Principles of Corporate Finance: Midterm
A three-year bond with 10 percent coupon rate and $1,000 face value yields 8 percent. Assuming annual coupon payments, calculate the price of the bond.
$1051.54
If the one-year discount factor is 0.90, what is the present value of $120 expected one year from today?
$108
The present value of $121,000 expected one year from today at an interest rate (discount rate) of 10 percent per year is:
$110,000
Assume Boeing has about 10.3 billion shares outstanding and the stock price is $37.10. Also, assume the P/E ratio is about 18.3. Calculate the approximate market capitalization for GE.
$382 Billion
A five-year treasury bond with a coupon rate of 8 percent has a face value of $1,000. What is the semiannual interest payment?
$40
The present value of $100,000 expected at the end of one year, at a discount rate of 25 percent per year, is:
$80,000
The present value of $100 expected two years from today at a discount rate of 6 percent is
$89.00
A three-year bond has an 8.0 percent coupon rate and a $1,000 face value. If the yield to maturity on the bond is 10 percent, calculate the price of the bond assuming that the bond makes semiannual coupon payments.
$949.24
The dividend yield reported on finance.yahoo.com is calculated as follows:
(dividend/closing stock price).
The one-year discount factor, at an interest rate of 100 percent per year, is:
0.5
If the annual interest rate is 12 percent, what is the two-year discount factor?
0.7972
The one-year discount factor, at a discount rate of 25 percent per year, is:
0.8
If the present value of $480 to be paid at the end of one year is $400, what is the one-year discount factor?
0.8333
A government bond issued in France has a coupon rate of 5 percent, a face value of 100 euros, and matures in five years. The bond pays annual interest payments. Calculate the price of the bond (in euros) if the yield to maturity is 3.5 percent.
106.77
A four-year bond has an 8 percent coupon rate and a face value of $1,000. If the current price of the bond is $878.31, calculate the yield to maturity of the bond (assuming annual interest payments).
12%
If the one-year discount factor is 0.8333, what is the discount rate (interest rate) per year?
20%
If the present value of $250 expected one year from today is $200, what is the one-year discount rate?
25%
A government bond issued in France has a coupon rate of 5 percent, a face value of 100.00 euros, and matures in five years. The bond pays annual interest payments. Calculate the yield to maturity of the bond (in euros) if the price of the bond is 106.00 euros.
3.66%
You buy a 12-year 10 percent annual coupon bond at par value, $1,000. You sell the bond three years later for $1,100. What is your rate of return over this three-year period?
40%
If the present value of $600, expected one year from today, is $400, what is the one-year discount rate?
50%
MJ Co. pays out 60 percent of its earnings as dividends. Its return on equity is 15 percent. What is the stable dividend growth rate for the firm?
6%
A five-year bond with a 10 percent coupon rate and $1,000 face value is selling for $1,123. Calculate the yield to maturity on the bond assuming annual interest payments.
7%
Costs associated with the conflicts of interest between the managers and the shareholders of a corporation are called:
Agency Costs
Disadvantages of the corporate form include:
All of the above: agency costs, double taxation and cost of managing the corporation
One can estimate the expected rate of return or the cost of equity capital as follows:
Dividend yield + expected rate of growth in dividends.
Which of the following assets is tangible?
ExxonMobil's corporate headquarters building
True or False: The New York Stock Exchange is the only stock market in the United States.
False
The following are auction markets EXCEPT:
NASDAQ
The following is an example of a dealer market:
NASDAQ
The major secondary market for Boeing shares is:
New York Stock Exchange
The following are foreign companies that are traded on the New York Stock Exchange:
Sony, Telefonica Brasil, Canadian Pacific, Deutsche Bank, China Eastern Airlines, and Tata Motors.
Which of the following statements about the relationship between interest rates and bond prices is true?
There is an inverse relationship between bond prices and interest rates, and the price of long-term bonds fluctuates more than the price of short-term bonds for a given change in interest rates (assuming that the coupon rate is the same for both).
Which of the following types of assets are intangible?
Trademarks
As a legal entity, a corporation can perform the following functions EXCEPT:
VOTE
Generally, a bond can be valued as a package of
annuity and single payment only
Which of the following is not a financial asset?
buildings
A firm's investment decision is also called its
capital budgeting decision
Limited liability is an important feature of:
corporations
The rate of return is also called the:
discount rate, hurdle rate, and opportunity cost of capital .
If a bond pays interest semiannually, then it pays interest
every six months
Present value is defined as:
future cash flows discounted to the present by an appropriate discount rate.
The following entities issue bonds to engage in long-term borrowing EXCEPT:
individuals
Shareholders of a corporation may be, among others,
individuals, pension funds, and insurance companies.
A corporation, potentially, has infinite life because it
is a legal entity
The financial goal of a corporation is to:
maximize the value of the firm for the shareholders.
One can estimate the dividend growth rate for a stable firm as
plow-back rate × the return on equity (ROE).
Which of the following is an important function of financial markets?
providing financing, providing liquidity, reducing risk, and providing information
The type of bonds where the identities of bond owners are recorded and the coupon interest payments are sent automatically are called
registered bonds
Generally, a corporation is owned by its
shareholders
In the principal-agent framework:
shareholders are the principals and managers are the agents.
