Sample Quiz #2 Answers

Sample Quiz #2 Answers - Finance 355: Investments Sample...

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1 Finance 355: Investments Sample Quiz 2 1. The rate that banks charge each other for overnight loans of $1 million or more is called the _____ rate. a. institutional b. financial overnight c. Federal funds d. monetary e. daily Answer: c. 2. The Whirlwind Co. just paid an annual dividend of $2.10 a share. The firm expects to pay dividends forever and to increase the dividend by 2.5 percent annually. What is the current value of this stock if the required return is 11 percent? a. $19.09 b. $19.57 c. $24.70 d. $25.32 e. $25.95 Answer: d. 32 . 25 $ 025 . 11 . ) 025 . 1 ( 10 . 2 $ ) 0 ( V 3. A party which buys and sells securities from inventory is called a(n): a. issuer. b. broker. c. dealer. d. floor broker. e. member. Answer: c 4. Based on the expectations theory, the term structure of interest rates will be _____ anytime investors believe that interest rates will be lower in the future than they are today. a. volatile b. flat c. downward sloping d. upward sloping e. vertical Answer: c.
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2 5. Dover Mills just paid an annual dividend of $.40 a share. Management estimates the dividend will increase by 15 percent a year for the next three years. After that, the dividend growth rate is estimated at 3.5 percent. The required rate of return is 12 percent. What is the value of this stock today? a. $6.54 b. $7.03 c. $7.78 d. $8.03 e. $8.54 Answer: a. 54 . 6 $ 537998 . 6 $ 272553 . 5 $ 265445 . 1 $ ) 870588 . 4 )($ 082529 . 1 ( ) 082529 . )( 333333 . 15 $ ( 035 . 12 . ) 035 . 1 ( 40 $. 12 . 1 15 . 1 12 . 1 15 . 1 1 15 . 12 . ) 15 . 1 ( 40 $. ) 0 ( V 3 3 6. You own a bond that pays semiannual interest payments of $55. The bond is callable in 2 years at a premium of $100. What is the callable bond price if the yield to call is 12.2
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Sample Quiz #2 Answers - Finance 355: Investments Sample...

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