A stock with a beta of 1.4 will pay a dividend of $2 next year that is expected to grow at 7%. If the risk-free rate is 2% and
the market risk premium is 5.5%, what is the most you would be willing to pay for the stock today
1. A stock just paid a dividend of $1.80 that is expected to grow at 20% for the next two years and then a
constant 4.5% afterward. If the stock has a required return of 12%, what should the current stock price
1. A stock has a 20% probability of losing 10% next year, a 30% chance of earning 6%, a 30% chance of
earning 16% and a 20% chance of earning 42%. Given that probability distribution for the stock what is
the stocks e
1. If you deposit $2,000 today at 7% compounded annually, how much will you have in 25 years?
FV = $10,854.87
2. How many years will it take $10,000 to grow to $1 million if you earn 7.5% compounded d
1. What is the required return for a stock with a beta of 0.8 if the risk-free rate is 2% and the expected
return on the market is 9%?
R = .02 + (.09 .02)*.8 = .076 = 7.6%
2. What is the required return for a stock wi
Bond Practice III
CIS 3374 Exam 1 Study Guide
Format: Multiple choice questions (~ 60%), short answer questions (~10%), draw UML
Describe the purpose of systems analysis and design in the development of
Describe the characteristic
RATIO ANALYSIS SPREADSHEET
BALANCE SHEET RATIOS: Stability (Staying Power)
Cash + Accts. Rec.
INCOME STATEMENT RAT
Just Applying Time Value of Money
(at least for pricing)
Bonds = Debt Securities
Bonds are loans with (potentially) many lenders
Issuer = borrower
Investor = lender
Structure of most bonds basically the same, of
Prob. Og State
STOCK A STOCK B
STOCK A STOCK B
More Bond Practice
1. You find a $1,000 par bond with a 4.5% semi-annual coupon and 8 years to maturity trading at a price of
a. What is the yield to maturity of the bond?
b. If, after two years the yield on the bond is 6.5%, what will be t
1. Boomer, Inc. had sales of $5 million with interest expense of $500,000 and depreciation of $850,000.
Their cost of goods sold run 35% of sales and your tax rate is 40%. If they also have other operating
costs of $1,500,000, what was th
Roger G. Ibbotson & Rex Sinquefield
Geomean formula 1
$ Invested in
$ Withdrawn in
Use the following information regarding Krueger Industrial Smoothing to answer the next 3 questions:
Sales = 700,000 Net Income 50,000 Total Asset Turnover = 1.25 Debt to Assets = 40%
Inventory Turnover = 15 Current Ratio = 2.5
C 19. What is Kruegers Retu
they sell equity or repurchase stock if they paid no dividends?
C F Assets Imago
8) $3. If a rm has cash ow from assets of $100, 000 and cash ow to creditors of $1 80,000, did
Sold equity I
. Repurchased stock CE. (Mk/511150000
c. Neither sold or repurcha
Use the following income statement and balance sheet to answer the next 4 questions
2005 2006 2005
Sales 500,000 Current Assets 55,000 45,000
Costs 220,000 Net F. Assets 175,000 185,000
Depr 100,000 Current Liab 50,000 65,000
C/l. . The ultimate goal for a manager in a rm to pursue should be to?
a. maximize the prot of the rm
b. maximize the cash ows of the rm
Q maximize the value of the rm
d. none of the above
A]. In words, what does the Return on Equity measure?
. The effici
If a rm has a current ratio greater than one, which of the following will cause that ratio to
increase? Cuuud' L90 >\
a. Collect an accounts receivable
b. Use cash to pay off a long-term debt
' . Sell inventory at cost
/ None of the above would increase a
Chapter 3: Working With Financial Statements Topics
Why Work With Financial Statements?
Problems with Financial Statement Analysis.
Calculating Ratios and Analyzing with Ratios.
Why do we use Ratios to Analyze Financial Statements
1. Use the following probability distribution to answer some questions about stocks A and B:
a. Compute the expected return of stock A.
E(RA) = .2(-.02) +
1. Dunder-Mifflin had net income of $30,000, with interest expense of $75,000 and a tax rate of 40%. If
their cash coverage ratio was 5, what was their depreciation for the year?
2. If a firm has return on equity of 1
Review List of Material for 4th Exam
o What are bonds?
o Indenture: Purpose
o Annual/Semi-annual Coupons
o Prices over time
Yield to Maturity
Review List of Material for 5th Exam
o Price = PV of future Dividends, why?
o Constant Dividend
o Constant Dividend Growth
Review for 3rd Exam
Time Value of Money: Chapters 4 and 5
PV, FV, Annuities
Finding I/Y and N
APR vs. EAR
Effects on PV and FV of changing rates, time, etc.
Ordinary vs. Annuities Due
Bond Practice Problems
A $1,000 par bond pays an annual coupon of 5% and has 12 years to maturity. Compute its price if its required return is:
1000 FV, 50 PMT, 12 N, 5 I/Y: PV = 1,000 (You really didnt have to compute this one did you?)