FINA 3724 Final
Moerdyk Corporation's bonds have a 10-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going interest rate is 5.90%, based on semiannual compounding. What is the bond's price?
$1,100.88
Goode Inc.'s has a required rate of return of 11.5% and it sells for $25.00 per share. Goode's dividend is expected to grow at a constant rate of 7%. What was the last dividend paid?
$1.05
Whats the present value of a perpetuity that pays $500 per year if the appropriate interest rate is 3.25%
$15,384.61
How much would $5,000.00 due to 20 years be worth today if the discount rate were 4.35%
$2,133.64
Jose now has $1500. How much would he have after 4 years if he leaves it invested at 11.4% with annual compounding
$2,310.11
You want to quit your job and return to school for an MBA degree 5 years from now, and you plan to save $4,500 per year, beginning immediately. You will make 5 deposits in an account that pays 4.5% interest. Under those assumptions, how much will you have 5 year from today
$25,726.01
You want to purchase a $35,000 vehicle. You have $5,000 saved up as your down payment (loan amount will be for $30,000). You are offered an annual rate of 1.9% by XYZ Financial on a 60 month loan. What will be your monthly payment on this vehicle
$524.52
Bae Inc. is considering an investment that has an expected return of 15% and a standard deviation of 10%. What is the investment's coefficient of variation?
.67
Jim Angel holds a $200,000 portfolio consisting of the following stocks: S I beta A 50,000 .95 B 50,000 .80 C 50,000 1.00 D 50,000 1.20
.9888
Tom O'Brien has a 2-stock portfolio with a total value of $100,000. $37,500 is invested in stock A with a beta of .75 and the remainder is invested in stock B, with a beta of 1.42. What is his portfolio's beta
1.17
Scanlon Inc's CFO hired you as a consultant to help them estimate the cost of capital. You have been provided with the following data: Risk free rate: 4.10%, MRP: 5.25%, Beta=1.30. Based on the CAPM approach, what is the cost of equity?
10.93%
Cooley Company's stock has a beta of 1.40, the risk free rate is 4.25%, and the market risk premium is 5.50%. What is the firm's expected cost of equity?
11.95%
Find a stock's total return (YTM), if beta= 1.5, the risk free rate is 6% and the MRP is 4%
12%
What rate of return would you need to earn compounded annually, to be indifferent between earning 12%, compounded monthly
12.68%
Dyl Inc.'s bonds currently sell for $1,500 and have a par value of $1,000. They pay a $220 annual coupon and have a 15-year maturity. What is their yield to maturity (YTM)
13.91%
Bob has $2,500 invested in a bank that pays 4% annually. How long will it take for his funds to triple
28.01
Suppose 1-year T-bills currently yield 7% and the future inflation rate is expected to be constant at 3.20% per year. What is the real risk free rate of return, r*? Disregard any cross-product terms, i.e., if averaging is required, us the arithmetic average
3.80%
A stocks total return is 12%. Find the captial gains yield if the dividend yield is 8%
4%
Calculate how long you need to wait for to accumulate $1,000,000, if you invest $15,000 today at a rate of 9%, compounded annually. Round to the nearest year
49
Porter Inc.'s stock has a cost of common stock from retained earnings, of 12.25%, a beta of 1.25, and is in equilibrium. If the risk free rate is 5.00%, what is the market risk premium?
5.80%
The real risk-free rate is 3.05%, inflation is expected to be 2.75% this year, and the maturity risk premium is zero. Ignoring any cross-product items, what is the yield on a 1-year Treasury bond
5.80%
Malko Enterprises' bonds currently sell for $1,275. They have a 10-year maturity, and annual coupon of $85, and a par value of $1,000. What is their current yield
6.67%
Sadik Inc.'s bonds currently sell for $1,180 and have a par value of $1,000. They pay a $105 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to call (YTC)
7.74%
If D1= $1.25, g=5.5%, and P0=$44, what is the stocks expected total return for the coming year
8.34%
Dothan Inc.'s stock has a 25% chance of producing a 30% return, a 50% chance of producing a 12% return, and a 25% chance of producing a -18% return. What is the firm's expected rate of return?
9.00%
A company's perpetual preferred stock currently sells for $92.50 per share, and it pays an $8 annual dividend. If the company were to sell a new preferred issue, it would incur flotation cost of 5% of the issue price. What is the firm's cost of preferred stock?
9.10%
You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:
A secondary market transaction
Which of the following is the correct definition of a perpetuity
A series of equal payments made at equal intervals that continues on forever
Which of the following is not a capital component when calculating the weighted average cost of capital for use in capital budgeting
Accounts Payable
What of the following macroeconomic factors can influence interest rates?
All of the Above -Federal reserve policy -Federal budget deficits or surpluses -International factors -Level of business activity
Which of the following has payments that occur at the beginning of each period
Annuity due
Which bond provision gives the issuer of the bond, the ability to force the holder of the bond to sell the bond back for any reason?
Call
Which of the following items cannot be found on a firm's balance sheet under current liabilities
Cost of goods sold (found on income statement)
Which of the following is not part of a bond valuation calculation
Dividend payment
A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership
False
A portfolio's diversifiable risk, which is measured by its beta, can be lowered by adding more, less correlated, stocks to the portfolio
False
Bonds with longer maturity are less sensitive to interest rate risk and inflation risk, than bonds with shorter maturity
False
Funds acquired by the firm through retaining earnings have no cost because there are no dividends or interest payments associated with them, and no flotation costs are required to raise them, but capital raised by selling new stock or bonds does have a cost
False
Higher risk will always result in higher return
False
If the Treasury yield curve were downward sloping, the yield to maturity on a 10-year Treasury coupon bond would be higher than that on a 1-year T-bill
False
In portfolio analysis, it is better to use ex post (historical) returns and standard deviations, rather than ex ante (future) data
False
One of the four most fundamental factors that affect the cost of money as discussed in the text is the time preference for consumption. The higher the time preference (i.e. the longer the time until money is needed), the lower the cost of money, other things held constant
False
Simple interest will always yield a higher future value than compounded interest
False
The NYSE is defined as a "primary" market because it is one of the largest and most important stock markets in the world
False
The cost of preferred stock to a firm must be adjusted to an after-tax figure because 70% of dividends received by a corporation may be excluded from the receiving corporation's taxable income
False
The operating margin measures operating income per dollar of assests
False
The standard deviation is a better measure of risk than the coefficient of variation if the expected of the securities being compared differ significantly
False
The term IPO, stands for "individual purchase order," and is when an individual (as opposed to an institution) places an order to buy a stock
False
The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation
False
The total risk of a portfolio is made up of diversifable risk plue unsystematic risk
False
Time lines cannot be constructed in situations where some of the cash flows occur annually but others occur quarterly
False
The process of using financial information to assist in financial and investment decision making is known as
Financial Analysis
Bonds are valued by:
Finding the present value of all expected future cash flows
Which of the following best describes the goals of a financial analysis
Identify company strengths and weaknesses
The risk of return trade off states that
In order to earn a higher return you must incur more risk
What type of bond pays holders interest only when income is earned by the firm?
Income Bond
The goal of the financial manager is to maximize shareholder wealth through
Increasing the stock price
Which of the following risk premiums affect short term (less than one year maturity) treasury securities
Inflation risk premium
Which of the following risk premiums is present to compensate an investor for the difficulty the investor may encounter while converting their investment to cash
Liquidity risk premium
When working with the CAPM, which of the following factors can be determined with the most precision?
None of the above can be determined using the CAPM
Which of the following statements is CORRECT
Sole proprietorship and partnerships generally have a tax advantage over corporations
ABC Corporation's current ratio has decreased from 2.4 in 2011 to 1.8 in 2012. Which of the following interpretations is false
The company was more liquid in 2012 than 2011
The value of any investment is computed as
The present value of all expected future cash flows
Which of the following statements is CORRECT
The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends, and the riskiness of those cash flows
Yield to maturity is:
The return an investor earns by holding a bond through maturity
When the weighted average cost of capital is minimized it is generally safe to say
The value of the firm is maxmized
A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long term mortgage loans is one example of a financial intermediary
True
A hostile takeover is said to occur when another corporation or group of investors gains voting control over a firm and replaces the old managers. If the old managers were managing the firm inefficiently, then hostile takeovers can improve the economy. However, hostile takeovers are controversial, and legislative actions have been taken to make them more difficult to undertake
True
A publicly owned corporation is a company whose shares are held by the investing public, which may include other corporations as well as institutional investors
True
As a result of compounding, the effective annual rate on a bank deposit (or a loan) is always equal to or greater than the nominal rate on the deposit (or loan)
True
Because of differences in the expected returns on different investments, the standard deviation is not always an adequate measure of risk. However, the coefficient of variation adjusts for differences in expected returns and thus allows investors to make better comparisons of investments' stand alone risk
True
By holding a share of common stock, an investor has ownership in the company. This ownership in the company allows them to, among other things, to vote on whom to elect to the firm's Board of Directors
True
If investors expect a zero rate of inflation, then the nominal rate of return on a very short term US Treasury Bond should be equal to the real risk free rate (r*)
True
If the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series
True
In order to maximize its shareholder's value, a firm's management must attempt to maximize the stock price over the long run
True
Other things held constant, the more debt a firm uses, the lower its return on total assets will be
True
Some partners in a partnership may have different rights, privileges, and responsibilities than other partners
True
The cost of common equity obtained by retaining earnings is the rate of return the marginal stockholder requires on the firm's common stock
True
The overall cost of capital for a firm is a weighted average calucation including the cost to use each separate source of funds. The weights are determined based off of the firm's captial structure
True
The price sensitivity of a bond to a given change in interest is generally greater the longer the bond's remaining maturity
True
The value of any asset is the present value of cash flows the asset is expected to provide. The cash flows a business is able to provide to its investors is its free cash flow. This is the reason that FCF is so important in finance
True
The value of money depends upon when it is received
True
Which of the following is a primary market transaction
XYZ Corp. issues 2,000,000 shares of new stock and sells them to the public through an investment banker
