4310 test 2

9.02%

$1,000 par value zero-coupon bonds (ignore liquidity premiums) bond - years to maturity - yield to maturity A - 1 - 6.00% B - 2 - 7.50% C - 3 - 7.99% D - 4 - 8.49% E - 5 - 10.70% the expected 1-year interest rate 1 year from now should be about

$167

Eagle Products' EBIT is $300, its tax rate is 21%, depreciation is $20, capital expenditures are $60, and the planned increase in net working capital is $30. what is the free cash flow to the firm?

$2152 million

FinCorp's free cash flow to the firm is reported as $205 million. the firms interest expense is $22 million. assume the tax rate is 35% and the net debt of the firm increases by $3 million. what is the market value of equity if the FCFE is projected to grow at 3% indefinitely and the cost of equity is 12%?

9%

Jand, Inc., currently pays a dividend of $1.22, which is expected to grow indefinitely at 5%. if the current value of Jand's shares based on the constant growth dividend discount model is $32.03, what is the required rate of return (in % terms)?

$180

Sisters Corp. expects to earn $6 per share next year. the firms ROE is 15% and its plowback ratio is 60%. the firms market capitalization rate is 10%. what is the present value of its growth opportunities?

$0.56

Tri-coat Paints has a current market value of $41 per share with earnings of $3.64. what is the present value of its growth opportunities (PVGO) if the required return is 9%?

10-year maturity, selling at 100

a 1% decline in yield will have the least effect on the price of a bond with a

the us bond is a Eurobond and the Japanese bond is termed a foreign bond

a Japanese firm issued and sold a pound-denomination bond in the United Kingdom. a us firm issued bonds denominated in dollars but sold the bonds in Japan. which statement is correct?

1.22

a bank has $50 million in assets, $47 million in liabilities, and $3 million in shareholders equity. if the duration of its liabilities is 1.3 and the bank wants to immunize its net worth against interest rate risk and thus set the duration of equity equal to zero, it should select assets with an average duration of

4.95%

a bond with na annual coupon rate of 4.8% sells for $970. what is the bonds current yield?

6.00%

a callable bond pays annual interest of $60, has a par value of $1,000, matures in 20 years but is callable in 10 years at a price of $1,100 and has a value today of $1055.84. the yield to call on this bond is

$1,174.95

a coupon bond paying semiannual interest is reported as having an ask price of 117% of its $1,000 par value. if the last interest payment was made one month ago and the coupon rate is 6%, what is the invoice price of the bond? assume that the month has 30 days and the time between coupon payments is 182.

$891.86

a coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 12%. if the coupon rate is 9% the intrinsic value of the bod today will be

9.62%

a coupon bond that pays interest of 4% annually has a par value of $1,000, matures in 5 years, and is selling today at $785. the actual yield to maturity on this bond is

$1,180

a coupon bond that pays semiannual interest is reported in the Wall Street Journal as having an ask price of 117% of its $1,000 par value. if the last interest payment was made 2 months ago and the coupon rate is 6%, the invoice price of the bond will be

8%

a firm pays a current dividend of $1, which is expected to grow at a rate of 5% indefinitely. if the current value of the firms shares is $35, what is the required return applicable to the investment based on the constant growth dividend discount model (DDM)?

52.38%

a pension fund has an average duration of its liabilities equal to 15 years. the fund is looking at 5-year maturity zero-coupon bonds and 4% yield perpetuities to immunize its interest rate risk. how much of its portfolio should it allocate to the zero-coupon bonds to immunize if there are no other assets funding the plan?

12.11

a perpetuity pays $100 each and every year forever. the duration of this perpetuity will be ______ if its yield is 9%

0.5%; 0.8%

a treasury bond due in 1 year has a yield of 6.3%, while a treasury bond due in 5 years has a yield of 8.8%. a bond due in 5 years issued by High Country Marketing Corp has a yield of 9.6%, while a bond due in 1 year issued by High Country Marketing Corp has a yield of 6.8%. the default risk premiums on the 1 year and 5 year bonds issued by High Country Marketing Corp are, respectively, ___________ and ______________

$458.11

a zero coupon bond has a yield to maturity of 5% and a par value of $1,000. if the bond matures in 16 years, it should sell for a price of __________ today

6.03%

a zero-coupon bond with face value $1,000 and maturity of five years sells for $746.22. what is its yield to maturity?

an increase in expected interest rate volatility

according to the liquidity preference theory of the term structure of interest rates, an increase in the yield on long-term corporate bonds versus short-term bonds could be due to

up; left

adding additional risky assets to the investment opportunity set will generally move the efficient frontier ___________ and to the

a 30-year bond with a 10% coupon

all other things equal (YTM = 10%) which of the following has the lowest duration? a 30-year bond with a 15% coupon a 10-year zero-coupon bond a 20-year bond with a 9% coupon a 30-year bond with a 10% coupon

1.20% increase

an 8%, 30-year bond has a yield to maturity of 10% and a modified duration of 8 years. if the market yield drops by 15 basis points, there will be a __________ in the bonds price

23.83%

an investor buys $16,000 worth of a stock priced at $20 per share using 60% initial margin. the broker charges 8% on the margin loan and requires a 35% maintenance margin. the stock pays a $.50-per-share dividend in 1 year, and then the stock is sold at $23 per share. what was the investors rate of return?

$30.29

an investor buys $8,000 worth of a stock priced at $40 per share using 50% initial margin. the broker charges 6% on the margin loan and requires a 30% maintenance margin. in 1 year the investor has interest payable and gets a margin call. at the time of the margin call the stocks price must have been less than __________

16%

an investor can design a risky portfolio based on two stocks, A and B. stock A has an expected return of 21% and a standard deviation of return of 39%. stock B has an expected return of 14% and a standard deviation of return of 20%. the correlation coefficient between the returns of A and B is 0.4. the risk-free rate of return is 5%. the expected return on the optimal risky portfolio is approximately

12%

an investor can design a risky portfolio based on two stocks, A and B. the standard deviation of return on stock A is 20%, while the standard deviation on stock B is 15%. the correlation coefficient between the returns on A and B is 0%. the rate of return for stocks A and B is 20% and 10% respectively. the standard deviation of return on the minimum-variance portfolio is

17%

an investor puts up $5,000 but borrows an equal amount of money from his broker to double the amount invested to $10,000. the broker charges 7% on the loan. the stock was originally purchased at $25 per share, and in 1 year the investor sells the stock for $28. the investors rate of return was ______

optimal mix of the risk-free asset and risky asset

an investors degree of risk aversion will determine their

market risk

beta is a measure of security responsiveness to

all three should be willing to pay the same amount for the stock regardless of their holding period

bill, Jim and shelly are all interested in buying the same stock that pays dividends. bill plans on holding the stock for 1 year. Jim plans on holding the stock for 3 years. shelly plans on holding the stock until she retires in 10 years. which one of the following statements is correct?

$1,052.42

consider a bond paying a coupon rate of 10% per year semiannually when the market interest rate is only 4% per half-year. the bond has three years until maturity. what is the bonds price today?

8%

consider the CAPM. the expected return on the market is 18%. the expected return on a stock with a beta of 1.2 is 20%. what is the risk-free rate?

1.2

consider the CAPM. the risk-free rate is 5% and the expected return on the market is 15%. what is the beta on a stock with an expected return of 17%?

21.60%

consider the CAPM. the risk-free rate is 6% and the expected return on the market is 18%. what is the expected return on a stock with a beta of 1.3?

decrease

consider the expectations theory of the term structure of interest rates. if the yield curve is downward-sloping, this indicates that investors expect short-term interest rates to ________ in the future

both bonds will decrease in value but bond B will decrease more than bond A

consider two bonds, A and B. both bonds presently are selling at their par value of $1,000. each pays interest of $120 annually. bond A will mature in 5 years, while bond B will mature in 6 years. if the yields to maturity on the two bonds change from 12% to 14%, _________

$30.60

deployment specialists pays a current (annual) dividend of $1 and is expected to grow at 20% for two years and then at 4% thereafter. if the required return for deployment specialists is 8.5%, what is the intrinsic value of its stock?

longer; lower

everything else equal, the ______ maturity of a bond and the __________ coupon, the reader the sensitivity of the bonds price to interest rate changes

the sum of the stocks expected capital gain and dividend yield is equal to the stocks required rate of return

if a stock is correctly priced, then you know that ___________

expected returns to fall; risk premiums to fall

if enough investors decide to purchase stocks, they are likely to drive up stock prices, thereby causing __________ and ____________

duration mismatch

in 2012, the S&P 500 increased 16%. given the low interest rate environment, many large companies had to pour billions of dollars into their pension funds. this example illustrates

shape of the bond price curve with respect to interest rates

in regard to bonds, convexity relates to the

their 401k accounts were not well diversified

many current and retired Enron Corporation employees had their 401k retirement accounts wiped out when Enron collapsed because

switch from high-duration to low-duration bonds

market economists all predict a rise in interest rates. an astute bond manager wishing to maximize her capital gain might employ which strategy?

prefer the Asbury bond to the Wildwood bond

on May 1, 2019, Joe Hill is considering one of the following newly issued 10-year AAA corporate bonds. Description - Coupon - Price - Callable - Call Price Wildwood, due May 1, 2027 - 5.0% - $100 - noncallable - NA Asbury, due May 1, 2027 - 5.4% - $100 - currently callable - $102

located on the capital market line to those located on the efficient frontier

rational risk-averse investors will always prefer portfolios

idiosyncratic, firm-specific and diversifiable

risk that can be eliminated through diversification is called ________ risk

.75

stock A has a correlation with the market of 0.45. the standard deviation of the market is 21%, and the standard deviation of the stock is 35%. what is the stocks beta?

$56

suppose that you sell short 500 shares of XTel, currently selling for $40 per share, and give your broker $15,000 to establish your margin account. if the maintenance margin is 25%, how high can XTel's price rise before you get a margin call?

less than

suppose you've estimated that the fifth-percentile value at risk of a portfolio is -30%. now you wish to estimate the portfolios first-percentile VaR (the value below which lie 1%of the returns). will the 1% VaR be greater or less than -30%?

15%

the FI Corporations dividends per share are expected to grow indefinitely by 5% per year. this years year-end dividends is $8 and the market capitalization rate is 10% per year. if the expected earnings per share are $12, what is the implied value of the ROE on future investment opportunities?

asset allocation; security selection

the ________ decision should take precedence over the ___________ decision

arithmetic average

the __________ measure of returns ignores compounding

book value

the accounting measure of a firms equity value generated by applying accounting principles to assets and liabilities is called __________

growth rate is less than the required return

the constant-growth dividend discount model (DDM) can be used only when the __________

1 only

the duration of a bond normally increases with an increase in: 1. term to maturity 2. yield to maturity 3. coupon rate

inversely

the duration of a perpetuity varies ________ with interest rates

stated or flat price in a quote sheet plus accrued interest

the invoice price of a bond is the

20

the market capitalization rate for Admiral Motors Company is 8%. its expected ROE is 10% and its expected EPS is $5. the firms plowback ratio is 60%. what will be its P/E ratio?

-6.44%

the price of a stock is $55 at the beginning of the year and $50 at the end of the year. if the stock paid a $3 dividend and inflation was 3%, what is the real holding-period return for the year?

start-up phase

the price-to-sales ratio is probably most useful for firms in which phase of the industry life cycle?

16.25%

the return on the risky portfolio is 15%. the risk-free rate, as well as the investors borrowing rate, is 10%. the standard deviation of return on the risky portfolio is 20%. if the standard deviation on the complete portfolio is 25%, the expected return on the complete portfolio is

E(r) = 8.75%, standard deviation = 17.88%

the stock of Business Adventures sells for $40 a share. its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows: boom: $2.00 (dividend) $50 (stock price) normal economy: $1.00 (dividend) $43 (stock price) recession: $0.50 (dividend) $34 (stock price) what are the expected return and the standard deviation of the holding period return? all scenarios are equally likely.

usually positive but are not restricted in any particular way

the values of beta coefficient of securities are

4.81%

the yield to maturity of a 10-year zero-coupon bond with a par value of $1,000 and a market price of $625 is

-1.00

to construct a riskless portfolio using two risky stocks, one would need to find two stocks with a correlation coefficient of

54.95%

to create a portfolio with a duration of 4 years using a 5-year zero-coupon bond and a 3-year 8% annual coupon bond with a yield to maturity of 10%, one would have to invest _________ of the portfolio value in the zero-coupon bond

21.28%

treasury bills are paying a 4% rate of return. a risk-averse investor with a risk aversion of A = 3 should invest entirely in a risky portfolio with a standard deviation of 24% only if the risky portfolios expected return, E(rQ) is at least

the bond callable at 105 should have the higher yield to maturity

two bonds have identical times to maturity and coupon rates. one is callable at 105, the other at 110. which should have the higher yield to maturity?

strong

united typewriters inc. announces that their quarterly profits increased by 32%, but the stock price immediately fell by 15%. this is a violation of _______ form market efficiency

1, 2 and 3

which of the following are assumptions of the simple CAPM model? 1. individual trades of investors do not affect a stocks price 2. all investors plan for one identical holding period 3. all investors analyze securities in the same way and share the same economic view of the world 4. all investors have the same level of risk aversion

the federal reserve increases interest rates 50 basis points

which of the following provides the best example of a systematic-risk event?

market capitalization rate

which one of the following is a common term for the market consensus value of the required return on a stock?

most firms have a market-to-book ratio above 1, but not all

which one of the following statements about market and book value is correct?

taxation

yields on municipal bonds are generally lower than yields on similar corporate bonds because of differences in

19.00%

you are considering investing $1,000 in a complete portfolio. the complete portfolio is composed of treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. the optimal weights of X and Y are 60% and 40% respectively. X has an expected rate of return of 14% and Y has an expected rate of return of 10%. to form a complete portfolio with an expected rate of return of 11%, you should invest _____________ of your complete portfolio in treasury bills.

all fall on the line of best fit; negative slope

you are constructing a scatter plot of excess returns for stock A versus the market index. if the correlation coefficient between stock A and the index is -1, you will find that the points of the scatter diagram __________ and the line of best fit has a ________

75.9%

you can invest in two hedge fund portfolios: the currency hedge fund has an expected return of 8% and a standard deviation of 6.2%, whereas the commodities hedge fund has an expected return of 12.3% and a standard deviation of 9.4%. the correlation coefficient between the portfolio is 0.26. what is the weight of the currency hedge fund in the minimum variance portfolio that consists of the two hedge funds?

buy the Canon bond, and short the Xerox bond

you find a 5-year AA Xerox bond priced to yield 6%. you find a similar-risk 5-year Canon bond priced to yield 6.5%. if you expect interest rates to rise, what should you do?

3.22 years

you have an investment that in todays dollars returns 15% of your investment in year 1, 12% in year 2, 9% in year 3, and the remainder in year 4. what is the duration of this investment?

15.60%

you have the following rates of return for a risky portfolio for several recent years: 2016: 35.23% 2017: 18.67% 2018: -9.87% 2019: 23.45% the annualized (geometric) average return on this investment is ________

$6,000

you invest $10,000 in a completed portfolio. the complete portfolio is composed of a risky asset with an expected rate of return of 15% and a standard deviation of 21% and a treasury bill with a rate of return of 5%. how much money should be invested in the risky asset to form a portfolio with an expected return of 11%?

-1.4%

you own a bond that has a duration of 6 years. interest rates are currently 7%, but you believe the Fed is about to increase interest rates by 25 basis points. your predicted price change on this bond is

43%

you purchased 250 shares of common stock on margin for $25 per share. the initial margin is 65%, and the stock pays no dividend. your rate of return would be _________ if you sell the stock at $32 per share. ignore interest on margin.

11.00%

you put up $50 at the beginning of the year for an investment. the value of the investment grows 4% and you earn a dividend of $3.50. your HPR was ____________

0.86

your portfolio has the following structure: what is your portfolio beta?