A+ Answers
Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 14.50%. Using the SML, what is the firm's required rate of return?
10.85%
15.53%
13.39%
10.31%
14.86%
Question 5
Jim Angel holds a $200,000 portfolio consisting of the following stocks: What is the portfolio's beta?
Stock | Investment | Beta | ||||
A | $50,000 | 0.75 | ||||
B | $50,000 | 0.80 | ||||
C | $50,000 | 1.00 | ||||
D | $50,000 | 1.20 | ||||
Total | $200,000 |
| ||||
|
| 0.956 | ||||
|
| 1.022 | ||||
|
| 0.853 | ||||
|
| 1.144 | ||||
|
| 0.938 | ||||
Question 6
Mikkelson Corporation's stock had a required return of 15.00% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rate of return? (Hint: First calculate the beta, then find the required return.)
|
| 23.37% |
|
| 21.28% |
|
| 19.00% |
|
| 20.14% |
|
| 16.15% |
Question 7
In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures to a market value basis. KJM Corporation's balance sheet as of today is as follows: The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?
Long-term debt (bonds, at par) | $10,000,000 |
Preferred stock | 2,000,000 |
Common stock ($10 par) | 10,000,000 |
Retained earnings | 4,000,000 |
Total debt and equity | $26,000,000 |
|
| $5,276,731 |
|
| $5,412,032 |
|
| $5,547,332 |
|
| $7,706,000 |
|
| $7,898,650 |
The Francis Company is expected to pay a dividend of D = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price?
|
| $22.83 |
|
| $27.99 |
|
| $27.17 |
|
| $22.01 |
|
| $24.18 |
Question 9
Kollo Enterprises has a beta of 0.82, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Kollo's required rate of return?
|
| 6.73% |
|
| 6.64% |
|
| 9.30% |
|
| 9.56% |
|
| 8.85% |
Question 10
Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 7.50%, based on semiannual compounding. What is the bond's price?
|
| |
|
| $860.39 |
|
| $899.50 |
|
| $1,202.59 |
|
| $821.28 |
Question 11
Mulherin's stock has a beta of 1.23, its required return is 11.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)
|
| 10.36% |
|
| 10.62% |
|
| 10.88% |
|
| 11.15% |
|
| 11.43% |
Question 12
Carter's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $57.50, what is its nominal (not effective) annual rate of return?
|
| 7.86% |
|
| 8.14% |
|
| 7.72% |
|
| 7.37% |
|
| 6.96% |
Question 13
Niendorf Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) ? 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Niendorf's bonds?
|
| 0.49% |
|
| 0.55% |
|
| 0.61% |
|
| 0.68% |
|
| 0.75% |
10 years ago
Purchase the answer to view it
qfiles54.docx
