Question 1

ABC Company offers a perpetuity which pays annual payments of $9,478. This contract sells for $276,415 today. What is the interest rate?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 2

Consider a taxable bond with a yield of 11.9% and a tax-exempt municipal bond with a yield of 5.9%. At what tax rate would you be indifferent between the two bonds?

Question 3

What is the effective rate of 15.28% compounded quarterly?

Question 4

The present value of a 11-year annuity is $200,958. If the interest rate is 10% and payments are made at the end of each period, what is the amount of each payment?

Enter your answer rounded off to two decimal points. Do not enter $ in the answer box.

Question 5

A project has the following cash flows. What is the internal rate of return?

Year 0 1 2 3

Cash flow -$121,000 68,150 $42,200 $39,100

12.71%

14.39%

14.82%

13.85%

13.47%

Question 6

If the coupon rate is greater than the yield to maturity, the bond will:

sell at par

sell at a discount

sell at a premium

The common stock of ABC Industries is valued at $41.1 a share. The company increases their dividend by 4.5 percent annually and expects their next dividend to be $1.53. What is the required rate of return on this stock?

Question 8

A stock just paid a dividend of D0 = $1.2. The required rate of return is rs = 19.9%, and the constant growth rate is g = 3.8%. What is the current stock price?

Question 9

Standard deviation measures:

unsystematic risk

total risk

systematic risk

economic risk

diversifiable risk

Question 10

You have a portfolio of two risky stocks which turns out to have no diversification benefit. The reason you have no diversification is the returns:

are too small.

move perfectly with one another.

are too large to offset.

are completely unrelated to one another.

move perfectly opposite of one another.

Question 11

If the market value of debt is $128,853, market value of preferred stock is $125,479, and market value of common equity is 161,266, what is the weight of preferred stock?

Question 12

A bond that sells for less than face value is called as:

debenture

discount bond

perpetuity

premium bond

par value bond

Question 13

The ABC Company has a cost of equity of 12.6 percent, a pre-tax cost of debt of 5.3 percent, and a tax rate of 38 percent. What is the firm’s weighted average cost of capital if the weight of debt is 67 percent?

Note: Enter your answer in precentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 14

ABC Company’s last dividend was $3.1. The dividend growth rate is expected to be constant at 8% for 3 years, after which dividends are expected to grow at a rate of 3% forever. The firm’s required return (rs) is 15%. What is its current stock price (i.e. solve for Po)?

Question 15

ABC company’s market value of common stock is $200 million, preferred stock is $300 million, and debt is $500 million. Suppose that the cost of equity is 7%, the before-tax cost of debt is 4.8%, cost of preferred stock is 5%, and the tax rate is 25%.

Compute the WACC.

Question 16

The principal amount of a bond that is repaid at the end of term is called the par value or the:

coupon value

call premium

perpetuity value

back-end value

face value

Question 17

You would like to create a portfolio that is equally invested in a risk-free asset and two stocks. One stock has a beta of 1.49. What does the beta of the second stock have to be if you want the portfolio to have a beta of 0.66?

Question 18

Based on the following data, calculate the returns for June 2014

Year Month Div Price

2012 May $0.50 $15.14

2012 June $0.60 $18

2012 July $0.70 $22.12

Question 19

ABC, Inc. has 4 percent bonds outstanding that mature in 25 years. The bonds pay interest semiannually and have a face value of $1,000. Currently, the bonds are selling for $900 each. What is the firm’s after-tax cost of debt if the tax rate is 25%?

Question 20

An investor puts $25,000 in a risk-free asset and $50,000 in the market portfolio. Compute the beta of his portfolio.