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?

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?

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?

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?
 

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.
 

The company requires a 11.5% rate of return from projects of this risk.
 
What is the NPV of project A?

6 points  

Question 6

What is the IRR of project B?

6 points  

Question 7

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

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%.

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?

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?

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?

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?

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?

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?

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?

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.

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.
 

 
                What is the price of bond Y?