Final Exam - Part I

1) You intend to purchase a 10-year, $1,000 face value bond that pays interest of $60 every 6
months. If your nominal annual required rate of return is 10 percent with semiannual
compounding, how much should you be willing to pay for this bond?

N = 20 I/Y = 5 PV = -1124.62 PMT = 60 FV = 1000

2) A corporate bond matures in 14 years. The bond has an 8 percent semiannual coupon and a par
value of $1,000. The bond is callable in five years at a call price of $1,050. The price of the bond
today is $1,075. What are the bonds yield to maturity and yield to call?

N = 28 I/Y = 3.57*2 = 7.14 PV = -1075 PMT = 40 FV = 1000
N = 10 I/Y = 3.52*2 = 7.04 PV = -1075 PMT = 40 FV = 1050

3) McGriff Motors has bonds outstanding which will mature in 12 years. The bonds pay a 12
percent semiannual coupon and have a face value of $1,000 (i.e., the bonds pay a $60 coupon
every six months). The bonds currently have a yield to maturity of 10 percent. The bonds are
callable in 8 years and have a call price of $1,050. What are the bonds' yield to call?

4) The Jones Company has decided to undertake a large project. Consequently, there is a need for
additional funds. The financial manager plans to issue preferred stock with a perpetual annual
dividend of $5 per share and a par value of $30. If the required return on this stock is currently
20 percent, what should be the stock's market value?

5) A share of preferred stock pays a quarterly dividend of $2.50. If the price of this preferred stock
is currently $50, what is the nominal annual rate of return?

6) Assume that you plan to buy a share of XYZ stock today and to hold it for 2 years. Your
expectations are that you will not receive a dividend at the end of Year 1, but you will receive a
dividend of $9.25 at the end of Year 2. In addition, you expect to sell the stock for $150 at the
end of Year 2. If your expected rate of return is 16 percent, how much should you be willing to
pay for this stock today?

7) A share of common stock has just paid a dividend of $2.00. If the expected long-run growth rate
for this stock is 15 percent, and if investors require a 19 percent rate of return, what is the price
of the stock?

8) Klein Company just paid a dividend of $1.00. Klein's growth rate is expected to be a constant 5
percent for the next 2 years, after which dividends are expected to grow at a rate of 10 percent
forever. Klein's required rate of return on equity (ks) is 12 percent. What is the current price of
Klein's common stock?

9) Assume that the risk-free rate is 5 percent, and that the market risk premium is 7 percent. If a
stock has a required rate of return of 13.75 percent, what is its beta?

10) You hold a diversified portfolio consisting of a $10,000 investment in each of 20 different
common stocks (i.e., your total investment is $200,000). The portfolio beta is equal to 1.2. You
have decided to sell one of your stocks which has a beta equal to 0.7 for $10,000. You plan to
use the proceeds to purchase another stock which has a beta equal to 1.4. What will be the beta
of the new portfolio?

11) You are an investor in common stock, and you currently hold a well-diversified portfolio which
has an expected return of 12 percent, a beta of 1.2, and a total value of $9,000. You plan to
increase your portfolio by buying 100 shares of AT&E at $10 a share. AT&E has an expected
return of 20 percent with a beta of 2.0. What will be the expected return and the beta of your
portfolio after you purchase the new stock?

12) Your portfolio consists of $100,000 invested in a stock which has a beta = 0.8, $150,000
invested in a stock which has a beta = 1.2, and $50,000 invested in a stock which has a beta =
1.8. The risk-free rate is 7 percent. Last year this portfolio had a required rate of return of 13
percent. This year nothing has changed except for the fact that the market risk premium has
increased by 2 percent (two percentage points). What is the portfolio's current required rate of
return?

Final Exam - Part I

Uploaded by

Copyright:

Available Formats

Final Exam - Part I

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Final Exam - Part I

Uploaded by

Copyright:

Available Formats

1) You intend to purchase a 10-year, $1,000 face value bond that pays interest of $60 every 6

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.