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- From: Business, Management
- Posted on: Wed 22 Apr, 2015
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Question 1
ABC, Inc. has 6 percent bonds outstanding that mature in 13 years. The bonds pay interest semiannually and have a face value of $1,000. Currently, the bonds are selling for $993 each. What is the firm's after-tax cost of debt if the tax rate is 25%?
Enter your answer as a percentage rounded off to two decimal points.
Question 2
You are planning a trip to London and plan on spending 16,333 pounds. How many dollars will this trip cost you in dollars if one U.S. dollar is worth 0.7416 pounds.
Enter your answer rounded off to two decimal points. Do not enter any currency sign in the answer box.
Question 3
If the coupon rate is greater than the yield to maturity, the bond will:
sell at a discount
sell at par
sell at a premium
Question 4
An investor puts $20,000 in a risk-free asset and $10,000 in the market portfolio. Compute the beta of his portfolio.
2
0.67
0.33
1
0.50
Question 5
The spot rate for the pound is £0.6753 = $1 and the spot rate for the Canadian dollar is C$2812 = $ 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.
Question 6
The ABC Co. has $1,000 face value stock outstanding with a market price of $1,009. The stock pays interest annually, matures in 10 years, and has a yield to maturity of 6.8 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.
Question 7
The principal amount of a bond that is repaid at the end of term is called the par value or the:
back-end value
call premium
perpetuity value
face value
coupon value
Question 8
A bond that sells for less than face value is called as:
discount bond
premium bond
debenture
perpetuity
par value bond
Question 9
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 73. What does the beta of the second stock have to be if you want the portfolio to have a beta of 0.69?
Enter your answer rounded off to two decimal points.
Question 10
Standard deviation measures:
systematic risk
total risk
diversifiable risk
unsystematic risk
economic risk
Question 11
The common stock of ABC Industries is valued at $35.5 a share. The company increases their dividend by 6.1 percent annually and expects their next dividend to be $2.69. 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.
Question 12
If the market value of debt is $65,770, market value of preferred stock is $164,835, and market value of common equity is 151,914, 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.
Question 13
You have observed the following returns on ABC's stocks over the last six years:
3.3%, 5.4%, 18.9%, -12.1%, 3.5%, -8.8%
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.
Question 14
Based on the following data, calculate the returns for June 2014
Year Month Div Price
2012 May $0.50 $14.13
2012 June $0.60 $19
2012 July $0.70 $22.12
Enter your answer in percentages rounded off to two decimal points.
Question 15
ABC’s last dividend paid was $4.01, its required return is 20%, its growth rate is 4%. What is ABC's expected stock price in 17 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.
Question 16
The risk-free rate is 5.3%, the market risk premium is 18%, and the stock’s beta is 0.3. 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.
Question 17
The beta of the risk-free asset is:
0
1
5
2
Question 18
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.
move perfectly opposite of one another.
are too large to offset.
are too small.
move perfectly with one another.
Question 19
One year ago, you puchased 52 shares of ABC stock for $28.4 per share. During the year, you received a dividend of $2.5 per share. Today, you sold all your shares for $25. 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.
Question 20
A stock just paid a dividend of D0 = $3. The required rate of return is rs = 15.9%, and the constant growth rate is g = 4.8%. 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.
Question 21
The ABC Company has a cost of equity of 13.3 percent, a pre-tax cost of debt of 5.9 percent, and a tax rate of 39 percent. What is the firm’s weighted average cost of capital if the weight of debt is 57 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.
Question 22
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 5.1%, cost of preferred stock is 4.2%, and the tax rate is 35%.
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.
Question 23
Suppose the exchange rate is $5051 per euro. If the euro appreciates by 15% 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.
Question 24
Suppose the nominal rate is 17.4% and the inflation rate is 6.7%. 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.
Question 25
Suppose that today's stock price is $49. If the required rate on equity is 12.1% and the growth rate is 7.3%, 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.
Question 26
ABC Company's last dividend was $7. The dividend growth rate is expected to be constant at 9% for 3 years, after which dividends are expected to grow at a rate of 4% forever. The firm's required return (rs) is 14%. 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.
Question 27
Below is the stock split data for ABC Company:
Stock
splits
31-Dec-90
31-Dec-91 2 for 1
31-Dec-92
31-Dec-93 5 for 3
31-Dec-94
31-Dec-95
31-Dec-96 5 for 1
31-Dec-97
31-Dec-98 3 for 1
31-Dec-99
If you bought 8,748 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.
Question 28
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 23 1
B 28 0.3
C ? 3
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.
Solution Description

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