Final Finance 28 Questions

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Question 1

1. ABC’s last dividend paid was $7.18, its required return is 16%, its growth rate is 4%. What is ABC's expected stock price in 19 years?

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

1 points

Question 2

1. If the market value of debt is $109,892, market value of preferred stock is $43,935, and market value of common equity is 140,171, what is the weight of preferred stock?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

1 points

Question 3

1. Suppose the nominal rate is 19.2% and the inflation rate is 6.6%. Solve for the real rate.

Use the Fisher Equation to get your anser.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

1 points

Question 4

1. The ABC Co. has $1,000 face value stock outstanding with a market price of $1,169.9. The stock pays interest annually, matures in 7 years, and has a yield to maturity of 11 percent. What is the annual coupon amount?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

1 points

Question 5

1. Suppose that today's stock price is $45.8. If the required rate on equity is 12.8% and the growth rate is 5.6%, compute the expected dividend (i.e. compute D1)

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

1 points

Question 6

1. Below is the stock split data for ABC Company:

	Stock
splits
31-Dec-90
31-Dec-91	4 for 1
31-Dec-92
31-Dec-93	5 for 2
31-Dec-94
31-Dec-95
31-Dec-96	1.5 for 1
31-Dec-97
31-Dec-98	2 for 1
31-Dec-99

If you bought 7,908 shares in the beginning of 1990 and during the period of 10 years never bought or sold additional shares, how many shares would you have by the end of 1999?

Enter your answer rounded off to two decimal points.

1 points

Question 7

1. The ABC Company has a cost of equity of 10.1 percent, a pre-tax cost of debt of 5.3 percent, and a tax rate of 29 percent. What is the firm’s weighted average cost of capital if the weight of debt is 59 percent?

Note: Enter your answer in precentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

1 points

Question 8

1. Standard deviation measures:

		total risk
		unsystematic risk
		systematic risk
		economic risk
		diversifiable risk

1 points

Question 9

1. The risk-free rate is 4.8%, the market risk premium is 9.2%, and the stock’s beta is 0.92. What is the cost of common stock?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

1 points

Question 10

1. You want to create a portfolio as risky as the market. Suppose you invest your money in Stocks A, B, C, and the risk-free asset. What is the weight of Stock C in your portfolio?

Stock Weights(%) Beta

A 22 1.2

B 21 0.6

C ? 1.6

Rf ? ?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

1 points

Question 11

1. Based on the following data, calculate the returns for June 2014

Year	Month	Div	Price
2012	May	$0.50	$14.96
2012	June	$0.60	$18
2012	July	$0.70	$22.12

Enter your answer in percentages rounded off to two decimal points.

1 points

Question 12

1. Suppose the exchange rate is $1.3695 per euro. If the euro appreciates by 20% against the dollar, how many euros would a dollar buy tomorrow?

Enter your answer rounded off to FOUR decimal points. Do not enter any currency unit in the answer box.

1 points

Question 13

1. You have a portfolio of two risky stocks which turns out to have no diversification benefit. The reason you have no diversification is the returns:

		are completely unrelated to one another.
		are too small.
		move perfectly with one another.
		move perfectly opposite of one another.
		are too large to offset.

1 points

Question 14

1. One year ago, you puchased 86 shares of ABC stock for $23.3 per share. During the year, you received a dividend of $2.9 per share. Today, you sold all your shares for $27.3. What are the percentage return on your investment?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

1 points

Question 15

1. You have observed the following returns on ABC's stocks over the last six years:

7.8%, 7.3%, 4%, -8.5%, 11.8%, -6.6%

What is the geometric average returns on the stock over this six-year period.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

1 points

Question 16

1. A stock just paid a dividend of D₀ = $1.1. The required rate of return is r_s = 14.2%, and the constant growth rate is g = 4.1%. What is the current stock price?

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

1 points

Question 17

1. ABC Company's last dividend was $0.8. The dividend growth rate is expected to be constant at 6% for 3 years, after which dividends are expected to grow at a rate of 3% forever. The firm's required return (r_s) is 10%. What is its current stock price (i.e. solve for Po)?

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

1 points

Question 18

1. ABC company’s market value of common stock is $200 million, preferred stock is $300 million, and debt is $500 million. Suppose that the cost of equity is 7%, the before-tax cost of debt is 4.1%, cost of preferred stock is 3.4%, and the tax rate is 39%.

Compute the WACC.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

1 points

Question 19

1. The common stock of ABC Industries is valued at $34.8 a share. The company increases their dividend by 4.4 percent annually and expects their next dividend to be $2.79. What is the required rate of return on this stock?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

1 points

Question 20

1. The beta of the risk-free asset is:

		0
		1
		1.5
		2

1 points

Question 21

1. The spot rate for the pound is £0.6474 = $1 and the spot rate for the Canadian dollar is C$1.2231 = $1. What is the £/C$ cross rate?

Enter your answer rounded off to FOUR decimal points. Do not enter any currency sign in the answer box.

1 points

Question 22

1. The principal amount of a bond that is repaid at the end of term is called the par value or the:

		face value
		coupon value
		back-end value
		call premium
		perpetuity value

1 points

Question 23

1. You would like to create a portfolio that is equally invested in a risk-free asset and two stocks. One stock has a beta of 1.73. What does the beta of the second stock have to be if you want the portfolio to have a beta of 0.99?

Enter your answer rounded off to two decimal points.

1 points

Question 24

1. A bond that sells for less than face value is called as:

		discount bond
		debenture
		par value bond
		perpetuity
		premium bond

1 points

Question 25

1. You are planning a trip to London and plan on spending 15,056 pounds. How many dollars will this trip cost you in dollars if one U.S. dollar is worth 0.5916 pounds.

Enter your answer rounded off to two decimal points. Do not enter any currency sign in the answer box.

1 points

Question 26

1. If the coupon rate is less than the yield to maturity, the bond will:

		sell at par
		sell at a premium
		sell at a discount

1 points

Question 27

1. An investor puts $25,000 in a risk-free asset and $50,000 in the market portfolio. Compute the beta of his portfolio.

		0.50
		1
		0.33
		0.67
		2

1 points

Question 28

1. ABC, Inc. has 6 percent bonds outstanding that mature in 20 years. The bonds pay interest semiannually and have a face value of $1,000. Currently, the bonds are selling for $814 each. What is the firm's after-tax cost of debt if the tax rate is 36%?

Enter your answer as a percentage rounded off to two decimal points.

1 points