finance

Finance – Sample Problems – STOCK, BOND, HPR & TVM

1. The future value of an ordinary annuity of $3,500 each year for 25 years, deposited at 9% compounded annually is what?

2. You decide to borrow $10,000 for business expansion. This loan will be for 10 years at 12% interest. How much will your annual note be?

3. What is the required rate of return on a stock with a beta of 1.25, if the market return (opportunity cost) is 10% and the risk free rate is 4%?

4. What is the value of a bond with a coupon rate of 10% that will mature in three years. The yield to maturity (the discount rate) is 12%?

5. What is the price of a share of preferred stock that pays $2.00 dividend and has a required return of 12%?

6. Magnificent Manes Wig Salons, Inc. has an expected dividend of $3.20 per share, dividend growth is listed below and a return of 15% is required. What is the value of a share of Magnificent stock?

Year Dividend

2011 $2.29

2012 $2.49

2013 $2.70

2014 $2.85

2015 $2.94

7. A bond has a coupon rate of 11% and pays interest semi-annually. It has a yield to maturity of 14% and 10 years left until maturity. What will the bond sell for today?

8. How much should Boy Howdy Stock sell for if the market return for similar types of securities is 12% and dividends are as follows:

Year Dividend

2015 $2.25

2014 $2.19

2013 $2.15

2012 $2.11

2011 $2.09

9. What would be the price of a share of Group Hug Psychology Clinics Inc. stock if the growth rate in dividends is 8%, the required rate of return is 18% and the company expects to pay $2.00 for the next dividend?

10. What is the return on equipment that cost $5,000 when new, can be resold for $2,500 and produced additional income of $500 per year for 7 years?

11. What would be the selling price of a bond that has a coupon rate of 5.5%, it has 15 years to maturity and has a yield of 9%?

12. What is the selling price of preferred stock if the dividends are $15 and the return on the stock is 18%?

13. What is the return on a preferred stock or perpetual bond that has a dividend of $120 and sells for $1500?

14. A firm will be having super normal growth for 3 years at 13.5% and then level off to a constant 8%. The required rate of return for this stock is 10%. How much should be paid for this stock? Last dividend was $1.75.

15. A firm will be going through some tough times and will decline by 5% per year for two years after which it will grow at 8% for the first year, 6% for the second year and then level off at 4% per year. The required rate of return is 9%. What price should be paid for the stock? Last dividend paid was $.95

Answers (in Random Order): 8% $20 11.5% $1,769.84 $17.56 $23 $296,453.14 $951.96

$717.88 $841.09 $16.67 $83.33 $35.56 $110,040 20%

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