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Answer the 52 questions on the attached file.
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Consider a bond with a coupon rate of 10% and annual coupons. The par value is
$1,000, and the bond has 10 years to maturity. The yield to maturity (return to
bondholder) is 10%. What is the value of the bond?
$1,000
$980
$950
$1,105
Consider a bond with a 10% semiannual coupon bond, 15 years to maturity, and a par
value of $1,000. The current price is $1028.09. What is the yield to maturity?
10.25%
9.02%
8.59%
9.64%
Consider a bond with a 10% semi-annual coupon bond, 15 years to maturity, and a par
value of $1,000. The current price is $1028.09. What is the current yield?
10.28%
9.73%
9.64%
10%
Consider a bond with a 10% semi-annual coupon bond, 15 years to maturity, and a par
value of $1,000. The current price is $1028.09. What is the capital gain yield?
-0.085%
1.33%
-1.22%
1.22%
The principal amount of a bond that is repaid at the end of the loan term is called the
bond’s
maturity
face value
coupon rate
coupon
yield to maturity
The rate of return required by investors in the market for owning a bond is called the
Face value
Yield to maturity
Coupon
Maturity
Coupon rate
A bond with a 7% coupon that pays interest semiannually and is priced at par will have
a market price of _____ and interest payments in the amount of _____ each.
$1,000; $7
$1,000; $35
$1,070; $35
$1,070; $70
$1,007; $70
Your firm offers a 10-year, zero coupon bond. The yield to maturity is 8.61%. What is
the current market price of a $1,000 face value bond?
$833.26
$915.12
$430.24
$473.06
$1,081.05
A corporate bond with a face value of $1,000 matures in 4 years and has an 8% coupon
paid at the end of each year. The current price of the bond is $932. What is the yield to
maturity for this bond?
5.85%
6.18%
10.15%
8.38%
A AAA firm’s bonds will mature in eight years, and the coupon is $65. The YTM is 8.2%.
What is the Bond’s market value?
$1,048.43
$903.04
$912.58
$925.12
What will be the FV of $500 in 3 years at an interest rate of 5%?
$550.41
$582.95
$680.25
$578.81
You have $100 but need $180 four years later. To achieve this goal, how much should
the interest rate be?
15.38%
16.66%
16.51%
15.83%
The mortgage quoted rate is 6% annually. How much is the actual rate? (Hint: The
mortgage is paid monthly.)
6.00%
6.57%
6.17%
6.47%
What is the NPV of the following cash flows. The discount rate is 5%.
Year CF
1
0
2
0
3
100
4
100
5
200
$301.05
$364.33
$325.36
$350.92
At 4% interest, how long would it take to triple your money?
Year CF
1
0
2
0
3
100
4
100
5
200
26.64 years
29.01 years
27.27 years
28.01 years
You are borrowing $18,000 to buy a car. The terms of the loan call for monthly
payments for 5 years at 6 percent interest (APR=5%). What is the actual (effective)
annual rate?
5%
5.04%
5.12%
5.25%
An insurance company is offering a new policy to its customers. The detail of the policy
is as follows. The purchaser makes the following five payments to the company.
First year $500
Second year $600
Third year $700
Third year $700
Fourth year $800
Fifth year $900
Assume that the interest rate is 10%. How much is the lump sum value of the five
payments as of today?
2,500.00
2728.51
$2,988.43
2,898.93
What is the nominal annual rate (APR) if a bank charges you a 4 percent actual rate
(EAR=4%) compounded weekly (52 weeks a year)?
3.62%
3.92%
3.72%
3.84%
Your sister turned 30 today, and she is planning to save $7,000 per year for retirement,
with the first deposit to be made one year from today. She will invest in a mutual fund
that’s expected to provide a return of 8% per year. She plans to retire 35 years from
today, when she turns 65, and she expects to live for 25 years after retirement, to age
90. Under these assumptions, how much can she spend each year after she
retires? Her first withdrawal will be made at the end of her first retirement year.
$112,997
$108,179
$98,601
$161,686
You agree to make 24 deposits of $500 at the beginning of each month into a bank
account. At the end of the 24th month, you will have $13,000 in your account. If the bank
compounds interest monthly, what nominal annual interest rate will you be earning?
8.00%
8.82%
8.40%
7.62%
You are given the investment alternatives. Assume a 20% discount rate. How much is
the NPV?
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
$0
$0
$5000
$3000
$2000
$8000
$8,804.11
$7,492.50
$8,514.18
$7,823.22
You are given the investment alternatives. Assume 20% discount rate. How much is the
NFV (value by the end of year 6)?
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
$18,000
$23,360
$23,880
$0
$0
$5000
$3000
$2000
$8000
$24,470
Beta of stock A = 1.0; Beta of stock B = 1.5. Pick the correct answer.
Stock B’s return > stock A’s return
Stock A’s return < Stock B’s return Stock B is always a better choice than stock A to anybody There is no difference between the returns of the two stocks Years Market return Stock A return Stock B return 1 -3% -16% 5% 2 5% 20% 5% 3 1% -18% 5% 4 10% 25% 5% 5 -6% -14% 5% Based on the chart, the average return of market return is 1.4% 1.1% 1.3% 1.2% Years Market return Stock A return Stock B return 1 -3% -16% 5% 2 5% 20% 5% 3 1% -18% 5% 4 10% 25% 5% 5 -6% -14% 5% Based on the chart, the risk of market return (standard deviation) is (hint: you can use stdevp function in excel to find standard deviation) 6.11% 6.35% 5.88% 5.93% Years Market return Stock A return Stock B return 1 -3% -16% 5% 2 5% 20% 5% 3 1% -18% 5% 4 10% 25% 5% 5 -6% -14% 5% Based on the chart, the stock A’s average return is 0.45% -0.06% 1.53% 2.97% Years Market return Stock A return Stock B return 1 -3% -16% 5% 2 5% 20% 5% 3 1% -18% 5% 4 10% 25% 5% 5 -6% -14% 5% Based on the chart, The beta of stock B’s return is (hint: stock B's stock return shows no deviation. So it should be a risk free security) 0.05 2.00 0.00 1.00 Choose the correct answer Strike in Jacksonville Idiosyncratic risk High inflation Systematic risk Recession Idiosyncratic risk Hyper interest rates Systematic risk Pick the correct answer (SML: security market line). Returns should decreases with beta The slope of SML = market risk premium Beta shows diversifiable risk The intercept of SML = market return Beta of stock A is 1.2 and σ is 21%. Beta of stock B is 0.8 and σ is 26%. You have a total investment of $200,000, among which 50% invest in stock A and the rest in B. Imagine your total investment including this portfolio is well diversified. Pick the correct answer. Stock A’s return < stock B’s return Stock A is safer than Stock B. Stock A’s return = stock B’s return Your portfolio’s beta = 1 Stock A has an expected return of 10% and a standard deviation of 25%. Stock B has an expected return of 13% and a standard deviation of 35%. Assume that risk free rate is 5% and the market risk premium, rM − rRF, = 6%. Portfolio AB: 50% invested in Stock A; 50% invested in Stock B. The correlation between stock A and B is 0. Choose the correct answer. Portfolio of AB is riskless, because the two stocks are not correlated Stock B's beta is 1b Portfolio AB's return is 11%b Beta of stock A = 0.8333 If investors anticipate a 5% risk-free rate, the market risk premium = 6%, beta = 1. Find the return. 10.40% 10.83% 11% 10% A AAA firm has a portfolio worth $200,000. Four stocks are in the portfolio with information given as below. Calculate the beta of this portfolio. Stock Value β A $50,000.00 0.5000 B $50,000.00 0.7000 C $50,000.00 1.2000 C $50,000.00 1.4000 Total $200,000.00 0.950 0.900 1.000 1.200 With the following information, find σ (Hint: Use stdev function in excel.) Year Return 2015 10% 2014 -12.50% 2013 25% 18.46% 18.01% 18.87% 20.18% A portfolio with a value of $40,000,000 has a beta = 1. Risk free rate = 4.25%, market risk premium = 6.00%. An additional $60,000,000 will be included in the portfolio. After that, the expected return should be 13%. Find the average beta of the new stocks to achieve the goal 1.78 1.81 1.76 1.84 D1 = $0.8, rs = 10.5%, g = 6%. Calculate the stock price. $18.04 $17.78 $18.17 $17.45 D1 = $1, g = 4.7%, P0 = $20. Find the dividend yield for the next year. 5.5% 6% 4.5% 5% D0 = $2, g = 5%, P0 = $30. Find the stock return. 13% 11% 12% 10% D1 = $1, g = 6.00%, β = 2. The market-risk premium is 5%, and the risk-free rate is 5%. Find the stock price (hint: you can use CAPM to get the return and then use dividend growth model to get the stock price) $10.08 $8.93 $11.11 $9.56 A AAA firm’s required return is 12%, and the price of the stock is $40 per share. D0 = $1. Dividend will grow by 30% for the next four years. After the fourth year, the dividend will grow at the rate of g forever. Find g. (Hint: D4 = $1.00(1.30)4. And then you can pick a number and try.) 5.17% 5.72% 6.02% 6.34% Pick the correct answer. NPV > 0, then IRR < 0 NPV < 0, then IRR < WACC (weighted average cost of capital, the discount rate) NPV decreases with WACC (weighted average cost of capital, the discount rate) NPV = 0, then IRR = 0 Find the IRR Year 0 1 2 3 Cash flows -$1000.00 $425.00 $425.00 $425.00 13.21% 12.87% 13.56% 13.85% Find the payback period Year 0 1 2 3 Cash flows -$1150 $500 $500 $500 2.30 years 1.86 years 2.03 years 2.17 years Find the MIRR WACC: 10% Year 0 1 2 3 Cash flows -$1000 $450 $450 $450 14.20% 13.78% 15.50% 12.32% Find the crossover rate with the following information. Required rate of return: 10.25% Year 0 1 2 3 4 CFS -$2000 $750 $750 $750 $750 CFL -$4,000 $1,500 $1,500 $1,500 $1,500 18.27% 18.45% 16.25% 18.61% Suppose Big D, Inc., just paid a dividend of $1 per share. It is expected to increase its dividend by 5% per year. If the market requires a return of 10% on assets of this risk. How much will be the dividend be two years from now? $1.21 $1.32 $1.10 $1.43 Suppose a firm’s stock is selling for $10. D1=1, and dividends are expected to grow at 5% per year. What is the required return? 15% 5% 12% 9% Suppose a firm’s stock is selling for $10. D1=1, and dividends are expected to grow at 5% per year. What is the dividend yield? 7% 9% 8% 10% M&M Foods 2008 2009 Sales $5,831 $6,423 COGS 3,670 4,109 Interest 291 280 Depreciation 125 122 Cash 250 313 Accounts receivable 1,092 1,162 Current liabilities 717 1,051 Inventory 1,495 1,521 Long-term debt Net fixed assets Common stock Taxes 2,400 4,006 1,900 590 1,100 4,123 2,100 670 Dividend paid in 2009 to investors is $200. Calculate M&M Foods Company's net income in 2009. $1,242 $2,192 $1,912 $2,571 M&M Foods 2008 2009 Sales $5,831 $6,423 COGS 3,670 4,109 Interest 291 280 Depreciation 125 122 Cash 250 313 Accounts receivable 1,092 1,162 Current liabilities 717 1,051 Inventory 1,495 1,521 Long-term debt 2,400 1,100 Net fixed assets 4,006 4,123 Common stock 1,900 2,100 Taxes 590 670 Dividend paid in 2009 to investors is $200. Calculate the cash flow from operation. $1,630 $1,602 $1,573 $1,521 M&M Foods 2008 2009 Sales $5,831 $6,423 COGS 3,670 4,109 Interest 291 280 Depreciation 125 122 Cash 250 313 Accounts receivable 1,092 1,162 Current liabilities 717 1,051 Inventory 1,495 1,521 Long-term debt 2,400 1,100 Net fixed assets 4,006 4,123 Common stock 1,900 2,100 Taxes 590 670 Dividend paid in 2009 to investors is $200. Calculate cash flow from investment. -$204 -$251 -$239 -$249 M&M Foods 2008 Sales $5,831 COGS 3,670 Interest 291 Depreciation 125 Cash 250 Accounts receivable 1,092 Current liabilities 717 Inventory 1,495 Long-term debt 2,400 Net fixed assets 4,006 Common stock 1,900 Taxes 590 2009 $6,423 4,109 280 122 313 1,162 1,051 1,521 1,100 4,123 2,100 670 Dividend paid in 2009 to investors is $200. Calculate cash flow from financing. -$1,200 -$1,300 -$1,500 -$1,400 ... Purchase answer to see full attachment