finance 300 final exam

7.54

A preferred stock sells for $48.20 a share and has a market return of 15.65 percent. What is the dividend amount? $7.25 $6.80 $6.93 $7.54 $7.42

do work

A stock has had returns of 12 percent, 19 percent, 21 percent, −12 percent, 26 percent, and −5 percent over the last six years. What are the arithmetic and geometric returns for the stock? (Do not round intermediate calculations and round your final answers to Arithmetic return 10.17 correct % Geometric return 9.23 correct

Active funds

Actively managed Manager routinely buys and sells assets when he feels they are under- (over-) valued Attempts to beat a benchmark Higher fees

do work

Apocalyptica Corp. pays a constant $9.20 dividend on its stock. The company will maintain this dividend for the next 8 years and will then cease paying dividends forever. If the required return on this stock is 12 percent, what is the current share price? Current share price $ 45.70 correct

blended or hybrid

Funds that do not invest exclusively in either stocks or bonds

37.92

Gamma Corp. is expected to pay the following dividends over the next four years: $5, $12, $18, and $1.80. Afterwards, the company pledges to maintain a constant 4 percent growth rate in dividends, forever. If the required return on the stock is 14 percent, what is the current share price? $43.18 $37.92 $41.06 $46.09 $49.31

Distressed securities

Goal: Buy securities that are being offered at deep discounts resulting from company-specific or sector-wide distress. For example, a manager of distressed securities fund might buy securities of firms facing bankruptcy. Expected Volatility: Low to moderate.

Short selling

Goal: Managers of a pure short hedge fund only short sell. In addition, these managers use leverage through the use of margin. Expected Volatility: High

Market timing

Goal: Managers of these hedge funds attempt to identify trends in particular sectors or overall global markets. These managers often take concentrated positions and generally use leverage to increase the fund's exposure to predicted movements. Expected Volatility: High

have priority in the purchase of any newly issued shares.

If shareholders are granted a preemptive right they will: be paid dividends prior to the preferred shareholders during the preemptive period. be given the choice of receiving dividends either in cash or in additional shares of stock. be entitled to two votes per share of stock. be able to choose the timing and amount of any future dividends. have priority in the purchase of any newly issued shares.

exchanged traded fund

Is basically an index fund. Trades like a closed-end fund (without the discount phenomenon). Can be bought or sold infinite times throughout the day

proxy

Kate could not attend the last shareholders meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which one of the following terms is used to describe the method by which Kate's shares were voted? In absentia Proxy Cumulative Straight Consent-form

do work

Keenan Co. is expected to maintain a constant 4.0 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 5.8 percent, what is the required return on the company's stock? (Round your answer to 2 decimal places. (e.g., 32.16)) Required return 9.80 correct %

1.15

Keller Metals common stock is selling for $36 a share and has a dividend yield of 3.2 percent. What is the dividend amount? $1.15 $11.25 $0.32 $3.49 $11.52

do work

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $12 per share dividend in 10 years and will increase the dividend by 4 percent per year thereafter. If the required return on this stock is 12 percent, what is the current share price? Current share price $ 54.09 correct

181.48

Metroplex Corporation will pay a $4.90 per share dividend next year. The company pledges to increase its dividend by 7.90 percent per year indefinitely. If you require an 10.60 percent return on your investment, how much will you pay for the company's stock today? $24.55 $181.48 $168.19 $174.22 $188.74

46.04

Michael's, Inc. just paid $1.90 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 4.20 percent. If you require a rate of return of 8.5 percent, how much are you willing to pay today to purchase one share of Michael's stock? $15.59 $47.94 $23.02 $23.29 $46.04

mutual fund requirement

Mutual funds are required by law to supply a prospectus to any investor who wishes to purchase shares. Mutual funds must also provide an annual report to their shareholders

primary

Newly issued securities are sold to investors in which one of the following markets? Inside Primary Stated value Proxy Secondary

Fund manager

The buy and sell decisions for which assets are included in the portfolio are made by a _______, who is compensated through fund fees

10.14

One year ago, you bought a stock for $36.48 a share. You received a dividend of $1.62 per share last month and sold the stock today for $40.18 a share. What is the capital gains yield on this investment? 2.86 percent 14.58 percent 12.29 percent 10.14 percent 3.70 percent

6608

One year ago, you purchased 400 shares of stock for $12 a share. The stock pays $0.22 a share in dividends each year. Today, you sold your shares for $28.30 a share. What is your total dollar return on this investment? $6,222 $6,608 $6,220 $6,520 $6,432

.081504

Over the past five years, a stock returned 8.3 percent, -32.5 percent, -2.2 percent, 46.9 percent and 11.8 percent. What is the variance of these returns? 0.076290 0.091306 0.071188 0.081504 0.082547

13.05

Over the past six years, a stock had annual returns of 14 percent, -3 percent, 8 percent, 21 percent, -16 percent, and 4 percent, respectively. What is the standard deviation of these returns? 14.40 percent 11.27 percent 13.05 percent 13.59 percent 15.08 percent

index funds

Passively managed Attempts to track a benchmark e.g.(S&P 500) Low fees

do work

Staal Corporation will pay a $2.86 per share dividend next year. The company pledges to increase its dividend by 3.5 percent per year indefinitely. If you require a return of 10 percent on your investment, how much will you pay for the company's stock today? (Round your answer to 2 decimal places. (e.g., 32.16)) Stock price $ 44.00 correct

do work

Suppose a stock had an initial price of $62 per share, paid a dividend of $1.10 per share during the year, and had an ending share price of $74. Compute the percentage total return. (Round your answer to 2 decimal places. (e.g., 32.16)) Total return 21.13 correct %

do work

Suppose a stock had an initial price of $62 per share, paid a dividend of $2.50 per share during the year, and had an ending share price of $72. What was the dividend yield and the capital gains yield? (Round your answers to 2 decimal places. (e.g., 32.16)) Dividend yield 4.03 correct % Capital gains yield 16.13 correct %

do work

Suppose a stock had an initial price of $86 per share, paid a dividend of $1.80 per share during the year, and had an ending share price of $74. Compute the percentage total return. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. ( Total return -11.86 correct % What was the dividend yield and the capital gains yield? Dividend yield 2.09 correct % Capital gains yield -13.95 correct %

50.89

Taylor Tools is a young start-up company. No dividends will be paid on the stock over the next 7 years because the firm needs to plow back its earnings to fuel growth. The company will then pay a $9 per share dividend in year 8 and will increase the dividend by 4 percent per year thereafter. If the required return on this stock is 12 percent, what is the current share price? $92.08 $112.50 $47.76 $64.30 $50.89

Do work

The Jackson-Timberlake Wardrobe Co. just paid a dividend of $1.48 per share on its stock. The dividends are expected to grow at a constant rate of 8 percent per year indefinitely. Required: (a) If investors require a 15 percent return on The Jackson-Timberlake Wardrobe Co. stock, what is the current price? $22.83 correct (b) What will the price be in 14 years? $67.07 correct

8.33

The Pancake House pays a constant annual dividend of $1.25 per share. How much are you willing to pay for one share if you require a 15 percent rate of return? $11.38 $11.04 $8.33 $10.87 $7.86

geometric

The average compound return earned per year over a multi-year period is called the _____ average return. geometric standard variant arithmetic real

lower lower

The lower the standard deviation of returns on a security, the _____ the expected rate of return and the _____ the risk. You cannot determine anything about the expected rate of return from the standard deviation. higher; lower lower; higher higher; higher lower; lower

dividend yield

Which one of the following is computed by dividing next year's annual dividend by the current stock price? dividend yield growth rate total yield capital gains yield yield to maturity

regulated investment company

does not have to pay taxes on its investment income.

5.8

You purchased 1,300 shares of LKL stock 5 years ago and have earned annual returns of 7.1 percent, 11.2 percent, 3.6 percent, -4.7 percent and 11.8 percent. What is your arithmetic average return? 6.23 percent 6.47 percent 4.47 percent 6.98 percent 5.80 percent

do work

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 18 percent, -3 percent, 16 percent, 11 percent, and 10 percent. What was the arithmetic average return on Crash-n-Burn's stock over this five-year period? Average return 10.4 correct % What was the variance of Crash-n-Burn's returns over this period? Variance 0.00673 correct What was the standard deviation of Crash-n-Burn's returns over this period? (Do not round intermediate calculations and round your final answer to 2 decimal places. Standard deviation 8.20 correct %

investment company

business that specializes in pooling funds from individual investors and making investments.

hedge funds

generally face lower regulatory requirements: Hedge funds don't have to have an SEC-registered prospectus Hedge funds are not required to maintain any particular degree of diversification or liquidity. Hedge fund managers have considerably more freedom to follow various investment strategies, styles, use leverage, options, illiquid assets, etc.

4.28

Blackwell Ink is losing significant market share and thus its managers have decided to decrease the firm's annual dividend. The last annual dividend was $0.90 a share but all future dividends will be decreased by 5 percent annually. What is a share of this stock worth today at a required return of 15 percent? $4.95 $4.49 $4.07 $4.72 $4.28

do work

Apocalyptica Corp. pays a constant $9.05 dividend on its stock. The company will maintain this dividend for the next 9 years and will then cease paying dividends forever. If the required return on this stock is 10 percent, what is the current share price? Current share price $ 52.12 correct

do work

Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $11.15, but management expects to reduce the pay out by 6 percent per year indefinitely. If you require a return of 12 percent on this stock, what will you pay for a share today? Current share price $ 58.23 correct

do work

Apocalyptica Corp. pays a constant $7.40 dividend on its stock. The company will maintain this dividend for the next 8 years and will then cease paying dividends forever. If the required return on this stock is 12 percent, what is the current share price? Current share price $ 36.76 correct

efficient capital market

Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities. Which one of the following terms best defines that market? zero volatility market evenly distributed market efficient capital market riskless market Blume's market

c

Donuts Delite just paid an annual dividend of $1.10 a share. The firm expects to increase this dividend by 8 percent per year the following 3 years and then decrease the dividend growth to 2 percent annually thereafter. Which one of the following is the correct computation of the dividend for year 7? a.($1.10) (1.08 × 3) (1.02 × 4) b.($1.10) (1.08)3 (1.02)3 c.($1.10) (1.08)3 (1.02)4 d.($1.10) (1.08)3 (1.02)2 e.($1.10) (1.08 × 3) (1.02 × 3)

Macro

Goal: These hedge fund managers attempt to profit from changes in global economies brought about by governmental policies that affect interest rates interest rates, currencies, or commodity prices. Macro fund managers often use leverage and derivative securities to increase the impact of market moves. Expected Volatility: High.

Arbitrage

Goal: identify a mispricing in relationships between securities that theoretically should not exist. These hedge fund managers look at pricing relationships for securities offered by the same company, or for investments across time or countries. Expected Volatility: Low.

Market Neutral

Goal: offset risk with opposite positions in pairs of securities. Properly constructed, the resulting portfolio makes money regardless of how the overall market performs. Hence the name "market neutral." Expected Volatility: Low.

-3.6

One year ago, Neal purchased 3,600 shares of Franklin stock for $101,124. Today, he sold those shares for $26.60 a share. What is the total return on this investment if the dividend yield is 1.7 percent? 2.42 percent 1.10 percent -4.21 percent -2.29 percent -3.60 percent

do work

Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $3.00 next year. The growth rate in dividends for all three companies is 4 percent. The required return for each company's stock is 9.00 percent, 12.70 percent, and 14.60 percent, respectively. (a) What is the stock price for Red. Inc., Company? $60.00 correct (b) What is the stock price for Yellow Corp. Company? $34.48 correct (c) What is the stock price for Blue Company? $28.30 correct

8.11

The common stock of Western Hill Farms has yielded 16.3 percent, 7.2 percent, 11.8 percent, -3.6 percent, and 9.9 percent over the past five years, respectively. What is the geometric average return? 8.03 percent 7.91 percent 8.27 percent 8.32 percent 8.11 percent

do work

The next dividend payment by Blue Cheese, Inc., will be $1.89 per share. The dividends are anticipated to maintain a growth rate of 5 percent forever. If the stock currently sells for $38 per share, what is the required return? (Round your answer to 2 decimal places. (e.g., 32.16)) Required return 9.97 correct %

D5/(R-g).

The price of a stock at year 4 can be expressed as: D1 × (1 + R)5. D0 / (R + G4). D4/(R-g). D5/(R-g). D0 × (1 + R)5.

arithmetic

The return earned in an average year over a multi-year period is called the _____ average return. geometric standard arithmetic real variant

volatility

The standard deviation measures the _____ of a security's returns over time. arithmetic average frequency average value mean volatility

2.43

This morning, you purchased a stock that will pay an annual dividend of $1.90 per share next year. You require a 12 percent rate of return and the annual dividend increases at 3.5 percent annually. What will your capital gain be on this stock if you sell it three years from now? $2.51 $2.87 $2.43 $2.92 $2.63

dividend growth model

What is the name given to the model that computes the present value of a stock by dividing next year's annual dividend amount by the difference between the discount rate and the rate of change in the annual dividend amount? Dividend growth model Stock pricing model Capital gain model Present value model Equity pricing model

small company stocks

Which one of the following is the most apt to have the largest risk premium in the future based on the historical record for 1926-2008? U.S. Treasury bills Small-company stocks Large-company stocks Long-term corporate debt Long-term government debt

The dollar return is dependent on the size of the investment while the percentage return is not

Which one of the following statements is correct concerning both the dollar return and the percentage return on a stock investment? The dollar return is dependent on the size of the investment while the percentage return is not. Dollar returns must either be zero or a positive value while percentage returns can be negative, zero, or positive. Dollar returns are based on capital gains while percentage returns are based on the total rate of return. The dollar return is more accurate than the percentage return because the dollar return includes dividend income while the percentage return does not. The dollar return considers the time value of money while the percentage return does not.

The higher the expected rate of return, the wider the distribution of returns

Which one of the following statements is correct? -The higher the expected rate of return, the wider the distribution of returns. -The reward for bearing risk is called the standard deviation. -The risk-free rate of return has a risk premium of 1.0. -Risk premiums are inversely related to the standard deviation of returns. -Risks and expected return are inversely related.

common stock

Which one of the following types of securities has no priority in a bankruptcy proceeding? Common stock Preferred stock Straight bond Convertible bond Senior debt

open end fund

an investment company that stands ready to buy and sell shares in itself to investors, at any time. Most common form of a mutual fund There are about 8,000 open-end funds.

Close end fund

an investment company with a fixed number of shares that are bought and sold by investors, only in the open market. There are about 600 closed-end funds may sell at a discount relative to their net asset values. The discount is sometimes substantial. The typical discount fluctuates over time and may reflect the market's expectation of manager skill or liquidation costs

do work

anicex Co. is growing quickly. Dividends are expected to grow at a rate of 25 percent for the next three years, with the growth rate falling off to a constant 4 percent thereafter. If the required return is 10 percent and the company just paid a dividend of $2.95, what is the current share price? Current share price $ 86.52 correct

mutual funds

simply a means of pooling the funds of a large group of investors and investing in a diversified portfolio of assets Stocks Bonds Combination of the two

net asset value (NAV)

the value of the assets held by a mutual fund, divided by the number of shares. Similar to a stock price = market value of equity/# of shares outstanding