Multiple choice

Question 1
ABC Inc. issued twelve-year, 6 percent semi-annual coupon bonds at par. Today, the bonds are priced at $1112. What is the firm’s after-tax cost of debt if the tax rate is 30%?
Before Tax-4.76%
After Tax-3.33%

Question 2
If you receive $1,067 at the end of each year for the first three years and $5,304 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 9.2%.
1067
1067
1067
5304
5304
5304

Question 3
 The nominal rate is 16% compounded monthly. Compute the effective rate.

Question 4
 The risk-free rate is 6.2%, the market risk premium is 8.7%, and the stock’s beta is 1.31. What is the cost of common stock (Ke)?

Question 5
 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:

 Question 6

The common stock of ABC Industries is valued at $47.5 a share. The company increases their dividend by 7.6 percent annually and expects their next dividend to be $2.29. What is the required rate of return on this stock?

Question 7
The common stock of ABC Industries is valued at $47.5 a share. The company increases their dividend by 7.6 percent annually and expects their next dividend to be $2.29. What is the required rate of return on this stock? 

Question 8
You have observed the following returns on ABC's stocks over the last five years:
-10.9%, 16%, -6%, 15.8%, 3.6%
-What is the arithmetic average returns on the stock over this five-year period. 

Question 9
ABC’s last dividend paid was $0.2, its required return is 13%, 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 4 years? 

Question 10
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? 

Question 11
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 1.61. What does the beta of the second stock have to be if you want the portfolio to have a beta of 1.19? 

Question 12
The ABC Company has a cost of equity of 14.3 percent, a pre-tax cost of debt of 4.8 percent, and a tax rate of 38 percent. What is the firm’s weighted average cost of capital if the weight of debt is 63 percent?

Question 13
Suppose a stock had an initial price of $16.5 per share, paid a dividend of $0.9 per share during the year, and had an ending share price of $19.5. What are the percentage returns if you own 54 shares?

Question 14
A stock just paid a dividend of D0 = $3.8. The required rate of return is rs = 19.3%, and the constant growth rate is g = 5.8%. What is the current stock price?