Exam 29: Basic Financial Tools: a Review

You have funds that you want to invest in bonds,and you just noticed in the financial pages of the local newspaper that you can buy a $1,000 par value bond for $800.The coupon rate is 10% (with annual payments),and there are 10 years before the bond will mature and pay off its $1,000 par value.You should buy the bond if your required return on bonds with this risk is 12%.

(True/False)

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Question 81

You agree to make 24 deposits of $500 at the beginning of each month into a bank account.At the end of the 24^th month,you will have $13,000 in your account.If the bank compounds interest monthly,what nominal annual interest rate will you be earning?

(Multiple Choice)

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Question 82

Suppose a State of New Mexico bond will pay $1,000 eight years from now.If the going interest rate on these 8-year bonds is 5.5%,how much is the bond worth today?

(Multiple Choice)

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Question 83

Geraldine was injured in a car accident,and the insurance company has offered her the choice of $25,000 per year for 15 years,with the first payment being made today,or a lump sum.If a fair return is 7.5%,how large must the lump sum be to leave her as well off financially as with the annuity?

(Multiple Choice)

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(70)

Question 84

Rogoff Co.'s 15-year bonds have an annual coupon rate of 9.5%.Each bond has face value of $1,000 and makes semiannual interest payments.If you require an 11.0% nominal yield to maturity on this investment,what is the maximum price you should be willing to pay for the bond?

(Multiple Choice)

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Question 85

A perpetuity pays $85 per year and costs $950.What is the rate of return?

(Multiple Choice)

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Question 86

Which of the following is most likely to be true for a portfolio of 40 randomly selected stocks?

(Multiple Choice)

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Question 87

Company A has a beta of 0.70,while Company B's beta is 1.20.The required return on the stock market is 11.00%,and the risk-free rate is 4.25%.What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium,then find the required returns on the stocks.)

(Multiple Choice)

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Question 88

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows.Which of the following would lower the calculated value of the investment?

(Multiple Choice)

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Question 89

Which of the following statements is CORRECT?

(Multiple Choice)

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Question 90

The YTMs of three $1,000 face value bonds that mature in 10 years and have the same level of risk are equal.Bond A has an 8% annual coupon,Bond B has a 10% annual coupon,and Bond C has a 12% annual coupon.Bond B sells at par.Assuming interest rates remain constant for the next 10 years,which of the following statements is CORRECT?

(Multiple Choice)

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Question 91

Suppose you borrowed $14,000 at a rate of 10.0% and must repay it in 5 equal installments at the end of each of the next 5 years.How much interest would you have to pay in the first year?

(Multiple Choice)

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Question 92

Stock A's beta is 1.7 and Stock B's beta is 0.7.Which of the following statements must be true about these securities? (Assume market equilibrium.)

(Multiple Choice)

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Question 93

Field Industries' outstanding bonds have a 25-year maturity and $1,000 par value.Their nominal yield to maturity is 9.25%,they pay interest semiannually,and they sell at a price of $850.What is the bond's nominal (annual)coupon interest rate?

(Multiple Choice)

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Question 94

If the discount (or interest)rate is positive,the present value of an expected series of payments will always exceed the future value of the same series.

(True/False)

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Question 95

Connor Publishing's preferred stock pays a dividend of $1.00 per quarter,and it sells for $55.00 per share.What is its effective annual (not nominal)rate of return?

(Multiple Choice)

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Question 96

Your bank account pays a 5% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?

(Multiple Choice)

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Question 97

Portfolio AB was created by investing in a combination of Stocks A and B.Stock A has a beta of 1.2 and a standard deviation of 25%.Stock B has a beta of 1.4 and a standard deviation of 20%.Portfolio AB has a beta of 1.25 and a standard deviation of 18%.Which of the following statements is CORRECT?

(Multiple Choice)

4.9/5

(77)

Question 98

$35.50 per share is the current price for Foster Farms' stock.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock,r_s,is 9.00%.What is the stock's expected price 3 years from today?

(Multiple Choice)

4.8/5

(90)

Question 99

How much would $1,growing at 3.5% per year,be worth after 75 years?

(Multiple Choice)

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(81)

Question 100

Showing 81 - 100 of 247

Exam 29: Basic Financial Tools: a Review

You agree to make 24 deposits of $500 at the beginning of each month into a bank account.At the end of the 24th month,you will have $13,000 in your account.If the bank compounds interest monthly,what nominal annual interest rate will you be earning?

Suppose a State of New Mexico bond will pay $1,000 eight years from now.If the going interest rate on these 8-year bonds is 5.5%,how much is the bond worth today?

Geraldine was injured in a car accident,and the insurance company has offered her the choice of $25,000 per year for 15 years,with the first payment being made today,or a lump sum.If a fair return is 7.5%,how large must the lump sum be to leave her as well off financially as with the annuity?

Rogoff Co.'s 15-year bonds have an annual coupon rate of 9.5%.Each bond has face value of $1,000 and makes semiannual interest payments.If you require an 11.0% nominal yield to maturity on this investment,what is the maximum price you should be willing to pay for the bond?

A perpetuity pays $85 per year and costs $950.What is the rate of return?

Which of the following is most likely to be true for a portfolio of 40 randomly selected stocks?

Company A has a beta of 0.70,while Company B's beta is 1.20.The required return on the stock market is 11.00%,and the risk-free rate is 4.25%.What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium,then find the required returns on the stocks.)

You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows.Which of the following would lower the calculated value of the investment?

Which of the following statements is CORRECT?

Suppose you borrowed $14,000 at a rate of 10.0% and must repay it in 5 equal installments at the end of each of the next 5 years.How much interest would you have to pay in the first year?

Stock A's beta is 1.7 and Stock B's beta is 0.7.Which of the following statements must be true about these securities? (Assume market equilibrium.)

Field Industries' outstanding bonds have a 25-year maturity and $1,000 par value.Their nominal yield to maturity is 9.25%,they pay interest semiannually,and they sell at a price of $850.What is the bond's nominal (annual)coupon interest rate?

If the discount (or interest)rate is positive,the present value of an expected series of payments will always exceed the future value of the same series.

Connor Publishing's preferred stock pays a dividend of $1.00 per quarter,and it sells for $55.00 per share.What is its effective annual (not nominal)rate of return?

Your bank account pays a 5% nominal rate of interest.The interest is compounded quarterly.Which of the following statements is CORRECT?

Portfolio AB was created by investing in a combination of Stocks A and B.Stock A has a beta of 1.2 and a standard deviation of 25%.Stock B has a beta of 1.4 and a standard deviation of 20%.Portfolio AB has a beta of 1.25 and a standard deviation of 18%.Which of the following statements is CORRECT?

$35.50 per share is the current price for Foster Farms' stock.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock,rs,is 9.00%.What is the stock's expected price 3 years from today?

How much would $1,growing at 3.5% per year,be worth after 75 years?

An Overview of Financial Management and the Financial Environment

Risk and Return: Part I

Risk and Return: Part Ii

Bond Valuation

Financial Options

Accounting for Financial Management

Analysis of Financial Statements

Basic Stock Valuation

Corporate Valuation and Financial Planning

Corporate Governance

Determining the Cost of Capital

Capital Budgeting: Decision Rules

Cash Flow Estimation and Risk Analysis

Real Options

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Dynamic Capital Structures and Corporate Valuation

Initial Public Offerings, investment Banking, and Financial Restructuring

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Supply Chains and Working Capital Management

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Enterprise Risk Management

Bankruptcy, reorganization, and Liquidation

Mergers and Corporate Control

Multinational Financial Management

Time Value of Money

Pension Plan Management

Financial Management in Not-For-Profit Businesses

a Values of the Areas Under the Standard Normal

Filters

You agree to make 24 deposits of $500 at the beginning of each month into a bank account.At the end of the 24^th month,you will have $13,000 in your account.If the bank compounds interest monthly,what nominal annual interest rate will you be earning?

$35.50 per share is the current price for Foster Farms' stock.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock,r_s,is 9.00%.What is the stock's expected price 3 years from today?