Finance quiz
NewMe2014
midtermfinacne2014.docxIf markets are in equilibrium, which of the following conditions will exist?
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All stocks should have the same expected return as seen by the marginal investor. |
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Each stock's expected return should equal its required return as seen by the marginal investor. |
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The expected and required returns on stocks and bonds should be equal. |
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All stocks should have the same realized return during the coming year. |
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Each stock's expected return should equal its realized return as seen by the marginal investor. |
Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?
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Market interest rates rise sharply. |
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The company's financial situation deteriorates significantly. |
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The company's bonds are downgraded. |
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Market interest rates decline sharply. |
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Inflation increases significantly. |
You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?
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The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000. |
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The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years. |
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The discount rate increases. |
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The riskiness of the investment's cash flows decreases. |
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The discount rate decreases. |
Which of the following statements is CORRECT?
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The cash flows for an ordinary (or deferred) annuity all occur at the beginning of the periods. |
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The cash flows for an annuity due must all occur at the ends of the periods. |
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If a series of unequal cash flows occurs at regular intervals, such as once a year, then the series is by definition an annuity. |
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If some cash flows occur at the beginning of the periods while others occur at the ends, then we have what the textbook defines as a variable annuity. |
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The cash flows for an annuity must all be equal, and they must occur at regular intervals, such as once a year or once a month. |
The preemptive right is important to shareholders because it
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is included in every corporate charter. |
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will result in higher dividends per share. |
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allows managers to buy additional shares below the current market price. |
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protects bondholders, and thus enables the firm to issue debt with a relatively low interest rate. |
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protects the current shareholders against a dilution of their ownership interests. |
Suppose an investment will pay $11,000 in 23 years from now. If you can earn 15.75% interest compounded monthly by depositing your money in a bank, how much should you pay for the investment today? Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.
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$264.78 |
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$300.88 |
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$279.82 |
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$352.03 |
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$318.93 |
What is the effective annual interest of 10.00% APR compounding semi-annually? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
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$10.25% |
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$12.40% |
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$11.48% |
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$11.99% |
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$9.74% |
Wendy has $23,000.00 invested in a bank that pays 9.75% annually. How long will it take for her funds to triple? Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.
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11.34 years |
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11.81 years |
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9.33 years |
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10.27 years |
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12.75 years |
Everest Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 28% for the next 2 years, 19.35% in year 3 and 4 and after which competition will probably reduce the growth rate in earnings and dividends to constant growth rate of 6.00%. The company’s last dividend was $1.90, its beta is 1.75, the market risk premium is 8.05%, and the risk-free rate is 5.75%. What is the current price of the common stock? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
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$28.47 |
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$24.98 |
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$25.48 |
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$20.98 |
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$25.23 |
Sadik Inc.'s bonds currently sell for $1,168.40 and have a par value of $1000. They pay a $105.00 annual coupon and have a 12-year maturity, but they can be called in 8 years at $1,303.00. What is their yield to call (YTC)? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
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11.39% |
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11.29% |
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8.10% |
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9.99% |
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11.69% |
Everrest Inc.'s stock has a 53% chance of producing a 14.25% return, a 25% chance of producing a 27.50% return, and a 22% chance of producing a –4.25% return. What is the firm's expected rate of return? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
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14.98% |
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13.49% |
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15.52% |
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13.09% |
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11.74% |
Consider the following information and then calculate the required rate of return for the Global Equity Fund, which includes 4 stocks in the portfolio. The market's required rate of return is 9.00%, the risk-free rate is 4.55%, and the Fund's assets are as follows: Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
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Stock |
Investment |
Beta |
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A |
$195,000 |
1.45 |
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B |
$315,000 |
0.85 |
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C |
$535,000 |
–0.45 |
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D |
$1,130,000 |
2.18 |
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12.68% |
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10.22% |
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12.78% |
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8.08% |
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7.87% |
You were analyzing a stock and came up with the following probability distribution of the stock returns. What is the coefficient of variation on the company's stock? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
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State of the Economy |
Probability of State Occurring |
Stock's Expected Return |
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Boom |
31% |
27% |
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Normal |
47% |
15% |
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Recession |
22% |
8% |
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0.5336 |
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0.4640 |
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0.5800 |
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0.4176 |
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0.3944 |
What's the future value of $20,000 after 8 years if the appropriate interest rate is 5.75%, compounded annually? Round your answer to two decimal places. For example, if your answer is $345.667 enter as 345.67 and if your answer is .05718 or 5.718% enter as 5.72 in the answer box provided.
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$31,906.06 |
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$36,598.13 |
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$29,403.62 |
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$31,280.45 |
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$30,967.65 |
Your uncle is about to retire, and he wants to buy an annuity that will provide him with $7,000 of income a year for 21 years, with the first payment coming immediately. The going rate on such annuities is 5.25%. How much would it cost him to buy the annuity today? Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.
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$77,629.07 |
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$96,112.18 |
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$92,415.56 |
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$87,794.78 |
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$115,519.45 |
Ezzell Enterprises' noncallable bonds currently sell for $1,176.75. They have a 5-year maturity, semi-annual coupon rate of 12.00%, and a par value of $1000. What is the bond's capital gain or loss yield? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
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10.20% |
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–2.52% |
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7.68% |
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7.83% |
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–2.60% |
A stock is expected to pay a dividend of $1.10 at the end of the year. The required rate of return is rs = 12.57%, and the expected constant growth rate is g = 3.0%. What is the stock's current price? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
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$11.49 |
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$11.15 |
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$9.43 |
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$10.46 |
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$10.92 |
