Expected Earnings Practice Questions with Answers
BC Inc. has 5,000,000 shares of stock outstanding. The expected earnings of the company are $2
million next year. The discount rate is 9%.
(a) If BC retains 30% of its earnings (i.e., BC pays out 70% as di

Bond Practice Questions with Answers
When, if ever, would this bond sell for a discount? Explain. (6 points)
For this bond to sell for a discount, the average coupon rate must be less than the
yield to maturity.
Currently, the average coupon rate if you c

Bond Pricing Practice Questions with Answers
A 10 year bond with a coupon rate of 8% was issued 4 years ago. It has a $1,000 face value and
pays a quarterly coupon. If the yield to maturity is 6%, which of the following gives the bond
price?
(a) 20/(1.015

Estimated Annual Revenue Practice Questions with Answers
Bond A has a 5% coupon and Bond B has a 8% coupon. If both bonds are 5 year bonds, both
have the same yield to maturity and you buy both bonds today and hold them until maturity, on
which bond will

Dividend Practice Questions with Answers
As an analyst, you are trying to estimate a fair price for stock XYZ. You tried the constant
growth dividend discount model but this did not work because the company does not pay a
dividend. Which of the following

Perpetuity Practice Questions with Answers
A company is offering a perpetuity you can purchase for retirement. If the perpetuity starts 40
years from today and pays $50,000 per year, which formula correctly gives the PV if r = 4%?
(a) PV = 50,000 x [(1/.0

Present Value Practice Questions with Answers
A company has a 10 year 8% bond that pays interest quarterly, has a face value of $1,000 and has
YTM = 6%. Which of the following is the correct method for finding the price?
(a) Price = 20/(1.06) + 20/(1.062)

Price Practice Questions with Answers
BP Inc. is expected to have earnings per share (EPS) of $3 in time 1, $4 in time 2 and EPS that
grows at 6% for every period after that. The company has a policy of paying 50% of its EPS as a
dividend and the discount

Face Value Practice Questions with Answers
Which of the following is true about a 10 year 8% bond with a face value of $1,000 that is
selling for $1,050?
(a) if the yield to maturity remains constant over the next year, the price will be
lower next year
(

Equity Practice Questions with Answers
Xtra Corp. issued its $.005 par value stock in two separate financing transactions. First, ten
years ago, the founder of the company purchased 800,000 shares of stock for $50,000. Second, a
venture capitalist bought