Davenport FIN510 final exam (both parts)
Part 1
Companies E and P each reported the same earnings per share (EPS), but Company E's stock trades at a higher price. Which of the following statements is CORRECT?









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Other things held constant, the value of an option depends on the stock's price, the riskfree rate, and the









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Which of the following statements is CORRECT?









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A firm wants to strengthen its financial position. Which of the following actions would increase its current ratio?









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Which of the following statements is CORRECT?









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Which of the following statements is CORRECT?









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Which of the following statements is CORRECT?









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Which of the following statements best describes what you should expect if you randomly select stocks and add them to your portfolio?









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Under normal conditions, which of the following would be most likely to increase the coupon rate required to enable a bond to be issued at par?









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Which of the following statements is CORRECT?









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Which of the following statements regarding a 15year (180month) $125,000, fixedrate mortgage is CORRECT? (Ignore taxes and transactions costs.)









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Which of the following statements is CORRECT?









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Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?









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Which of the following statements is CORRECT?









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Part II
Problem 425
Repaying a Loan
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While Mary Corens was a student at the University of Tennessee, she borrowed $12,000 in student loans at an annual interest rate of 7.10%. If Mary repays $1,500 per year, how long (to the nearest year) will it take her to repay the loan?
year(s)
Problem 422
Expected Rate of return
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WashingtonPacific invests $5 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 13 years, at which time WP plans to sell the forest at an expected price of $10 million. What is WP's expected rate of return? Round your answer to two decimal places.
%
Problem 417
Present Value for Various Compounding Periods
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Find the present value of $350 due in the future under each of the following conditions. Round your answers to the nearest cent.
a.
6% nominal rate, semiannual
compounding, discounted back 5 years
$
b.
6% nominal rate, quarterly compounding,
discounted back 5 years
$
c. 6% nominal rate, monthly compounding, discounted
back 5 years
$
Problem 38
Profit Margin and Debt Ratio
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Assume you are given the following relationships for the Clayton Corporation:
Sales/total assets 
1.9 
Return on assets (ROA) 
4% 
Return on equity (ROE) 
5% 
1. Calculate Clayton's profit margin. Round your
answer to two decimal places.
%
2. Calculate Clayton's debt ratio. Round your answer
to two decimal places.
%
Problem 55
Default Risk Premium
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A Treasury bond that matures in 10 years has a yield of 6%. A 10year corporate bond has a yield of 8%. Assume that the liquidity premium on the corporate bond is 0.6%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.
%
Problem 711
Nonconstant Growth Stock Valuation
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Assume that the average firm in your company's industry is expected to grow at a constant rate of 6% and that its dividend yield is 8%. Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 50% [D_{1} = D_{0}(1 + g) = D_{0}(1.50)] this year and 25% the following year, after which growth should return to the 6% industry average. If the last dividend paid (D_{0}) was $2.75, what is the value per share of your firm's stock? Round your answer to the nearest cent. Do not round your intermediate computations.
$
1219.5122
Problem 610
Portfolio Beta
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You have a $2 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio has a beta of 0.75. You are considering selling $100,000 worth of one stock with a beta of 1.05 and using the proceeds to purchase another stock with a beta of 1.30. What will the portfolio's new beta be after these transactions? Round your answer to two decimal places.
Problem 68
Portfolio Beta
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Suppose you hold a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.35. Now, suppose you sell one of the stocks with a beta of 1.0 for $7,500 and use the proceeds to buy another stock whose beta is 1.45. Calculate your portfolio's new beta. Round your answer to two decimal places.

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Solution: Davenport FIN510 final exam (both parts)