Finance exam 2

You just sold 427 shares of stock at a price of $19.07 a share. You purchased the stock for $18.83 a share and have received total dividends of $614. What is the total capital gain on this investment? -$102.48 -$716.48 -$511.52 -$618.48

$102.48

One year ago you purchased a stock price of $43.20 per share. The stock pays quarterly dividends of $0.18 per share. Today the stock is selling for $45.36 per share. What is your capital gain on this investment? -$1.44 -$2.16 -$2.34 -$2.80

$2.16 45.36-43.20

One year ago, you purchased 200 shares of JB Inc stock at a price of $18.97 a share. The stock pays an annual dividend of $1.42 per share. Today you sold all of your shares for $17.86 per share. What is your total dollar return on this investment? -$91 -$450 -$506 -$62

$62

Six months ago you purchased 300 shares of stock in JB Inc at a price of $26.19 a share. The stock pays a quarterly dividend of $0.12 a share. Today, you should your shares for $27.11 per share. What is the total amount of your dividend income on this investment? -$72 -$348 -$36 -$144

$72 Total Dividend per share for 6 month = $0.12 * 2 = $0.24 Total amount of your dividend income on this investment = $0.24 * 300 shares = $72

How much are you willing to pay for one share of LBM stock if the company JUST PAID a $1.23 annual dividend, dividends are expected to increase by 3.1 percent annually, and you require a return of 16 percent? -$9.83 -$9.29 -$10.21 -$9.33

$9.83

An ordinary annuity is best defined by which one of the following? Equal payments paid at the end of regular intervals over a stated time period. Increasing payments paid for a definitive period of time. Equal payments paid at the beginning of regular intervals for a limited time period. Equal payments that occur at set intervals for an unlimited period of time.

-Equal payments paid at the end of regular intervals over a stated time period.

Luis is going to receive $20,000 six years from now. Soho Lee is going to receive $20,000 nine years from now. Which one of the following statements is correct if both Luis and Lee apply a 7 percent discount rate to these amounts? -In today's dollars, Luis's money is worth more than Lee's. -In future dollars, Lee's money is worth more than Luis's money. -The present values of Luis and Lee's money are equal. -Lee's money is worth more than Luis's money given the 7 percent discount rate.

-In today's dollars, Luis's money is worth more than Lee's.

The historical record for the period 1926-2016 supports which one of the following statements. -There was only one year during the period when double-digit inflation occurred. -When large-company stocks have a negative return, they will have a negative return for at least two consecutive years. -Small-company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year. -The inflation rate was positive each year throughout the period.

-Small-company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year.

Sue and Neal are twins. Sue invests $5,000 at 7 percent when she is 25 years old. Neal invests $5,000 at 7 percent when he is 30 years old. Both investments compound interest annually. Both Sue and Neal retire at age 60. Which one of the following statements is correct assuming neither Sue nor Neal withdraw any money from their accounts prior to retiring? -Sue will have more money that Neal at age 60. -If both Sue and Neal wait to age 70 to retire, they will have equal amounts of savings. -Neal will earn more interest on interest than Sue. -Sue will have less money when she retires than Neal.

-Sue will have more money that Neal at age 60.

As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. If you can earn 6 percent on your money, which option should you take and why? -You should accept the $200,000 because the payments are only worth $195,413 to you today. -You should accept the $200,000 because the payments are only worth $189,311 to you today. -You should accept the payments because they are worth $336,000 to you today. -You should accept the payments because they are worth $247,800 to you today.

-You should accept the $200,000 because the payments are only worth $195,413 to you today.

Ethel is calculating the present value of a bonus she will receive next year. The process she is using is called: -discounting -growth analysis -accumulating compounding

-discounting

One year ago you purchased a stock at a price of $38.22 a share. Today, you sold the stock and realized a total loss of 11.09 percent on your investment. Your capital gain was NEGATIVE $4.68 a share. What was your dividend yield? -.88 percent -1.02 percent -.67 percent -1.15 percent

1.15 percent dividend yield -4.68=38.22*-11.09% dividend yield=- 4.68-4.23 dividend yield= 0.4414 Dividend yield in % =0.4414/38.22=1.15%

A stock had returns of positive 5%, positive 4%, negative 10% and positive 8% over the past four years. What is the arithmetic average return? -3.50% -1.75% -6.75% -4.25%

1.75%

You own 850 shares of JB Feed Mills stock valued at $53.15 per share. What is the dividend yield if your total annual dividend income is $1,256? -1.83% -2.78% -1.65% -2.54%

2.78% Dividend per share=$1256/850 shares=$1.477647059 Hence dividend yield=Dividend per share/Current price =$1.477647059/53.15 which is equal to 2.78%

A stock had returns of positive 13 percent, positive 11 percent, positive 8 percent, positive 14 percent, negative 9 percent, and negative 5 percent over the past six years. What is the geometric average return for this time period? -None of these are correct -5.13% -4.76% -4.93%

4.93%

A stock had annual returns of positive 5.1 percent, positive 12.2 percent, negative 3.8 percent and positive 9.4 percent for the past four years. The arithmetic average of these returns is __________ percent while the geometric average return for the period is __________ percent. -none of these are correct -5.91; 5.74 -5.73; 5.55 -5.85; 5.73

5.73; 5.55

Compounding

Future value

Generally speaking, which of the following best correspond to a wide frequency distribution? -High stand deviation, low rate of return -Low rate of return, large risk premium -Small risk premium, high rate of return -High standard deviation, large risk premium

High standard deviation, large risk premium

Which one of the following is a correct formula? -Capital gains yield = Dividend / Current Market Price of Stock -None of these are correct. -Total dollar return = Dividend income + Capital gain (or loss) -Dividend yield = Last year's dividend / Current Market Price of Stock

Total dollar return = Dividend income + Capital gain (or loss)

The rate of return on which type of security is normally used as the risk-free rate of return? -Corporate bonds -Inflation -none of these are correct -Treasury bills

Treasury bills

Which one of the following categories of securities had the lowest average risk premium for the period 1926-2016? Long-term corporate bonds US Treasure bills Large company stocks Small company stocks

US Treasure bills

A bond has a market price that exceeds its face value. Which one of these features currently applies to this bond? -YTM less than the coupon rate -TME equal to the current yield -discount bond -currently selling at par

YTM less than the coupon rate

All else constant, a bond will sell at _____________________when the coupon rate is ______________the YTM. -a discount; less than -a premium; less than -par; less than -a premium; equal to

a discount; less than

A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond? -callable -unsecured -junk -par value

callable

What is the model called that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate? -dividend growth -zero growth -discounted dividend -earnings growth

dividend growth

Annuity due

first payment occurs at the beginning of the period

Ordinary annuity

first payment occurs at the end of the period

The average compound return earned per year over a multiyear period is called the ___________ average return. -geometric -standard -arithmetic -real

geometric

To convince investors to accept greater volatility, you must: -none of these are correct -increase the risk-free rate -decrease the risk premium -increase the risk premium

increase the risk premium

Which one of the following statements is a correct reflection of the US financial markets for the period 1926-2016? -US Treasury bills had an annual return in excess of 10 percent in three or more years. -Inflation equaled or exceeded the return on US Treasury bills every year during the period. -US Treasury bill returns never exceeded a return of 9 percent in any one year. -none of these are correct.

none of these are correct.

Discounting

present value

For the period 1926-2016, US Treasury bills always: -provided a positive annual rate of return. -earned a higher annual rate of return than long-term government bonds. -had an annual rate of return in excess of 1.2 percent. -none of these are correct.

provided a positive annual rate of return.

Assume that last year T-bills returned 2.8 percent while your investment in large company stocks earned an average of 7.6 percent. Which one of the following terms refers to the difference between these two rates of return? -geometric average return -arithmetic average return -risk premium -standard deviation

risk premium