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 |
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[removed] | B. | 48.68 |
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[removed] | C. | 26.33 |
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[removed] | D. | 60.27 |
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[removed] | E. | 72.15 |
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[removed] | F. | 37.37 |
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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 |