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Finance HW 2

The document contains 10 multiple choice questions regarding bond and stock valuation. The questions calculate bond prices given factors like coupon rate, yield to maturity, and required return. They also calculate stock prices given information about expected dividend growth rates and required rates of return.

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289 views3 pages

Finance HW 2

The document contains 10 multiple choice questions regarding bond and stock valuation. The questions calculate bond prices given factors like coupon rate, yield to maturity, and required return. They also calculate stock prices given information about expected dividend growth rates and required rates of return.

Uploaded by

ValeriaRios
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1.

FINA3383.03 Inc. just issued a 10 year 7% coupon bond. The face value of the bond is $1,000
and the bond makes ANNUAL coupon payments. If the required return on the bond is 10%, what is the
bonds price?
1.
$1,256.35
2.

$923.67

3.

$815.66

4.

$1,000.00
10 points

1.

QUESTION 2
FINA3383.03 Inc. just issued a 10-year 7% coupon bond. The face value of the bond is $1,000
and the bond makes SEMIANNUAL coupon payments. If the required return on the bond is 10%, what is
the bonds price?
1.
$1,035.27
2.

$815.66

3.

$813.07

4.

$1,000

10 points
QUESTION 3
1.
FINA3383.03 Inc. just issued a 10-year 12% coupon bond. The face value of the bond is $1,000
and the bond makes SEMIANNUAL coupon payments. If the bond is trading at $1,267.25, what is the
bonds yield to maturity?
1.
12.00%
2.

14.38%

3.

10.97%

4.

8.06%
10 points

1.

QUESTION 4
You are looking up bond prices in the newspaper and you find the following quote for a $1,000
face value treasury bond: 103:26. What is the price of this bond?
1.
$103.26
2.

$1,032.60

3.

$1,038.13

4.

$1,000
10 points

QUESTION 5
1.
Consider the following details for a bond issued by Bravo Incorporated.
Issue Date
8/5/2000
Maturity Date
8/5/2030
Annual Coupon Rate (semi-annual coupons)
9%

Face Value

$1,000

2.
3.

Suppose that todays date is 8/5/2004, what should the current trading price by for this bond if
investors want a 12% annual return?
1.
$763.13
2.

$1,000.00

3.

$906.85

4.

$762.08
10 points

1.

QUESTION 6
FINA3383.03 Inc. just paid a $1.57 dividend and investors expect that dividend to grow by 5%
each year forever. If the required return on the stock investment is 14%, what should be the price of the
stock today?
1.
$11.21
2.

$17.44

3.

$18.32

4.

$25.37

10 points
QUESTION 7
1.
Smith Construction, Inc. just paid a $2.78 dividend. The dividend is expected to grow by 4% each
year for the next three years. After that the company will never pay another dividend ever again. If your
required return on the stock investment is 10%, what should the stock sell for today?
1.
$7.46
2.

$15.63

3.

$28.91

4.

$46.33
10 points

1.

QUESTION 8
Miller Juice, Inc. just paid a $3 dividend. The company is expected to pay a $3.50 dividend next
year and a $4 dividend in two years. After that, dividends are expected to grow at 5% forever. If investors
require a return of 12% on the investment, what should Miller Juice stock sell for today?
1.
$60.00
2.

$49.63

3.

$54.15

4.

$57.15
10 points

QUESTION 9

1.

Nicks Incorporated just paid a $0.75 dividend. You estimate the following cash flows for Nicks
Incorporated: D1=$0.83, D2=$0.87, D3=$0.96, and P3=$27.40. If the required return to hold Nicks stock
is 15.1%, what is the price today for Nicks stock?
1.
$18.31
2.

$20.35

3.

$18.85

4.

$19.98
10 points

QUESTION 10
An analyst has predicted the free cash flows for Normaltown Corporation for the next four years:
YEAR
FCF
2004
$10 million
2005
$15 million
2006
$22 million
2007
$29 million
2.
After 2007, the free cash flows are expected to grow at an annual rate of 5%. The weighted
average cost of capital for Normaltown is 12%. If the market value of the firms debt is $100 million, find
the value of the firms equity.
$213.00 million
1.

$271.20 million
$201.81 million
$231.43 million

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