Sample valuation exam

How much will the coupon payments be of a 20​-year $5,000 bond with a 7​% coupon rate and semiannual​ payments?

C=5000*0.07/2=175

If $9,000 is invested in a certain business at the start of the​ year, the investor will receive $2,700 at the end of each of the next four years. What is the present value of this business opportunity if the interest rate is ​3% per​ year?

$1,036 = PV(3%,4,-2700,0)-9,000 PMT = -$2,700 N = 4 I/Y = 3% FV = 0

A​ risk-free, zero-coupon bond with a face value of $5,000 has 15 years to maturity. If the YTM is 5.8​%, which of the following would be closest to the price this bond will trade​ at?

$2,146 = PV(5.8,15,0,-5000) FV=5000 N=15 I/Y=5.8%

You are saving money to buy a car. If you save $320 per month starting one month from now at an interest rate of ​6%, how much will you be able to spend on the car after saving for 5 ​years?

$22,326 = FV(6%/12,5*12,320,0) OR FV=320/(0.06/12)*((1+0.06/12)^60-1)

Dan buys a property for $300,000. He is offered a ​30-year loan by the​ bank, at an interest rate of ​9% per year. What is the annual loan payment Dan must​ make?

$29,200.91 = PMT(9%,30,-300000,0)

What must be the price of a $10,000 bond with a 6.4​% coupon​ rate, semiannual​ coupons, and ten years to maturity if it has a yield to maturity of 10​% ​APR?

$7,757=PV(5%,20,320,10000) N=2*10=20 I/Y = 10%/2 =5% PMT=6.4%*10000/2=320 FV=10000

An annuity is set up that will pay $1,400 per year for 10 years. What is the present value​ (PV) of this annuity given that the discount rate is ​9%?

$8,985 = PV (9%,10,-1400,0) OR PV=1400/0.09*(1-1/1.09^10)

A​ risk-free, zero-coupon bond with a $5,000 face value has 15 years to maturity. The bond currently trades at $3,790. What is the yield to maturity of this​ bond?

1.864% = Rate(15,0,-3790,5000,0) N=15 PV=3790 FV=5000 PMT=0

What is the yield to maturity of a ten​-year, $5,000 bond with a 5.4​% coupon rate and semiannual coupons if this bond is currently trading for a price of $4,725​?

6.14%=Rate(2*10,5.4%*5000/2,-4725,5000) N=2*10 PMT=5.4%*5000/2 PV=-4725 FV=5000

Clarissa wants to fund a growing perpetuity that will pay $7,000 per year to a local​ museum, starting next year. She wants the annual amount paid to the museum to grow by ​5% per year. Given that the interest rate is 9​%, how much does she need to fund this​ perpetuity?

7000/(0.09-0.05)=$175,000

Gremlin Industries will pay a dividend of $1.55 per share this year. It is expected that this dividend will grow by 4​% per year each year in the future. The current price of​ Gremlin's stock is $24.00 per share. What is​ Gremlin's equity cost of​ capital?

r= D/P +g =1.55/24+.04 = 10.5%

Jumbuck Exploration has a current stock price of $2.05 and is expected to sell for $2.15 in one​ year's time, immediately after it pays a dividend of $0.32. Which of the following is closest to Jumbuck​ Exploration's equity cost of​ capital?

r=(D1+P1-P0)/P0)=(0.32+2.15-2.05)/2.05=20.49% D1=0.32 P1=2.15 P0=2.05

A company has stock which costs $43.75 per share and pays a dividend of $2.70 per share this year. The​ company's cost of equity is 9​%. What is the expected annual growth rate of the​ company's dividends?

r=D/P+g, g=r-D/P =0.09-2.7/43.75 = 2.83%

A lender lends ​, which is to be repaid in annual payments of for 6 years. Which of the following shows the timeline of the loan from the​ lender's perspective?

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 -$10,100 $2,080 $2,080 $2,080 $2,080 $2,080 $2,080

What is the coupon rate of a eight​-year, $5,000 bond with semiannual coupons and a price of $4,320.42​, if it has a yield to maturity of 6.6​%?

Coupon rate=PMT*2/5000 4.386% =PMT(303%,18,-4320.42,5000)*2/5000 I/Y = 6.6%/2 N = 8*2 PV = -4320.42 FV = 5000

What is the future value​ (FV) of $60,000 in 25 ​years, assuming the interest rate is ​6% per​ year?

Fv = $257,512 PV = $60,000 N = 25 I/Y = 6%

If $18,000 is invested at 15​% per​ year, in approximately how many years will the investment​ double?

N = 5 Year PV = -$18,000 FV= $36,000 I/Y = 10%

A corporation issues a bond that generates the above cash flows. If the periods shown are 1 month​, which of the following best describes that​ bond?

N=180/12=15, APR=22.5/5000*12 = 5.4%

A stock is expected to pay $3.90 per share every year indefinitely and the equity cost of capital for the company is 11​%. What price would an investor be expected to pay per share next​ year

P = $3.9/11% = $35.45

NoGrowth Industries presently pays an annual dividend of $2.00 per share and it is expected that these dividend payments will continue indefinitely. If​ NoGrowth's equity cost of capital is 12​%, then the value of a share of​ NoGrowth's stock is closest​ to:

P = Div1/(r-g) = 2/ (0.12-0) = $16.67

Von Bora Corporation​ (VBC) is expected to pay a $3.75 dividend at the end of this year. If you expect​ VBC's dividend to grow by 5​% per year forever and​ VBC's equity cost of capital is 11​%, then the value of a share of VBS stock is closest​ to:

P = Div1/(r-g) = 3.75/ (0.11-0.05) = $62.5

What is the present value​ (PV) of $200,000 received 7 years from​ now, assuming the interest rate is 9% per​ year?

PV = $ 109,407 FV = $200,000 N = 7 I/Y = 9%

Consider the following timeline detailing a stream of cash​ flows: Date 0 1 2 3 4 Cashflow ? $5,000 $6,000 $7,000 $8,000 If the current market rate of interest is 7​%, then the present value​ (PV) of this stream of cash flows is closest​ to:

PV = $21,731 = 5000/1.07 + 6000/1.07^2 + 7000/1.07^3 + 8000/1.07^4

Sara wants to have $580,000 in her savings account when she retires. How much must she put in the account​ now, if the account pays a fixed interest rate of 10​%, to ensure that she has $580,000 in 20 years​ time?

PV = $86123 N = 20 I/Y = 10 FV = $580,000