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PROBLEMS FINCOACH: 1) What is the present value of an annuity of $12 received at the end of each year for seven years? A ssume a discount rate of 11 percent. The first payment will be received one year from today (roun d to nearest $1). A) $25 B) $118 C) $40 D) $57 2) Savells Corporation bonds make a $60 interest payment every six months (until maturity), and pa y $1,000 at maturity 20 years from now. What is the current price of this bond if the discount rate is 10 percent per year compounded semi-annually? A) $608 B) $850 C) $1,172 D) $1,133 3) PDQ Company's preferred stock pays a perpetual annual dividend of $2 per share. If the appropr iate discount rate for this investment is 8 percent, what is the price of one share of this stock? A) $16.00 B) $0.16 C) $25.00 D) $0.25 E) cannot be determined without maturity date 4) You deposit $1,000 one time into a savings account earning a 5 percent annual rate compounded semi-annually. How much will you have in your account at the end of ten years? A) $1,005 B) $2,653 C) $1,639 D) $1,280 5) Your uncle plans to give you $3,250 as a post-graduation gift, five years from now. If you could e arn 9.5 percent compounded annually, how much is the gift worth today? A) $2,064 B) $6,500 C) $309 D) $1,585 6) Which of the following has a beta of one? A) the market B) a risk-free asset C) All assets have a beta greater than one. D) All assets have a beta less than one. 7) The Elvisalive Corporation, makers of Elvis memorabilia, has a beta of 2.75. The return on the ma rket portfolio is 14 percent and the risk-free rate is 4 percent. According to CAPM, what is the ris k premium on a stock with a beta of 1? A) 11% B) 31.5% C) 10% D) 27.5% 8) The return on the market portfolio is currently 13 percent. Battmobile Corporation stockholders r equire a rate of return of 21 percent and the stock has a beta of 3.5. According to CAPM, determin e the risk-free rate. A) 3.20% B) 9.8% C) 11.2% D) 2.29% 9) Assume that an investment is forecasted to produce the following returns: a 20 percent probabilit y of a $1,200 return; a 50 percent of probability a $5,600 return; and a 30 percent probability of a $ 9,500 return. What is the expected amount of return this investment will produce? A) $7,136 B) $6,125 C) $5,890 D) $4,533 10) Assume that you expect to hold a $20,000 investment for one year. It is forecasted to have a yeare nd value of $22,000 with a 25 percent probability; a yearend value of $25,000 with a 50 percent pr obability; and a year-end value of $30,000 with a 25 percent probability. What is the expected hol ding period return for this investment? A) 50% B) 2.5% C) 12.5% D) 27.5% 11) Assume that you have $165,000 invested in a stock that is returning 11.50 percent, $85,000 investe d in a stock that is returning 22.75 percent, and $235,000 invested in a stock that is returning 10.25 percent. What is the expected return of your portfolio? A) 14.8% B) 18.3% C) 12.9% D) 15.6% 12) Assume that you have $165,000 invested in a stock whose beta is 1.25, $85,000 invested in a stock whose beta is 2.35, and $235,000 invested in a stock whose beta is 1.11. What is the beta of your p ortfolio? A) 1.57 B) 1.37 C) 1.85 D) 2.01 13) What is the yield to maturity of a 16-year bond that pays a coupon rate of 8 percent per year, has a $1,000 par value, and is currently priced at $916? Round your answer to the nearest whole perce nt and assume semi-annual coupon payments. A) 2% B) 18% C) 9% D) 11% E) 4.5% 14) Cary's Carry-all Company bonds have a 12 percent coupon rate. Interest is paid semi-annually. T he bonds have a par value of $1,000 and will mature 8 years from now. Compute the value of Ter minator Bonds if investors' required rate of return is 8 percent. A) $894.06 B) $941.27 C) $1,114.70 D) $1,233.05 15) Flitz and Foyd Corporation stock is currently selling for $34.00. It is expected to pay a dividend of $2.00 at the end of the year. Dividends are expected to grow at a constant rate of 4.5 percent inde finitely. Compute the required rate of return on FFC stock. A) 10.38% B) 11.42% C) 12.43% D) 10.65% ANSWERS: 1) D 2) C 3) C 4) C 5) A 6) A 7) C 8) B 9) C 10) D 11) C 12) B 13) C 14) D 15) A ... View Full Document

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