Exam2a

# Exam2a - EXAM FORM A MAKE SURE YOU CORRECTLY FILL OUT YOUR...

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FOR ALL QUESTIONS, PICK THE CLOSEST ANSWER. Section I: Direct Calculations 1. A stock will pay a dividend at the end of this year equal to \$5, and dividends will grow at 5% every year. If the required return is 10%, what is the fair price of the stock? a. \$50 b. \$75 c. \$100 d. \$150 e. \$200 2. A bond with 10 years to maturity and a face value of \$1000 makes annual coupon payments of \$50. Its YTM is 7%. What is the price? a. \$803 b. \$860 c. \$920 d. \$984 e. \$1053 3. If you buy an asset for \$1.5 million and depreciate it straight line to \$500,000 over 4 years, what is the annual level of depreciation? a. \$1,500,000 b. \$1,000,000 c. \$500,000 d. \$375,000 e. \$250,000 4. An investment costs \$100,000 and will pay \$200,000 in 3 years. If your required return is 10%, what is the Net Present Value? a. \$100,000 b. \$75,000 c. \$50,000 d. \$25,000 e. \$0 5. A bond has a yield to maturity of 8% and a coupon yield of 4%. What is the expected capital gains yield? a. 4% b. 6% c. 8% d. 10% e. 12%
Section II: Conceptual Questions 6. A project has a required return of 11% and cash flows every year for 9 years. Which of the following is inconsistent with the other four? a. The payback period is 7 full years b. The project has irregular cash flows. c. NPV > \$0 d. IRR = 10% e. The present value of the future cash flows is greater than the initial outlay 7. An increase in which of the following factors will cause the market yields on long term debt to decrease? (Hint: I±m not asking about entire yield curve slope, just the high maturity YTMs.) a. Liquidity Preference b. Investor±s tolerance of risk c. Inflation d. Interest Rate Risk e. Re-Investment Rate Risk 8. You have borrowed money from a lender (the lender holds your bond). Which of the following is good news for you? a.

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Exam2a - EXAM FORM A MAKE SURE YOU CORRECTLY FILL OUT YOUR...

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