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

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EXAM FORM A MAKE SURE YOU CORRECTLY FILL OUT YOUR SCANTRON SHEET. Do all of the following BEFORE answering any test questions: 1. Write and bubble your name on the front side of the scantron sheet. 2. Write and bubble your Student ID Number on both sides of the scantron sheet . 3. Bubble the test form letter on the reverse side of your scantron sheet. 4. You do not to have to fill in your phone number, code, or exam number. EXAM NOTES: For each question, fill out the corresponding oval on your scantron answer sheet. Fill the oval in completely with an appropriate pencil. Students are responsible for any incorrect erasure, so make sure you completely erase any unintended answers. Make sure you fill in your scantron sheet as you go along because you will not be given any extra time at the end of the exam to fill out your form. All exam questions are weighted evenly. Exam questions are not in order of difficulty, so if you cannot do a problem, or it would take too long, go on to the next question and come back later. SOME QUESTIONS WILL LOOK FAMILIAR. READ THEM CAREFULLY FOR CHANGES. SET YOUR CALCULATOR TO A HIGH NUMBER OF DECIMAL PLACES.
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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%
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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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