Finance Exam 2

Allison just received the semiannual payment of $35 on a bond she owns. Which term refers to this payment? A) Coupon B) Face value C) Discount D) Call premium E) Yield

A

Which one of following is the rate at which a stock's price is expected to appreciate? a. Current yield b. Total return c. Dividend yield d. Capital gains yield e. Coupon rate

d

Roadside Markets has 8.45 percent coupon bonds outstanding that mature in 10.5 years. The bonds pay interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 7.2 percent?

$1091.00

How much are you willing to pay for one share of LBM stock if the company just paid an annual dividend of $2.24, the dividends increase by 2.3 percent annually, and you require a return of 14.8 percent?

$18.33

Future Motors is expected to pay an annual dividend next year of $3.10 a share. Dividends are expected to increase by 1.85 percent annually. What is one share of this stock worth at a required rate of return of 15 percent?

$23.57

Dee's made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.58 a share. Secondly, all dividends after that will decrease by 1.15 percent annually. What is the value of this stock at a discount rate of 15.5 percent?

$9.49

Oil Wells offers 5.65 percent coupon bonds with semiannual payments and a yield to maturity of 6.94 percent. The bonds mature in seven years. What is the market price per bond if the face value is $1,000?

$929.42

The next dividend payment by Savitz, Inc., will be $1.80 per share. The dividends are anticipated to maintain a growth rate of 5 percent forever. If the stock currently sells for $35 per share, what is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

10.14

RAK, Inc., currently has an EPS of $1.20 and an earnings growth rate of 5 percent. If the benchmark PE ratio is 17, what is the target share price five years from now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

26.04

Hudson Corporation will pay a dividend of $2.58 per share next year. The company pledges to increase its dividend by 4 percent per year indefinitely. If you require a return of 12 percent on your investment, how much will you pay for the company's stock today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

32.25

Say you own an asset that had a total return last year of 10.9 percent. If the inflation rate last year was 5.3 percent, what was your real return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

5.32%

You own a bond that pays $64 in interest annually. The face value is $1,000 and the current market price is $1,021.61. The bond matures in 11 years. What is the yield to maturity?

6.12

Navel County Choppers, Inc., is experiencing rapid growth. The company expects dividends to grow at 23 percent per year for the next 10 years before leveling off at 7 percent into perpetuity. The required return on the company's stock is 15 percent. If the dividend per share just paid was $1.89, what is the stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

77.4

Maurer, Inc., has an odd dividend policy. The company has just paid a dividend of $5 per share and has announced that it will increase the dividend by $6 per share for each of the next five years, and then never pay another dividend. If you require a return of 12 percent on the company's stock, how much will you pay for a share today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

78.03

Lohn Corporation is expected to pay the following dividends over the next four years: $14, $10, $9, and $4.50. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends forever. If the required return on the stock is 10 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

84.10

Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders? A) Right to share in company profits prior to other shareholders B) Right to elect the corporate directors C) Right to vote on proposed mergers D) Right to all residual income after the common dividends have been paid E) Right to a permanent seat on the board of directors

A

A $1,000 par value corporate bond that pays $60 annually in interest was issued last year. Which one of these would apply to this bond today if the current price of the bond is $996.20? Multiple Choice A. The bond is currently selling at a premium. B. The current yield exceeds the coupon rate. C. The bond is selling at par value. D. The current yield exceeds the yield to maturity. E. The coupon rate has increased to 7 percent.

B

Bert owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. What is the $1,000 called? A) Coupon B) Face value C) Discount D) Yield E) Dirty price

B

Which one of the following applies to the dividend growth model? A) An individual stock has the same value to every investor. B) Even if the dividend amount and growth rate remain constant, the value of a stock can vary. C) Zero-growth stocks have no market value. D) Stocks that pay the same annual dividend will have equal market values. E) The dividend growth rate is inversely related to a stock's market price.

B

Winston Co. has a dividend yield of 5.4 percent and a total return for the year of 4.8 percent. Which one of the following must be true? A) The dividend must be constant. B) The stock has a negative capital gains yield. C) The capital gains yield must be zero. D) The required rate of return for this stock increased over the year. E) The firm is experiencing supernormal growth.

B

A bond's principal is repaid on the ________ date. A) coupon B) yield C) maturity D) dirty E) clean

C

A discount bond's coupon rate is equal to the annual interest divided by the: A) call price. B) current price. C) face value. D) clean price. E) dirty price.

C

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity. Multiple Choice A. a premium; less than B. a premium; equal to C. a discount; less than D. a discount; higher than E. par; less than

C

All else constant, a bond will sell at ________ when the coupon rate is ________ the yield to maturity. A) a premium; less than B) a premium; equal to C) a discount; less than D) a discount; higher than E) par; less than

C

National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm's stock is: A) basically worthless as it offers no growth potential. B) equal in value to the present value of $1 paid one year from today. C) priced the same as a $1 perpetuity. D) valued at an assumed growth rate of 1 percent. E) worth $1 a share in the current market.

C

Round Dot Inns is preparing a bond offering with a coupon rate of 6 percent, paid semiannually, and a face value of $1,000. The bonds will mature in 10 years and will be sold at par. Given this, which one of the following statements is correct? A) The bonds will become discount bonds if the market rate of interest declines. B) The bonds will pay 10 interest payments of $60 each. C) The bonds will sell at a premium if the market rate is 5.5 percent. D) The bonds will initially sell for $1,030 each. E) The final payment will be in the amount of $1,060.

C

The annual dividend yield is computed by dividing ________ annual dividend by the current stock price. A) this year's B) last year's C) next year's D) the past 5-year average E) the next 5-year average

C

The current yield is defined as the annual interest on a bond divided by the: A. coupon rate. B. face value. C. market price. D. call price. E. par value.

C

A stock is expected to maintain a constant dividend growth rate of 4.1 percent indefinitely. If the stock has a dividend yield of 5.4 percent, what is the required return on the stock? a. 8.9% b. 8.6% c. 7.9% d. 9.5% e. 9%

D

DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of interest increases, then the: A) coupon rate will also increase. B) current yield will decrease. C) yield to maturity will be less than the coupon rate. D) market price of the bond will decrease. E) coupon payment will increase.

D

Rosita paid a total of $1,189, including accrued interest, to purchase a bond that has 7 of its initial 20 years left until maturity. This price is referred to as the: A) quoted price. B) spread price. C) clean price. D) dirty price. E) call price.

D

The Fisher effect primarily emphasizes the effects of ________ on an investor's rate of return. A) default B) market movements C) interest rate changes D) inflation E) the time to maturity

D

The bond market requires a return of 9.8 percent on the 5-year bonds issued by JW Industries. The 9.8 percent is referred to as the: A) coupon rate. B) face rate. C) call rate. D) yield to maturity. E) current yield.

D

Which one of following is the rate at which a stock's price is expected to appreciate? A) Current yield B) Total return C) Dividend yield D) Capital gains yield E) Coupon rate

D

Which one of the following represents the capital gains yield as used in the dividend growth model? A) D1 B) D1/P0 C) P0 D) g E) g/P0

D

Jason's Paints just issued 20-year, 7.25 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms? A) Note B) Discounted C) Zero-coupon D) Callable E) Debenture

E

Jason's Paints just issued 20-year, 7.25 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms? A. Note B. Discounted C. Zero-coupon D. Callable E. Debenture

E

Which one of the following applies to a premium bond? A. Yield to maturity > Current yield > Coupon rate B. Coupon rate = Current yield = Yield to maturity C. Coupon rate > Yield to maturity > Current yield D. Coupon rate < Yield to maturity < Current yield E. Coupon rate > Current yield > Yield to maturity

E

Which one of the following statements is correct? A) Stocks can only be assigned one dividend growth rate. B) Preferred stocks generally have variable growth rates. C) Dividend growth rates must be either zero or positive. D) All stocks can be valued using the dividend discount models. E) Stocks can have negative growth rates.

E

Which one of these equations applies to a bond that currently has a market price that exceeds par value? A) Market value < Face value B) Yield to maturity = Current yield C) Market value = Face value D) Current yield > Coupon rate E) Yield to maturity < Coupon rate

E

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called? A) Alternative voting B) Cumulative voting C) Straight voting D) Indenture voting E) Voting by proxy

E

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flow 0 -$ 27,000 1 11,000 2 14,000 3 10,000 What is the NPV for the project if the required return is 10 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At a required return of 10 percent, should the firm accept this project? Yes No What is the NPV for the project if the required return is 26 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At a required return of 26 percent, should the firm accept this project? Yes No

NPV: 2083.40 yes NPV: -4452.44 No

AC Electric just paid its annual dividend of $2.42. The firm plans to increase its dividend by 2.5 percent for the next 3 years and then maintain a constant 2 percent rate of dividend growth. The required return is 12.5 percent. What is the current value per share of this stock?

P3= $25.32 P0=$23.82

Global Tek plans on increasing its annual dividend by 15 percent a year for the next four years and then decreasing the growth rate to 2.5 percent per year. The company just paid its annual dividend in the amount of $.20 per share. What is the current value of one share of this stock if the required rate of return is 17.4 percent?

P4= $2.40635 P0= $2.03

Yan Yan Corp. has a $4,000 par value bond outstanding with a coupon rate of 4.1 percent paid semiannually and 15 years to maturity. The yield to maturity on this bond is 4.3 percent. What is the price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Price $3912.23

Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 15 years to maturity, and a coupon rate of 6.5 percent paid annually. If the yield to maturity is 7.6 percent, what is the current price of the bond?

Price 903.50

West Corp. issued 15-year bonds two years ago at a coupon rate of 9.1 percent. The bonds make semiannual payments. If these bonds currently sell for 103 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

YTM 8.74%

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?

YTM= 5.18%

A project has an initial cost of $31,800 and a market value of $29,600. What is the difference between these two values called? a. Net present value b. Accounting return c. Payback value d Profitability index e. Discounted payback

a

An agent who arranges a transaction between a buyer and a seller of equity securities is called a: a. broker. b. floor trader. c. capitalist. d. principal. e. dealer.

a

Net present value: a. is the best method of analyzing mutually exclusive projects. b. is less useful than the internal rate of return when comparing different-sized projects. c. is the easiest method of evaluation for nonfinancial managers. d. cannot be applied when comparing mutually exclusive projects. e. is very similar in its methodology to the average accounting return.

a

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.30 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 14 percent on the company's stock. a. What is the current stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will the stock price be in 3 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What will the stock price be in 12 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

a. $13.52 b. $15.21 c. $21.65

The Perfect Rose Co. has earnings of $2.10 per share. The benchmark PE for the company is 10. a. What stock price would you consider appropriate? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What if the benchmark PE were 13? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

a. $21 b $27.30

Wesimann Co. issued 14-year bonds a year ago at a coupon rate of 8 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 6.3 percent, what is the current bond price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

current bond price $1149.36

The Perfect Rose Co. has earnings of $1.55 per share. The benchmark PE for the company is 11. a. What stock price would you consider appropriate? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What if the benchmark PE were 14? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

a. 17.05 b. 21.70

Treasury bills are currently paying 6 percent and the inflation rate is 2.6 percent. a. What is the approximate real rate of interest? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the exact real rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

a. 3.4% b. 3.31%

The next dividend payment by Savitz, Inc., will be $1.96 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. The stock currently sells for $39 per share. a. What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the expected capital gains yield? (Enter your answer as a percent.)

a. 5.03% b. 4%

If a project has a net present value equal to zero, then: a. the total of the cash inflows must equal the initial cost of the project. b. the project earns a return exactly equal to the discount rate. c. a decrease in the project's initial cost will cause the project to have a negative NPV. d. any delay in receiving the projected cash inflows will cause the project to have a positive NPV. e. the project's PI must also be equal to zero.

b

What is the model called that determines the market value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate? a. Maximal-growth model b. Constant-growth model c. Capital pricing model d. Realized-earnings model e. Realized-growth model

b

Winston Co. has a dividend yield of 5.4 percent and a total return for the year of 4.8 percent. Which one of the following must be true? a. The dividend must be constant. b. The stock has a negative capital gains yield. c. The capital gains yield must be zero. d. The required rate of return for this stock increased over the year. e. The firm is experiencing supernormal growth.

b

A bond that is payable to whomever has physical possession of the bond is said to be in: A. new-issue condition. B. registered form. C. bearer form. D. debenture status. E. collateral status.

c

Michael's, Inc., just paid $2.20 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 4.8 percent. If you require a rate of return of 9 percent, how much are you willing to pay today to purchase one share of the company's stock? a. $57.10 b. $25.62 c. $54.90 d. $27.45 e. $16.71

c

Weismann Co. issued 11-year bonds a year ago at a coupon rate of 12 percent. The bonds make semiannual payments and have a par value of $1,000. If the YTM on these bonds is 9 percent, what is the current bond price? Multiple Choice a. $1,205.12 b. $1,589.36 c. $1,195.12 d. $645.74 e. $1,132.93

c

What are the distributions of either cash or stock to shareholders by a corporation called? a. Coupon payments b. Retained earnings c. Dividends d. Capital payments e. Diluted profits

c

You want to have $5 million in real dollars in an account when you retire in 30 years. The nominal return on your investment is 8 percent and the inflation rate is 3.9 percent. What real amount must you deposit each year to achieve your goal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

deposit amount $89956.16

A project has a net present value of zero. Which one of the following best describes this project? a. The project has a zero percent rate of return. b. The project requires no initial cash investment. c. The project has no cash flows. d. The summation of all of the project's cash flows is zero. e. The project's cash inflows equal its cash outflows in current dollar terms.

e

An agent who maintains an inventory from which he or she buys and sells securities is called a: a. broker. b. trader. c. capitalist. d. principal. e. dealer.

e

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called? a. Alternative voting b. Cumulative voting c. Straight voting d. Indenture voting e. Voting by proxy

e

A Japanese company has a bond outstanding that sells for 89 percent of its ¥100,000 par value. The bond has a coupon rate of 5.6 percent paid annually and matures in 18 years. What is the yield to maturity of this bond (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

yield to maturity 6.67%