Economics Multiple Choice Exam

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?

A. $249,235

B. $218,080

C. $264,812

D. $202,503

E. $233,658

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?

A. -17.76%

B. -15.66%

C. -14.01%

D. -14.87%

E. -16.39%

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?

A. $37.77

B. $55.99

C. $45.68

D. $50.50

E. $41.46

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

A. 15.56

B. 48.68

C. 26.33

D. 60.27

E. 72.15

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?

A. 972.57

B. 5,972.87

C. 417.37

D. 1,395.64

E. 1,624.90

F. 5,180.35
6 points
Question 6

What is the IRR of project B?

A. 12.06%

B. 14.68%

C. 13.90%

D. 13.05%

E. 12.94%

F. 20.80%
6 points
Question 7

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

A. 13.5250%

B. 14.7386%

C. 34.1306%

D. 15.8950%

E. 3.1177%

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%.

A. III Only

B. I, II, and III

C. I, III Only

D. II, III Only

E. I Only

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?

A. 12.84%

B. 9.77%

C. 10.54%

D. 12.08%

E. 11.31%

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?

A. 17.00%

B. 17.64%

C. 18.38%

D. 21.50%

E. 20.27%

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?

A. $22.80

B. $15.96

C. $13.68

D. $25.08

E. $18.24

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?

A. $54.27

B. $56.03

C. $45.54

D. $42.87

E. $51.29

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?

A. $13.85

B. $19.20

C. $15.33

D. $17.09

E. $21.78

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?

A. $1.53

B. $0.85

C. $1.70

D. $1.02

E. $1.19

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?

A. $12,667

B. $11,500

C. $10,636

D. $12,000

E. $13,250

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.

A. 6.35%

B. 6.09%

C. 5.58%

D. 5.06%

E. 5.32%

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?

A. $1,007.15

B. $925.88

C. $989.75

D. $956.95

E. $940.92

F. $973.44