Answer the 52 questions on the attached file.

52_questions.docx

Unformatted Attachment Preview

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