Corporate Finance Exam 2

A corporate bond has a coupon rate of 9%, a face value of $1,000, a market price of $850, and the bond matures in 15 years. Therefore, the bond's yield to maturity is

11.1%

Wendy purchased 800 shares of Genetics Stock at​ $3 per share on​ 1/1/09. Wendy sold the shares on​ 12/31/09 for​ $3.45. Robotics stock has a beta of​ 1.3, the risk−free rate of return is​ 3%, and the market risk premium is​ 8%. The required return on Robotics stock is

13.4%

A financial analyst experts Crane Service Inc. to pay a dividend of $2 per share one year from today, a dividend of $2 per share one year from today, a dividend of $3 per share in years two, and estimates the value of the stock at the end of year two to be $22. If your required return on Crane Service stock is 14%, what is the most you would be willing to pay for the stock today if you plan to sell the stock in two years?

$20.99

Perrine Industrial Inc. just paid a dividend of $5 per share. Future dividends are expected to grow at a constant rate of 7% per year. What is the value of the stock if the required return is 16%?

$59.44

Nunavet Ocean Cruises sold an issue of 12-year $1,000 par bonds to build new ships. The coupon rate is 4.85% interest, and makes payments semiannually. Today's required rate of return is 9.7%. How much should these bonds sell for today?

$660.45

A bond issued by Liberty, Inc. 10 years ago has a coupon rate of 8% and a face value of $1,000. The bond will mature in 15 years. What is the value to an investor with a required return of 12.5%?

$701.52

If you have a portfolio made up of the following stocks: What is the beta of the portfolio?

1.15

Jackson Corp. common stock paid $2.50 in dividends last year(D0). Dividends are expected to grow at a 12% annual rate forever. If Jackson's current market price is $40.00, what is the stock's expected rate of return (nearest .01 percent)?

19.00%

Marble Corp. has a beta of 2.5 and a standard deviation of returns of 20%. The return on the market portfolio is 15% and the risk-free rate is 4%. According to CAPM, what is the required rate of return on Collectible's stock?

31.5%

ND Electric Company issued $1,000 bonds that have an annual coupon rate of 6.5%. The present market value of the bonds is $1,225. If the bonds have 17 years remaining until maturity, what is the current yield on ND Electric Company bonds?

5.3%

Asymmetric Frames Corp. had a return on equity of 15%. The corporation's earnings per share was $6.00, its dividend payout ratio was 40% and its profit-retention rate was 60%. If these relationships continue, what will be United Financial Corp.'s internal growth rate?

9.0%

Put the following in order of their claim on assets of a firm, starting with the LAST to have a claim:

A. Mortgage Bonds B. Debentures C. Common Stock D. Preferred Stock C,D,A,B

You are given the following probability distribution for XYZ common stock's returns during the next year, which are assumed to be normally distributed. Show all work below, and complete the following: Return Probability 12% 20% 16% 60% 20% 20% What is the Expected Return? What is the Standard Deviation?

Expected Return= 44% SD= 0.5

You are considering buying some stock in Continental Grain. Which of the following are examples of non-diversifiable risks?

I. Risk resulting from a general decline in the stock market II. Risk resulting from a possible increase in income taxes. III. Risk resulting from an explosion in a grain elevator owned by Continental. IV. Risk resulting from a pending lawsuit against Continental. I and II

Which of the following statements concerning junk bonds is MOST correct?

Junk bonds have higher interest rates than AAA-rated bonds because of the higher risk.

Which of the following statements is true?

Long-term bonds have greater interest rate risk than do short-term bonds.

Which of the following is true of a zero coupon bond?

The bond makes no coupon payments.

Which of the following features, or benefits, belong to a firm's common stockholders?

all of the above

Of the following different types of securities, which is typically considered most risky?

common stocks of small companies

Preferred stock valuation usually treats the preferred stock as a

perpetuity

Preferred stock differs from common stock in that

preferred stock dividends are fixed

A stock's beta is a measure of its

systematic risk

Which of the following types of risk is diversifiable?

unsystematic, or company-unique risk