Question 1

If the coupon rate is less than the yield to maturity, the bond will:

Answer sell at a premium sell at par sell at a discount . 1 points Question 2

ABC Inc. issued sixteen-year, 6 percent semi-annual coupon bonds at par. Today, the bonds are priced at $1012. What is the firm s after-tax cost of debt if the tax rate is 30%?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Answer . 1 points Question 3

An investor puts $20,000 in a risk-free asset and $40,000 in the market portfolio. Compute the beta of his portfolio.

Answer 0.33 0.67 2 1 0.50 . 1 points Question 4

ABC Company’s last dividend was $0.8. The dividend growth rate is expected to be constant at 6% for 3 years, after which dividends are expected to grow at a rate of 3% forever. The firm’s required return (rs) is 10%. What is its current stock price (i.e. solve for Po)?

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Answer . 1 points Question 5

If you receive $1,746 at the end of each year for the first three years and $8,525 at the end of each year for the next three years. What is the net present value of this cash flow stream? Assume interest rate is 13.9%.

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Answer . 1 points Question 6

You want to create a portfolio as risky as the market. Suppose you invest your money in Stocks A, B, C, and the risk-free asset. Compute your investment in Stock C (i.e. solve for weight of Stock C)?

Stock Weights Beta

A 17 1.3

B 29 0.5

C ? 1.8

Rf ? ?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Answer . 1 points Question 7

What is the future value of $203 at 9% after 12 years?

Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box.

Answer . 1 points Question 8

Suppose that today’s stock price is $36.5. If the required rate on equity is 18.7% and the growth rate is 5.2%, compute the expected dividend (i.e. compute D1)

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Answer . 1 points Question 9

The ABC Co. has $1,000 face value stock outstanding with a market price of $1,081. The stock pays interest annually, matures in 18 years, and has a yield to maturity of 8.5 percent. What is the annual coupon amount?

Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Answer . 1 points Question 10

The nominal rate is 16% compounded monthly. Compute the effective rate.

Answer . 1 points Question 11

You have observed the following returns on ABC’s stocks over the last six years:

3.1%, 6.2%, 13.5%, -6.3%, 11.9%, -7.7%

What is the geometric average returns on the stock over this six-year period.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Answer . 1 points Question 12

You would like to create a portfolio that is equally invested in a risk-free asset and two stocks. One stock has a beta of 1.93. What does the beta of the second stock have to be if you want the portfolio to have a beta of 0.61?

Enter your answer rounded off to two decimal points.

Answer . 1 points Question 13

Suppose a stock had an initial price of $16.3 per share, paid a dividend of $2.4 per share during the year, and had an ending share price of $20.9. What are the percentage returns if you own 22 shares?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Answer . 1 points Question 14

The beta of the risk-free asset is: Answer 0

1

1.5

2