Question 1

How much did you borrow for your house if your monthly mortgage payment for a 30 year mortgage at 6.65% APR is \$1,700?

 [removed] A. \$249,235 [removed] B. \$218,080 [removed] C. \$264,812 [removed] D. \$202,503 [removed] E. \$233,658 [removed] F. \$186,926

6 points

Question 2

Shady Rack Inc. has a bond outstanding with 10 percent coupon, paid semiannually, and 15 years to maturity. The market price of the bond is \$1,039.55. Calculate the bond’s yield to maturity (YTM). Now, if due to changes in market conditions, the market required YTM suddenly increases by 2% from your calculated YTM, what will be the percent change in the market price of the bond?

 [removed] A. -17.76% [removed] B. -15.66% [removed] C. -14.01% [removed] D. -14.87% [removed] E. -16.39% [removed] F. -17.09%

6 points

Question 3

Sanaponic, Inc. will pay a dividend of \$6 for each of the next 3 years, \$8 for each of the years 4-7, and \$10 for the years 8-10.  Thereafter, starting in year 11, the company will pay a constant dividend of \$8/year forever.  If you require 18 percent rate of return on investments in this risk class, how much is this stock worth to you?

 [removed] A. \$37.77 [removed] B. \$55.99 [removed] C. \$45.68 [removed] D. \$50.50 [removed] E. \$41.46 [removed] F. \$34.54

6 points

Question 4

Your required rate of return is 12%. What is the net present value of a project with the following cash flows?

 Year 0 1 2 3 4 5 Cash Flow -750 450 350 150 125 -100 [removed] A. 15.56 [removed] B. 48.68 [removed] C. 26.33 [removed] D. 60.27 [removed] E. 72.15 [removed] F. 37.37

6 points

Question 5

Please use the following information for this and the following two questions.

BB Lean has identified two mutually exclusive projects with the following cash flows.

 Year 0 1 2 3 4 5 Cash Flow Project A -52,000.00 18,000.00 17,000.00 15,000.00 12,000.00 9,000.00 Cash Flow Project B -52,000.00 17,800.00 10,000.00 12,000.00 17,000.00 22,000.00

The company requires a 11.5% rate of return from projects of this risk.

What is the NPV of project A?

 [removed] A. 972.57 [removed] B. 5,972.87 [removed] C. 417.37 [removed] D. 1,395.64 [removed] E. 1,624.90 [removed] F. 5,180.35

6 points

Question 6

What is the IRR of project B?

 [removed] A. 12.06% [removed] B. 14.68% [removed] C. 13.90% [removed] D. 13.05% [removed] E. 12.94% [removed] F. 20.80%

6 points

Question 7

At what discount rate would you be indifferent between these two projects?

 [removed] A. 13.5250% [removed] B. 14.7386% [removed] C. 34.1306% [removed] D. 15.8950% [removed] E. 3.1177% [removed] F. 26.0812%

6 points

Question 8

A bond with a face value of \$1,000 has annual coupon payments of \$100. It was issued 10 years ago and has 7 years remaining to maturity. The current market price for the bond is \$1,000. Which of the following is true: I. Its YTM is 10%. II. Bond’s coupon rate is 10%. III. The bond’s current yield is 10%.

 [removed] A. III  Only [removed] B. I, II, and III [removed] C. I, III  Only [removed] D. II, III  Only [removed] E. I  Only [removed] F. I, II  Only

6 points

Question 9

Riverhawk Corporation has a bond outstanding with a market price of \$1,050.00.  The bond has 10 years to maturity, pays interest semiannually, and has a yield to maturity of 9%.  What is the bond’s coupon rate?

 [removed] A. 12.84% [removed] B. 9.77% [removed] C. 10.54% [removed] D. 12.08% [removed] E. 11.31% [removed] F. 13.61%

6 points

Question 10

You purchased a stock for \$24 per share. The most recent dividend was \$2.50 and dividends are expected to grow at a rate of 8% indefinitely. What is your required rate of return on the stock?

 [removed] A. 17.00% [removed] B. 17.64% [removed] C. 18.38% [removed] D. 21.50% [removed] E. 20.27% [removed] F. 19.25%

6 points

Question 11

Sales and profits of Growth Inc. are expected to grow at a rate of 25% per year for the next six years but the company will pay no dividends and reinvest all earnings. After that, the dividends will grow at a constant annual rate of 7%. At the end of year 7, the company plans to pay its first dividend of \$4.00 per share. If the required return is 16%, how much is the stock worth today?

 [removed] A. \$22.80 [removed] B. \$15.96 [removed] C. \$13.68 [removed] D. \$25.08 [removed] E. \$18.24 [removed] F. \$20.52

6 points

Question 12

Apple Sink Inc. (ASI) just paid a dividend of \$2.50 per share.  Its dividends are expected to grow at 26% a year for the next two years, 24% a year for the years 3 and 4, 16% for year 5, and at a constant rate of 6% per year thereafter.  What is the current market value of the ASI’s stock if companies in this risk class have a 16% required rate of return?

 [removed] A. \$54.27 [removed] B. \$56.03 [removed] C. \$45.54 [removed] D. \$42.87 [removed] E. \$51.29 [removed] F. \$48.35

6 points

Question 13

The Retarded Company’s dividends are declining at an annual rate of 4 percent.  The company just paid a dividend of \$4 per share.  You require a 16 percent rate of return.  How much will you pay for this stock?

 [removed] A. \$13.85 [removed] B. \$19.20 [removed] C. \$15.33 [removed] D. \$17.09 [removed] E. \$21.78 [removed] F. \$12.57

6 points

Question 14

The dividend yield of a stock is 10 percent. If the market price of the stock is \$18 per share and its dividends have been growing at a constant rate of 6%, what was the most recent dividend paid by the company?

 [removed] A. \$1.53 [removed] B. \$0.85 [removed] C. \$1.70 [removed] D. \$1.02 [removed] E. \$1.19 [removed] F. \$1.36

6 points

Question 15

Last year, Jen and Berry Inc. had sales of \$40,000, cost of goods sold (COGS) of 12,000, depreciation charge of \$3,000 and selling, general and administrative (SG&A) cost of \$10,000. The interest costs were \$2,500. Thirty-five percent of SG&A costs are fixed costs. If its sales are expected to be \$60,000 this year, what will be the estimated SG&A costs this year?

 [removed] A. \$12,667 [removed] B. \$11,500 [removed] C. \$10,636 [removed] D. \$12,000 [removed] E. \$13,250 [removed] F. \$14,250

6 points

Question 16

You require a risk premium of 3.5 percent on an investment in a company. The pure rate of interest in the market is 2.5 percent and the inflation premium is 3 percent.  US Treasury bills are risk free. What should be the yield of the US Treasury bills? Use multiplicative form.

 [removed] A. 6.35% [removed] B. 6.09% [removed] C. 5.58% [removed] D. 5.06% [removed] E. 5.32% [removed] F. 5.83%

6 points

Question 17

Bonds X and Y are identical, including the risk class. The only difference between A and B is in the coupon payment as shown below.

 Bond X Bond Y Face value \$1,000 \$1,000 Annual Coupon Payment \$120 \$130 Payment Frequency Semiannual Annual Years to maturity 15 15 Price \$950.39 ?

What is the price of bond Y?

 [removed] A. \$1,007.15 [removed] B. \$925.88 [removed] C. \$989.75 [removed] D. \$956.95 [removed] E. \$940.92 [removed] F. \$973.44