Unit 4 Midterm

Last national bank offers a CD paying 8% interest (compounded annually). If you invest $1,000 how much will you have at the end of year 5?

$1,469

Bavarian Sausage just issued a 10 year 7% coupon bond. The face value of the bond is $1,000 and the bond makes annual coupon payments. If the required return on the bond is 10%, what is the bond's price?

$815.66

As a result of an injury settlement with your insurance you have the choice between (1) receiving $5,000 today or (2) $6,500 in three years. If you could invest your money at 7% compounded annually, which option should you pick?

(2), because it has a higher PV.

Of the following bonds, which one has the highest degree of interest rate risk?

20 year 8% bond

You bought a share of Company FDC Inc stock for $46.50 at the beginning of the year. During the year the stock paid a $3.75 dividend and at the end of the year it trades at $52.75. What is the total return of your stock investment?

21.05%

Which of the following is correct?

According to the CAPM (capital asset pricing model), the intercept of the security market line should be equal to the risk-free rate

The portion of your total return from a stock investment that is caused by an decrease in the value of the stock?

Capital loss.

Which finance career classification involves analyzing a firm's business processes and strategies as well as recommending a change in practice in order to make a firm more competitive?

Consulting

A 15-year, 9%, $1000 face value bond is currently trading at $958. The yield to maturity of this bond must be

Greater than 9%.

The first public sale of company stock to outside investors is called a/an

Initial public offering.

What is the purpose of diversification?

Lower the overall risk of your portfolio.

Bonds issued by US states or local governments are called:

Municipal bonds

Which of the following is correct?

New York Stock Exchange has the most strict listing requirements

Suppose Sarah can borrow and lend at the risk free-rate of 3%. Which of the following four risky portfolios should she hold in combination with a position in the risk-free asset?

Portfolio with a standard deviation of 19% and an expected return of 15%

Which of the following items cannot be found on a balance sheet?

Sales

What is correct?

The market value of all outstanding shares is the market capitalization of a company.

Which of the following is an example of systematic risk?

The national trade deficit is higher than expected.

Which of the following is not one of the five basic corporate finance functions?

auditing