you deposit today to fund this goal if you can earn a guaranteed 4.5 percent rate of return? A) $2,521,212 B) $2,777,778 C) $2,858,122 D) $2,666,667 E) $2,850,000 Quiz 5

B) $2,777,778

One year ago, you purchased 100 shares of Best Wings stock at a price of $38.19 a share. The company pays an annual dividend of $.46 per share. Today, you sold for the shares for $37.92 a share. What is your total percentage return on this investment? A) 1.93 percent B) .50 percent C) 1.08 percent D) 2.62 percent E) 2.72 percent Quiz 9

B) .50 percent The total return Per Share= [ (Price at End - Price at Beginning) + Dividend ] = [ ($ 37.92 - $ 38.19) + $ 0.46] = 0.19 The total percentage return on this investment = The total return Per Share on this investment / Initial Investment *100 = $ 0.19 / $ 38.19 *100 = 0.497512437% =0.50%

Southern Bakeries just paid its annual dividend of $.48 a share. The stock has a market price of $17.23 and a beta of .93. The return on the U.S. Treasury bill is 3.1 percent and the market risk premium is 7.6 percent. What is the cost of equity? A) 10.45 percent B) 10.17 percent C) 10.30 percent D) 9.98 percent E) 10.04 percent Quiz 11

B) 10.17 percent CAPM ;r = risk free +Beta(Market risk premium) risk free = 3.1% or 0.031 Beta = 0.93 Market risk premium = 7.6% or 0.076 CAPM ; r = 0.031 + 0.93 (0.076) r = 0.031 + 0.07068 r = 0.10168 CAPM rate of return is 10.17% cost of equity = 10.17%

A project has an initial cost of $18,400 and expected cash inflows of $7,200, $8,900, and $7,500 over Years 1 to 3, respectively. What is the discounted payback period if the required rate of return is 11.2 percent? A) Never B) 2.87 years C) 2.45 years D) 2.55 years E) 2.31 years Quiz 8

B) 2.87 years

New Homes has a bond issue with a coupon rate of 5.5 percent that matures in 8.5 years. The bonds have a par value of $1,000 and a market price of $1,022. Interest is paid semiannually. What is the yield to maturity? A) 5.74 percent B) 5.18 percent C) 5.61 percent D) 6.42 percent E) 6.36 percent Quiz 6

B) 5.18 percent

Florida Groves has a $380,000 bond issue outstanding that is selling at 97.4 percent of face value. The firm also has 2,600 shares of preferred stock valued at $61 a share and 37,500 shares of common stock valued at $19 a share. What weight should be assigned to the common stock when computing the weighted average cost of capital? A) 55.75 percent B) 57.40 percent C) 61.03 percent D) 62.20 percent E) 58.75 percent Quiz 11

B) 57.40 percent Total value of bonds=380,000*97.4%=$370120 Total value of preferred stock=(2600*61)=$158600 Total value of common stock=(37500*19)=$712500 Total value=(370120+158600+712500)=$1241220 Hence weight of common stock=(712500/1241220) =57.40%(Approx). total common stock/total value= weight

What is the APR on a loan with a stated rate of 2.35 percent per quarter? A) 8.38 percent B) 9.40 percent C) 9.74 percent D) 8.90 percent E) 8.69 percent Quiz 5

B) 9.40 percent

Which one of the following methods of project analysis is defined as computing the value of a project based on the present value of the project's anticipated cash flows? Quiz 8

B) Discounted cash flow valuation

The option that is forgone so that an asset can be utilized by a specific project is referred to as which one of the following? Quiz 8

B) Opportunity cost

The rate of return on which type of security is normally used as the risk-free rate of return? Quiz 9

B) Treasury bills

Agency problems are most associated with: Quiz 1

B) corporations.

The articles of incorporation: Quiz 1

B) describe the purpose of the firm and set forth the number of shares of stock that can be issued

One disadvantage of the corporate form of business ownership is the: Quiz 1

B) double taxation of distributed profits.

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ________ ratios. Quiz 2

B) profitability

Your parents have made you two offers. The first offer includes annual gifts of $5,000, $6,000, and $8,000 at the end of each of the next three years, respectively. The other offer is the payment of one lump sum amount today. You are trying to decide which offer to accept given the fact that your discount rate is 6.2 percent. What is the minimum amount that you will accept today if you are to select the lump sum offer? A) $16,407.78 B) $17,856.42 C) $16,707.06 D) $17,709.48 E) $16,360.42 Quiz 5

C) $16,707.06

Yummy Bakery just paid an annual dividend of $3.40 a share and is expected to increase that amount by 2.2 percent per year. If you are planning to buy 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 14.8 percent at the time of your purchase? A) $27.58 B) $27.20 C) $28.18 D) $29.89 E) $29.83 Quiz 7

C) $28.18 Value = Dividend next year / ( k - g )With k = discount rate and g = growth rate Here, the Dividend next year would be the dividend at year 2, which means that: Dividend = 3.40 x (1+g)^2 = 3.40 x (1+0.022)^2 = 3.551 Value = 3.551 / (0.148 - 0.022) = 28.18

Al invested $3,630 in an account that pays 6 percent simple interest. How much money will he have at the end of five years? A) $5,056 B) $4,910 C) $4,719 D) $5,299 E) $4,678 Quiz 3

C) $4,719

A Treasury bond is quoted as 99.6325 asked and 99.1250 bid. What is the bid-ask spread in dollars on a $10,000 face value bond? A) $2.54 B) $25.38 C) $50.75 D) $5.08 E) $5.75 Quiz 6

C) $50.75

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? A) $896.67 B) $846.18 C) $850.34 D) $841.20 E) $863.30 Quiz 6

C) $850.34

Last year, you purchased 400 shares of Analog stock for $12.92 a share. You have received a total of $136 in dividends and $4,301 in proceeds from selling the shares. What is your capital gains yield on this stock? A) -14.14 percent B) 6.73 percent C) -16.78 percent D) 9.09 percent E) -11.02 percent Quiz 9

C) -16.78 percent Capital gains yield = [($4,301 / 400) - $12.92] / $12.92 Capital gains yield = [$10.7525 - $12.92] / $12.92 = - $2.1675 / $12.92 = - 16.78 percent

What is the amount of the risk premium on a U.S. Treasury bill if the risk-free rate is 3.1 percent, the inflation rate is 2.6 percent, and the market rate of return is 7.4 percent? A) 1.7 percent B) 4.3 percent C) 0 percent D) .5 percent E) 2.8 percent Quiz 9

C) 0 percent T bill is risk free asset hence there is no risk premium , C is correct

The risk-free rate of return is 2.7 percent, the inflation rate is 3.1 percent, and the market risk premium is 6.9 percent. What is the expected rate of return on a stock with a beta of 1.08? A) 10.92 percent B) 11.79 percent C) 10.15 percent D) 11.47 percent E) 12.22 percent Quiz 10

C) 10.15 percent As per CAPMexpected return = risk-free rate + beta * (Market risk premium) Expected return% = 2.7 + 1.08 * (6.9) Expected return% = 10.15

You own 850 shares of Western Feed Mills stock valued at $53.15 per share. What is the dividend yield if your total annual dividend income is $1,256? A) 2.67 percent B) 2.13 percent C) 2.78 percent D) 2.54 percent E) 1.83 percent Quiz 9

C) 2.78 percent Dividend per share=$1256/850 shares=$1.477647059 Dividend yield=Dividend per share/Current price =$1.477647059/53.15 which is equal to =2.78%(Approx).

You grandfather invested $16,600 years ago to provide annual payments of $700 a year to his heirs forever. What is the rate of return? A) 3.65 percent B) 4.33 percent C) 4.22 percent D) 4.25 percent E) 4.10 percent Quiz 5

C) 4.22 percent

You own the following portfolio of stocks. What is the portfolio weight of Stock C? Stock Number of Shares Price per share A 650: $ 15.82 B 320 $ 11.09 C 400 $ 39.80 D 100 $ 7.60 1) A) 51.09 percent B) 53.41 percent C) 52.18 percent D) 52.65 percent E) 53.86 percent Quiz 10

C) 52.18 percent Total Portfolio Value = (650*15.82)+(320*11.09)+(400*39.80)+(100*7.60)=30511.8 C's weight=(400*39.80)/30511.8= 0.52176

Al's obtained a discount loan of $68,500 today that requires a repayment of $88,000, 3 years from today. What is the APR? A) 8.01 percent B) 7.87 percent C) 8.71 percent D) 8.90 percent E) 8.57 percent Quiz 5

C) 8.71 percent

Which one of the following rights is never directly granted to all shareholders of a publicly held corporation? Quiz 7

C) Determining the amount of the dividend to be paid per share

9) The expected return on a portfolio considers which of the following factors? I. Percentage of the portfolio invested in each individual security II. Projected states of the economy III. The performance of each security given various economic states IV. Probability of occurrence for each state of the economy Quiz 10

C) I, II, III, and IV

Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following? Quiz 1

C) Secondary, auction market

The depreciation tax shield is best defined as the: Quiz 8

C) amount of tax that is saved because of the depreciation expense.

A company's overall cost of equity is: Quiz 11

C) directly related to the risk level of the firm.

Decisions made by financial managers should primarily focus on increasing the: Quiz 1

C) market value per share of outstanding stock.

Small-company stocks, as the term is used in the textbook, are best defined as the: Quiz 9

C) smallest 20 percent of the companies listed on the NYSE.

If a project has a net present value equal to zero, then: Quiz 8

C) the project earns a return exactly equal to the discount rate.

A company's current cost of capital is based on: Quiz 11

C)both the returns currently required by its debtholders and stockholders.

Sue plans to save $4,500, $0, and $5,500 at the end of Years 1 to 3, respectively. What will her investment account be worth at the end of the Year 3 if she earns an annual rate of 4.15 percent? A) $11,526.50 B) $10,812.07 C) $10,609.50 D) $10,381.25 E) $10,583.82 Quiz 5

D) $10,381.25

You just invested $49,000 that you received as an insurance settlement. How much more will this account be worth in 40 years if you earn an average return of 7.6 percent rather than just 7.1 percent? A) $98,509.16 B) $59,818.92 C) $138,342.91 D) $155,986.70 E) $140,423.33 Quiz 3

D) $155,986.70

A charity plans to invest annual payments of $60,000, $70,000, $75,000, and $50,000, respectively, over the next four years. The first payment will be invested one year from today. Assuming the investment earns 5.5 percent annually, how much will the charity have available four years from now? A) $236,875 B) $328,572 C) $263,025 D) $277,491 E) $285,737 Quiz 5

D) $277,491

For 2017, Nevada Mining had projected taxable income of $94,800. Its actual taxable income exceeded this projection by $21,000. How much additional tax did the firm owe due to the $21,000 increase in taxable income? Taxable Income, Tax Rate $ 0 - 50,000, 15 % $50,001 - 75,000, 25% $75,001 - 100,000, 34% $100,001 - 335,000, 39% A) $8,036 B) $8,197 C) $7,682 D) $7,930 E) $8,150 Quiz 2

D) $7,930

What is the beta of the following portfolio? (Stock,Amount Invested,Security Beta) A, $ 14,200, 1.39 B, $ 23,900, .98 C, $ 8,400, 1.52 A) 1.01 B) 1.12 C) 1.23 D) 1.20 E) 1.05 Quiz 10

D) 1.20 A+B+C= 46,500 =(14,200/46,500)*1.39+(23,900/46,500)*.98+(8,400/46,500)*1.52= 1.2027

You're trying to save to buy a new $68,000 sports car. Currently, you have saved $36,840 which is invested at 4.9 percent annual interest. How many years will it be before you purchase the car, assuming the price of the car remains constant? A) 10.84 years B) 9.67 years C) 16.91 years D) 12.81 years E) 17.18 years Quiz 3

D) 12.81 years

Wayco Industrial Supply has a pretax cost of debt of 8.3 percent, a cost of equity of 14.7 percent, and a cost of preferred stock of 8.9 percent. The firm has 165,000 shares of common stock outstanding at a market price of $33 a share. There are 15,000 shares of preferred stock outstanding at a market price of $43 a share. The bond issue has a face value of $750,000 and a market quote of 101. The company's tax rate is 21 percent. What is the weighted average cost of capital? A) 12.60 percent B) 12.18 percent C) 10.84 percent D) 13.25 percent E) 14.32 percent Quiz 11

D) 13.25 percent Respective values A1)debt= (750,000*101%)=$757,500 B1)equity= (165000*33)=$5,445,000 C1)pref stock=(15000*43)=$645000 D1)total tax rate=Total=$6847500 A2)respective costs= 8.3*(1-tax rate =8.3*(1-0.21)=6.557% B2)14.7% C2)8.9% WACC=Respective costs*Respective weights =(757500/6847500*6.557)+(5,445,000/6847500*14.7)+(645000/6847500*8.9) =13.25%(Approx). (A1/D1*A2)+(B1/D1*B2)+(C1/D1*C2) (ignore all of the A B C D, its something that works in my head and is not relevant)

On this date last year, you borrowed $3,900. You have to repay the loan with a lump sum payment of $6,000 six years from now. What is the interest rate? A) 6.78 percent B) 6.01 percent C) 5.38 percent D) 6.35 percent E) 5.47 percent Quiz 5

D) 6.35 percent

The outstanding bonds of Winter Tires Inc. provide a real rate of return of 3.6 percent. If the current rate of inflation is 2.68 percent, what is the actual nominal rate of return on these bonds? A) 7.71 percent B) 7.33 percent C) 7.58 percent D) 6.38 percent E) 6.76 percent Quiz 6

D) 6.38 percent

Chelsea Fashions is expected to pay an annual dividend of $1.26 a share next year. The market price of the stock is $24.09 and the growth rate is 2.6 percent. What is the cost of equity? A) 9.24 percent B) 7.54 percent C) 9.77 percent D) 7.83 percent E) 7.91 percent Quiz 11

D) 7.83 percent Price= 24.09 D1= 1.26 g= 2.60% (1.26/24.09)=.0523 5.23%+2.60%= 7.83%

Suzie owns five different bonds and twelve different stocks. Which one of the following terms most applies to her investments? Quiz 10

D) Portfolio

The Square Box is considering two independent projects with an initial cost of $18,000each. The cash inflows of Project A are $3,000, $7,000, and $10,000 for Years 1 to 3,respectively. The cash inflows for Project B are $3,000, $7,000, and $15,000 for Years1 to 3, respectively. The required return is 12 percent and the required discountedpayback period is 3 years. Based on discounted payback, which project(s), if either,should be accepted? Quiz 8

D) Project A should be rejected and Project B should be accepted.

JJ's is reviewing a project with a required discount rate of 15.2 percent and an initial cost of $309,000. The cash inflows are $47,000, $198,000, and $226,000 for Years 2 to 4, respectively. Should the project be accepted based on discounted payback if the required payback period is 2.5 years? Quiz 8

D) Reject; The project never pays back on a discounted basis.

The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles? Quiz 8

D) Stand-alone principle

Stacy purchased a stock last year and sold it today for $4 a share more than her purchase price. She received a total of $1.15 per share in dividends. Which one of the following statements is correct in relation to this investment? Quiz9

D) The capital gains yield is positive.

All else constant, a bond will sell at ________ when the coupon rate is ________ the yield to maturity. Quiz 6

D) a discount; less than

A note is generally defined as: Quiz 6

D) an unsecured bond with an initial maturity of 10 years or less.

A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of: Quiz 2

D) sales.

The average of a company's cost of equity, cost of preferred, and aftertax cost of debt that is weighted based on the company's capital structure is called the: Quiz 11

D) weighted average cost of capital.

Arcs and Triangles paid an annual dividend of $1.47 a share last month. The company is planning on paying $1.52, $1.58, and $1.60 a share over the next three years, respectively. After that, the dividend will be constant at $1.65 per share per year. What is the market price of this stock if the market rate of return is 12 percent? A) $13.98 B) $14.16 C) $15.01 D) $14.07 E) $13.54 Quiz 7

E) $13.54 annual dividend D = $1.47 planning on paying P1 = $1.52 planning on paying P2 = $1.58 planning on paying P3 = $1.60 constant dividend D1 = $1.65 market rate of return r = 12 percent

The Grist Mill just paid its annual dividend of $1.58 per share. The dividends are expected to grow at 2.7 percent per year, indefinitely. What will the price of this stock be in 7 years if investors require an annual return of 15.2 percent? A) $15.83 B) $15.24 C) $15.33 D) $15.08 E) $15.64 Quiz 7

E) $15.64

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? A) $27.09 B) $28.13 C) $27.42 D) $26.08 E) $26.42 Quiz 7

E) $26.42

Keisler's has cost of goods sold of $11,518, interest expense of $315, dividends of $420, depreciation of $811, and a change in retained earnings of $296. What is the taxable income given a tax rate of 21 percent? A) $776.41 B) $967.78 C) $646.15 D) $955.38 E) $906.33 Quiz 2

E) $906.33

Phillips Equipment has 6,500 bonds outstanding that are selling at 96.5 percent of par. Bonds with similar characteristics are yielding 6.7 percent, pretax. The company also has 48,000 shares of 5.5 percent preferred stock and 75,000 shares of common stock outstanding. The preferred stock sells for $64 a share. The common stock has a beta of 1.32 and sells for $41 a share. The preferred stock has a stated value of $100. The U.S. Treasury bill is yielding 2.2 percent and the return on the market is 10.6 percent. The corporate tax rate is 21 percent. What is the weighted average cost of capital? A) 10.56 percent B) 10.18 percent C) 8.64 percent D) 9.30 percent E) 8.09 percent Quiz 11

E) 8.09 percent Market value of preferred stock = 48,000 * 64 = 3,072,000 Market value of common stock = 75,000 * 41 = 3,075,000 Total market value = 6,272,500 + 3,072,000 + 3,075,000 = 12,419,500 Annual preferred dividend = 0.055 * 100 = 5.5 Cost of preferred stock = (Annual dividend / price) * 100 Cost of preferred stock = (5.5 / 64) * 100 Cost of preferred stock = 8.5938% Cost of equity = Risk free rate + beta (market return - risk free rate) Cost of equity = 0.022 + 1.32 (0.106 - 0.022) Cost of equity = 0.13288 or 13.288% Weighted average cost of capital = Weight of debt*after tax cost of debt + weight of preferred stock*cost of preferred stock + weight of equity*cost of equity Weighted average cost of capital = (6,272,500 / 12,419,500)*0.067*(1 - 0.21) + (3,072,000 / 12,419,500)*0.085938 + (3,075,000 / 12,419,500)*0.13288 Weighted average cost of capital = 0.02673 + 0.02126 + 0.0329 Weighted average cost of capital = 0.0809 or 8.09%

The expected return on a stock given various states of the economy is equal to the: Quiz 10

C) weighted average of the returns for each economic state.

Your local pawn shop loans money at an annual rate of 24 percent and compounds interest weekly. What is the actual rate being charged on these loans? A) 27.56 percent B) 26.49 percent C) 28.64 percent D) 27.05 percent E) 25.16 percent Quiz 5

D) 27.05 percent

Which one of the following transactions occurs in the primary market? Quiz 7

E) A purchase of newly issued stock from the issuer

Which of the following parties are considered stakeholders of a firm? Quiz !

E) Employees and the government

Which one of the following best describes the concept of erosion? Quiz 8

The cash flows of a new project that come at the expense of a firm's existing cash flows

Which one of the following is an example of systematic risk? Quiz 10

C) Investors panic causing security prices around the globe to fall precipitously

Suppose you bought a $1,000 face value bond with a coupon rate of 5.6 percent one year ago. The purchase price was $987.50. You sold the bond today for $994.20. If the inflation rate last year was 2.6 percent, what was your exact real rate of return on this investment? A) 4.88 percent B) 4.47 percent C) 5.32 percent D) 3.78 percent E) 3.65 percent Quiz 9

E) 3.65 percent Coupon received in one year = 5.6% * $1000 = $56 Annual rate of return = (Sale Price - Buy Price + Annual COupon)/Buy Price = (994.20 - 987.50 + 56)/987.50 = 6.35% ---> Nominal rate of return Based on Fischer relation, (1 + Nominal rate) = (1 + Real rate) * (1 + Inflation) (1 + 6.35%) = (1 + Real rate) * (1 + 2.6%) 1 + Real rate = 1.036544 Real rate = 3.65%

The market has an expected rate of return of 12.6 percent. The long-term government bond is expected to yield 4.8 percent and the U.S. Treasury bill is expected to yield 2.7 percent. The inflation rate is 3.2 percent. What is the market risk premium? A) 9.3 percent B) 9.4 percent C) 8.5 percent D) 7.8 percent E) 9.9 percent Quiz 10

E) 9.9 percent market risk premium=market rate-risk free rate =(12.6-2.7) which is equal to =9.9%

On your tenth birthday, you received $300 which you invested at 4.5 percent interest, compounded annually. Your investment is now worth $756. How old are you today? A) Age 30 B) Age 20 C) Age 21 D) Age 23 E) Age 31 Quiz 3

E) Age 31

Which one of the following costs was incurred in the past and cannot be recouped? Quiz 8

E) Sunk

A ________ has all the respective rights and privileges of a legal person Quiz 1

E) corporation

For the period 1926-2016, U.S. Treasury bills always: Quiz 9

E) provided a positive annual rate of return.

On a common-size balance sheet all accounts for the current year are expressed as a percentage of: Quiz 2

E) total assets for the current year.