FIN 300 - Final Practice Exam

Harpeth Valley Water District has a bond outstanding with a coupon rate of 3.47 percent and semiannual payments. The bond matures in 21 years, with a yield to maturity of 4.05 percent, and a par value of $5,000. What is the market price of the bond?

$4,592.46

A stock will have a loss of 10.1 percent in a bad economy, a return of 9.9 percent in a normal economy, and a return of 23.8 percent in a hot economy. There is 23 percent probability of a bad economy, 46 percent probability of a normal economy, and 31 percent probability of a hot economy. What is the variance of the stock's returns?

.01518

The Jones Brothers recently established a trust fund that will provide annual scholarships of $12,000 indefinitely with the first scholarship one year from today. These annual scholarships are:

a perpetuity.

Which one of the following is the best example of unsystematic risk?

a warehouse fire

Nishaa has been promoted and is now in charge of all external financing. In other words, she is in charge of:

capital structure management.

The weighted average cost of capital is defined as the weighted average of a firm's:

cost of equity, cost of preferred stock, and its aftertax cost of debt.

An unexpected decrease in market interest rates will cause a:

coupon bond's yield to maturity to decrease.

Net Present Value:

decreases as the required rate of return increases.

When a bond's yield to maturity is less than the bond's coupon rate, the bond:

is selling at a premium.

The systematic risk principle states that the expected return on a risky asset depends only on the asset's _____________ risk.

market

The primary goal of financial management is most associated with increasing the:

market value of the firm.

Juniper Trees has earnings per share of $1.38, all of which is added to retained earnings. What is the value of a share of its stock if the PE ratio is 9.8 and market-to-book ratio is 2.5?

$13.52

Village East expects to pay an annual dividend of $1.40 per share next year, and $1.68 per share for the following two years. After that, the company plans to increase the dividend by 3.4 percent annually. What is this stock's current value at a discount rate of 13.7 percent?

$15.15

Michael's, Incorporated, just paid $2.45 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 5.3 percent. If you require a rate of return of 9.5 percent, how much are you willing to pay today to purchase one share of the company's stock?

$61.43

A project that will last for 9 years is expected to have equal annual cash flows of $98,200. If the required return is 7.7 percent, what maximum initial investment would make the project acceptable?

$621,171.53

A project with an initial cost of $30,800 is expected to provide cash flows of $11,100, $11,900, $15,000, and $9,500 over the next four years, respectively. If the required return is 9.3 percent, what is the project's profitability index?

1.242

What is the effective annual rate for an APR of 11.50% compounded quarterly?

12.01%

The stock in Bowie Enterprises has a beta of 1.11. The expected return on the market is 12.50 percent and the risk-free rate is 3.24 percent. What is the required return on the company's stock?

13.52%

Shares of common stock of the Samson Company offer an expected total return of 20.40 percent. The dividend is increasing at a constant 4.60 percent per year. The dividend yield must be:

15.80%

A project with an initial cost of $61,950 is expected to generate annual cash flows of $17,460 for the next 6 years. What is the project's internal rate of return?

17.44%

You recently purchased a stock that is expected to earn 28 percent in a booming economy, 17 percent in a normal economy, and lose 2 percent in a recessionary economy. There is 27 percent probability of a boom, 65 percent chance of a normal economy, and 8 percent chance of a recession. What is your expected rate of return on this stock?

18.45%

Your grandparents put $10,300 into an account so that you would have spending money in college. You put the money into an account that will earn an APR of 4.21 percent compounded. If you expect that you will be in college for 5 years, how much can you withdraw each month?

190.67

Footsteps Company has a bond outstanding with a coupon rate of 6.1 percent and annual payments. The bond currently sells for $976.23, matures in 25 years, and has a par value of $1,000. What is the YTM of the bond?

6.29%

Take It All Away has a cost of equity of 10.90 percent, a pretax cost of debt of 5.51 percent, and a tax rate of 21 percent. The company's capital structure consists of 74 percent debt on a book value basis, but debt is 40 percent of the company's value on a market value basis. What is the company's WACC?

8.28%

Which one of the following statements correctly applies to a sole proprietorship?

Obtaining additional equity is dependent on the owner's personal finances.