Finance Final Quiz Questions

Question 1
If you receive $1,613 at the end of each year for the first three years and $9,578 at the
end of each year for the next three years. What is the net present value of this cash flow
stream? Assume interest rate is 13.8%.
Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in
the answer box. For example, if your answer is $12.345 then enter as 12.35 in the
answer box.
Answer
1 points

Question 2
Suppose a stock had an initial price of $16.3 per share, paid a dividend of $1.8 per
share during the year, and had an ending share price of $20.3. What are the percentage
returns if you own 84 shares?
Note: Enter your answer in percentages rounded off to two decimal points. Do not enter
$ or comma in the answer box. For example, if your answer is $12.345 then enter as
12.35 in the answer box.
Answer
1 points

Question 3
You have observed the following returns on ABC's stocks over the last six years:
7.3%, 15.6%, 3.9%, -2.5%, 6.4%, -5.1% What is the geometric average returns on the
stock over this six-year period.
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.
Answer
1 points

Question 4
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:
Answer

are completely unrelated to one another.
are too large to offset.
move perfectly with one another.
are too small.
move perfectly opposite of one another.
1 points

Question 5

A stock just paid a dividend of D0 = $2.5. The required rate of return is rs = 13%, and
the constant growth rate is g = 4.4%. What is the current stock price?

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in
the answer box. For example, if your answer is $12.345 then enter as 12.35 in the
answer box.
Answer
1 points

Question 6
The principal amount of a bond that is repaid at the end of term is called the par value or the:
Answer

back-end value
perpetuity value
call premium
coupon value
face value
1 points

Question 7
The ABC Company has a cost of equity of 9.7 percent, a pre-tax cost of debt of 6.6
percent, and a tax rate of 29 percent. What is the firm’s weighted average cost of capital
if the weight of debt is 69 percent?
Note: Enter your answer 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.
Answer
1 points

Question 8
You want to create a portfolio as risky as the market. Suppose you invest your money in
Stocks A, B, C, and the risk-free asset. Compute your investment in Stock C (i.e. solve
for weight of Stock C)?
Stock Weights Beta
A
11
1.3
B
14
0.6
C
?
1.7
Rf
?
?
Note: Enter your answer 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.
Answer
1 points

Question 9

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

premium bond
debenture
perpetuity
par value bond
discount bond
1 points

Question 10
You have observed the following returns on ABC's stocks over the last five years:
20.7%, 12.8%, -5%, 12.5%, 9.9%
What is the arithmetic average returns on the stock over this five-year period.
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.
Answer
1 points

Question 11

The risk-free rate is 6.7%, the market risk premium is 6.7%, and
the stock’s beta is 0.65. What is the cost of common stock (Ke)?
Note: Enter your answer 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.
Answer
1 points

Question 12

The nominal rate is 18.2% compounded monthly. Compute the effective rate.
Note: Enter your answer 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.

Answer
1 points

Question 13
Suppose that today's stock price is $59.1. If the required rate on equity is 16.9% and the
growth rate is 3.9%, compute the expected dividend (i.e. compute D1)
Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in
the answer box. For example, if your answer is $12.345 then enter as 12.35 in the
answer box.
Answer
1 points

Question 14
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 1.53. What does the beta of the second stock have to be if you want the
portfolio to have a beta of 0.67?
Enter your answer rounded off to two decimal points.
Answer
1 points

Question 15
The beta of the risk-free asset is:
Answer

0
1
1.5
2
1 points

Question 16
How many years will it take for your money to grow from $522 to $735 at 5%
compounded semi-annually?
Answer
1 points

Question 17
If the market value of debt is $137,015, market value of preferred stock is $54,507, and
market value of common equity is 103,045, what is the weight of preferred stock?
Note: Enter your answer 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.
Answer
1 points

Question 18
The square-root of the variance is:
Answer

beta
correlation coefficient
standard deviation
half-variance
covariance
1 points

Question 19

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)?
Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in
the answer box. For example, if your answer is $12.345 then enter as 12.35 in the
answer box.
Answer
1 points

Question 20
What is the future value of $377 at 19% after 7 years?
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the
answer box.
Answer
1 points

Question 21

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
4.3%, cost of preferred stock is 6%, and the tax rate is 35%.
Compute the WACC.
Note: Enter your answer 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.
Answer
1 points

Question 22

The common stock of ABC Industries is valued at $55.5 a share. The company
increases their dividend by 3.8 percent annually and expects their next dividend to be
$2.85. What is the required rate of return on this stock?
Note: Enter your answer 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.
Answer
1 points

Question 23
ABC’s last dividend paid was $0.8, its required return is 14%, its growth rate is 8%, and its
growth rate is expected to be constant in the future. What is ABC's expected stock price in 15
years?
Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in
the answer box. For example, if your answer is $12.345 then enter as 12.35 in the
answer box.
Answer
1 points

Question 24
Suppose the real rate is 7.16% and the inflation rate is 3.61%. Solve for the nominal
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.
Answer
1 points

Question 25

The ABC Co. has $1,000 face value stock outstanding with a market price of $1,094.2.
The stock pays interest annually, matures in 10 years, and has a yield to maturity of 9.7
percent. What is the annual coupon amount?
Note: Enter your answer 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.
Answer
1 points

Question 26
If the coupon rate is greater than the yield to maturity, the bond will:
Answer

sell at a premium
sell at par
sell at a discount
1 points

Question 27
ABC Inc. issued sixteen-year, 6 percent semi-annual coupon bonds at par. Today, the bonds are
priced at $1012. What is the firm’s after-tax cost of debt if the tax rate is 30%?
Note: Enter your answer 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.
Answer
1 points

Question 28

An investor puts $200,000 in a risk-free asset and $100,000 in the market portfolio.
Compute the beta of his portfolio.
Answer

0.67
0.50
0.33
2
1