See supp slide ch 26 13 19 and ch5 verspreiden niet

See supp slide ch 26. 13-19 and ch.5
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ActSc 371 Midterm Test
Aids: non-programmable Calculator
Instruction:
Multiple choice (MC) type: Circle your answer. Note that -0.5 pts will be given for the wrong
answer.
Written answer (WA) type: Answer all questions in the space provided. Show all work.
ID#: _____________________
Last Name: ____________________ First Name: ____________________
Marks:
MC: _____________________
WA: _____________________
Total: _____________________
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Consider a Canadian bond which has a coupon rate of 7% with 8 years to maturity. The YTM is 8% on
bonds of this risk. Compute the bond price $X and circle of the following ranges.
A) X<900 B) 900<X<930 C) 930<X<960 D) 960<X<990 E) X>990
Answer: (C) because X=941.74
The corporation’s payment of interest on debt is tax deductible
A) true
B) false
Ans: A) from Ch 15 reading material
Long-term bonds and stocks are both:
A) Money markets
B) Capital markets
C) Dealer markets
D) All of the above
E) None of the above
Ans: B)
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The Felix Corp. projects to pay a dividend of $0.75 next year and then have it grow at 12% for the next
3 years before growing at 8% indefinitely thereafter. The equity has a required return of 10% in the
market. Compute the estimated stock price X and circle one of the followings:
A) X < $45 B) $45<X<$50 C) $50<X<$55 D) $55<X<$60 E) X>$60
Answer: A)
WA type questions begin here
1. [4 pts] What is the ‘separation theorem’ in financial markets? Explain in one sentence.
All investors will want to accept or reject the same investment projects by using the NPV rule,
regardless of their personal preferences
OR
The value of an investment to an individual is not dependent on his/her consumption preference.
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2. [8 pts] The most recent financial statements for Nosa Co. are:
Income statement
Sales $500
Costs 400
Taxes 50
Net income $ 50
Balance sheet
Current assets $ 200 Current liabilities $ 400
Fixed assets 2000 Long-term debt 700
Equity 1100
$2200 $2200
Assets, costs, and current liabilities are proportional to sales. Long-term debt is not. Assume no new
stock issues. Nosa maintains a constant 50% dividend payout. Next year's sales are projected to be
$540.