What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?

1.76 percent

4.50 percent

7.38 percent

11.54 percent

Rank the following bonds in order from lowest credit risk to highest risk all with the same time to maturity, by their yield to maturity: JM Corporate bond with yield of 12.25 percent, IB Corporate bond with yield of 4.49 percent, TC Corporate bond with yield of 8.76 percent, and B&O Corporate bond with a yield of 5.99 percent.

JM bond, TC bond, B&O bond, IB bond

IB bond, B&O bond, TC bond, JM bond

TC bond, B&O bond, IB bond, JM bond

JM bond, IB bond, B&O bond, TC bond

A 5.75 percent coupon bond with 12 years left to maturity is offered for sale at $978.83. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

3.00 percent

3.09 percent

5.75 percent

6.00 percent

A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 3.25 percent yield to maturity and a similar-risk corporate bond that offers a 4.10 percent yield. Which bond will give the client more profit after taxes?

The municipal bond.

The corporate bond.

Both give the client equal profits after taxes.

There is not enough information given to determine answer.

Portfolio Weights An investor owns $15,000 of Adobe Systems stock, $15,500 of Dow Chemical, and $17,000 of Office Depot. What are the portfolio weights of each stock?

Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333

Adobe System = 0.3158, Dow Chemical = 0.3263, Office Depot = 0.3579

Adobe System = 0.3263, Dow Chemical = 0.3158, Office Depot = 0.3579

Adobe System = 0.2667, Dow Chemical = 0.3333, Office Depot = 0.4000

Portfolio Return Year-to-date, Company O had earned a -7.4 percent return. During the same time period, Company V earned 9.65 percent and Company M earned 2.68 percent. If you have a portfolio made up of 20 percent Company O, 40 percent Company V, and 40 percent Company M, what is your portfolio return?

4.93%

6.41%

3.45%

19.73%

Average Return The past five monthly returns for K and Company are 4.55 percent, 4.72 percent, -.65 percent, -.15 percent, and 9.30 percent. What is the average monthly return?

3.874%

1.614%

1.481%

3.554%

Portfolio Weights If you own 270 shares of Air Line Inc at $18.95, 170 shares of BuyRite at $9.9, and 370 shares of Motor City at $45.95, what are the portfolio weights of each stock?

Air Line = .2700, BuyRite = .1700, MotorCity = .3700

Air Line = .3333, BuyRite = .3333, MotorCity = .3333

Air Line = .3333, BuyRite = .2099, MotorCity = .4568

Air Line = .2150, BuyRite = .0707, MotorCity = .7143

Portfolio Return At the beginning of the month, you owned $6,500 of Company G, $8,900 of Company S, and $2,800 of Company N. The monthly returns for Company G, Company S, and Company N were 8.15 percent, -1.59 percent, and -.14 percent. What is your portfolio return?

2.14%

6.42%

3.29%

2.13%

The standard deviation of the past five monthly returns for PG Company are 2.75 percent, -0.75 percent, 4.15 percent, 6.29 percent, and 3.84 percent. What is the standard deviation?

2.309 percent

2.581 percent

3.256 percent

3.406 percent

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 10 percent and standard deviation of 19 percent. The average return and standard deviation of Idol Staff are 12 percent and 22 percent; and of Poker-R-Us are 11 percent and 25 percent.

Idol Staff, Rail Haul, Poker-R-Us

Rail Haul, Idol Staff, Poker-R-Us

Idol Staff, Poker-R-Us, Rail Haul

Poker-R-Us, Rail Haul, Idol Staff

Which of the following statements is correct?

A single stock has a lot of diversifiable risk.

A single stock has more market risk than a diversified portfolio of stocks.

Bonds and stocks have a high correlation because they are both financial assets.

None of these statements is correct.

Which of the following statements is correct with regards to diversification?

Diversifying reduces the return of the portfolio.

Diversifying reduces the market risk of the portfolio.

Diversifying reduces the dollar return of the portfolio.

None of these statements is correct.

Expected Return Compute the expected return given these three economic states, their likelihoods, and the potential returns:

Economic State	Probability	Return
Fast Growth	.1	29%
Slow Growth	.8	14%
Recession	.1	-29%

14.0%

14.3%

11.2%

17.0%

Risk Premium If the annual return on the S&P 500 Index was 14.00 percent. The annual T-bill yield during the same period was 6.50 percent. What was the market risk premium during that year?

20.50%

14.00%

7.50%

6.50%

CAPM Required Return A company has a beta of .69. If the market return is expected to be 13.9 percent and the risk-free rate is 5.95 percent, what is the company's required return?

11.44%

15.54%

17.39%

9.59%

Portfolio Beta You have a portfolio with a beta of .94. What will be the new portfolio beta if you keep 40 percent of your money in the old portfolio and 60 percent in a stock with a beta of 1.54?

1.24

1.00

1.30

2.48

Under/Over Valued Stock A manager believes his firm will earn a 17.8 percent return next year. His firm has a beta of 1.68, the expected return on the market is 15.8 percent, and the risk-free rate is 5.8 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.

22.6%, under-valued

27.544%, under-valued

27.544%, over-valued

22.6%, over-valued

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?

1.76 percent

4.50 percent

7.38 percent

11.54 percent

Rank the following bonds in order from lowest credit risk to highest risk all with the same time to maturity, by their yield to maturity: JM Corporate bond with yield of 12.25 percent, IB Corporate bond with yield of 4.49 percent, TC Corporate bond with yield of 8.76 percent, and B&O Corporate bond with a yield of 5.99 percent.

JM bond, TC bond, B&O bond, IB bond

IB bond, B&O bond, TC bond, JM bond

TC bond, B&O bond, IB bond, JM bond

JM bond, IB bond, B&O bond, TC bond

A 5.75 percent coupon bond with 12 years left to maturity is offered for sale at $978.83. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

3.00 percent

3.09 percent

5.75 percent

6.00 percent

A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 3.25 percent yield to maturity and a similar-risk corporate bond that offers a 4.10 percent yield. Which bond will give the client more profit after taxes?

The municipal bond.

The corporate bond.

Both give the client equal profits after taxes.

There is not enough information given to determine answer.

Portfolio Weights An investor owns $15,000 of Adobe Systems stock, $15,500 of Dow Chemical, and $17,000 of Office Depot. What are the portfolio weights of each stock?

Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333

Adobe System = 0.3158, Dow Chemical = 0.3263, Office Depot = 0.3579

Adobe System = 0.3263, Dow Chemical = 0.3158, Office Depot = 0.3579

Adobe System = 0.2667, Dow Chemical = 0.3333, Office Depot = 0.4000

Portfolio Return Year-to-date, Company O had earned a -7.4 percent return. During the same time period, Company V earned 9.65 percent and Company M earned 2.68 percent. If you have a portfolio made up of 20 percent Company O, 40 percent Company V, and 40 percent Company M, what is your portfolio return?

4.93%

6.41%

3.45%

19.73%

Average Return The past five monthly returns for K and Company are 4.55 percent, 4.72 percent, -.65 percent, -.15 percent, and 9.30 percent. What is the average monthly return?

3.874%

1.614%

1.481%

3.554%

Portfolio Weights If you own 270 shares of Air Line Inc at $18.95, 170 shares of BuyRite at $9.9, and 370 shares of Motor City at $45.95, what are the portfolio weights of each stock?

Air Line = .2700, BuyRite = .1700, MotorCity = .3700

Air Line = .3333, BuyRite = .3333, MotorCity = .3333

Air Line = .3333, BuyRite = .2099, MotorCity = .4568

Air Line = .2150, BuyRite = .0707, MotorCity = .7143

Portfolio Return At the beginning of the month, you owned $6,500 of Company G, $8,900 of Company S, and $2,800 of Company N. The monthly returns for Company G, Company S, and Company N were 8.15 percent, -1.59 percent, and -.14 percent. What is your portfolio return?

2.14%

6.42%

3.29%

2.13%

The standard deviation of the past five monthly returns for PG Company are 2.75 percent, -0.75 percent, 4.15 percent, 6.29 percent, and 3.84 percent. What is the standard deviation?

2.309 percent

2.581 percent

3.256 percent

3.406 percent

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 10 percent and standard deviation of 19 percent. The average return and standard deviation of Idol Staff are 12 percent and 22 percent; and of Poker-R-Us are 11 percent and 25 percent.

Idol Staff, Rail Haul, Poker-R-Us

Rail Haul, Idol Staff, Poker-R-Us

Idol Staff, Poker-R-Us, Rail Haul

Poker-R-Us, Rail Haul, Idol Staff

Which of the following statements is correct?

A single stock has a lot of diversifiable risk.

A single stock has more market risk than a diversified portfolio of stocks.

Bonds and stocks have a high correlation because they are both financial assets.

None of these statements is correct.

Which of the following statements is correct with regards to diversification?

Diversifying reduces the return of the portfolio.

Diversifying reduces the market risk of the portfolio.

Diversifying reduces the dollar return of the portfolio.

None of these statements is correct.

Expected Return Compute the expected return given these three economic states, their likelihoods, and the potential returns:

Economic State	Probability	Return
Fast Growth	.1	29%
Slow Growth	.8	14%
Recession	.1	-29%

14.0%

14.3%

11.2%

17.0%

Risk Premium If the annual return on the S&P 500 Index was 14.00 percent. The annual T-bill yield during the same period was 6.50 percent. What was the market risk premium during that year?

20.50%

14.00%

7.50%

6.50%

CAPM Required Return A company has a beta of .69. If the market return is expected to be 13.9 percent and the risk-free rate is 5.95 percent, what is the company's required return?

11.44%

15.54%

17.39%

9.59%

Portfolio Beta You have a portfolio with a beta of .94. What will be the new portfolio beta if you keep 40 percent of your money in the old portfolio and 60 percent in a stock with a beta of 1.54?

1.24

1.00

1.30

2.48

Under/Over Valued Stock A manager believes his firm will earn a 17.8 percent return next year. His firm has a beta of 1.68, the expected return on the market is 15.8 percent, and the risk-free rate is 5.8 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.

22.6%, under-valued

27.544%, under-valued

27.544%, over-valued

22.6%, over-valued

lemoncrab271

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?

1.76 percent

4.50 percent

7.38 percent

11.54 percent

Rank the following bonds in order from lowest credit risk to highest risk all with the same time to maturity, by their yield to maturity: JM Corporate bond with yield of 12.25 percent, IB Corporate bond with yield of 4.49 percent, TC Corporate bond with yield of 8.76 percent, and B&O Corporate bond with a yield of 5.99 percent.

JM bond, TC bond, B&O bond, IB bond

IB bond, B&O bond, TC bond, JM bond

TC bond, B&O bond, IB bond, JM bond

JM bond, IB bond, B&O bond, TC bond

A 5.75 percent coupon bond with 12 years left to maturity is offered for sale at $978.83. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)

3.00 percent

3.09 percent

5.75 percent

6.00 percent

A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 3.25 percent yield to maturity and a similar-risk corporate bond that offers a 4.10 percent yield. Which bond will give the client more profit after taxes?

The municipal bond.

The corporate bond.

Both give the client equal profits after taxes.

There is not enough information given to determine answer.

Portfolio Weights An investor owns $15,000 of Adobe Systems stock, $15,500 of Dow Chemical, and $17,000 of Office Depot. What are the portfolio weights of each stock?

Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333

Adobe System = 0.3158, Dow Chemical = 0.3263, Office Depot = 0.3579

Adobe System = 0.3263, Dow Chemical = 0.3158, Office Depot = 0.3579

Adobe System = 0.2667, Dow Chemical = 0.3333, Office Depot = 0.4000

Portfolio Return Year-to-date, Company O had earned a -7.4 percent return. During the same time period, Company V earned 9.65 percent and Company M earned 2.68 percent. If you have a portfolio made up of 20 percent Company O, 40 percent Company V, and 40 percent Company M, what is your portfolio return?

4.93%

6.41%

3.45%

19.73%

Average Return The past five monthly returns for K and Company are 4.55 percent, 4.72 percent, -.65 percent, -.15 percent, and 9.30 percent. What is the average monthly return?

3.874%

1.614%

1.481%

3.554%

Portfolio Weights If you own 270 shares of Air Line Inc at $18.95, 170 shares of BuyRite at $9.9, and 370 shares of Motor City at $45.95, what are the portfolio weights of each stock?

Air Line = .2700, BuyRite = .1700, MotorCity = .3700

Air Line = .3333, BuyRite = .3333, MotorCity = .3333

Air Line = .3333, BuyRite = .2099, MotorCity = .4568

Air Line = .2150, BuyRite = .0707, MotorCity = .7143

Portfolio Return At the beginning of the month, you owned $6,500 of Company G, $8,900 of Company S, and $2,800 of Company N. The monthly returns for Company G, Company S, and Company N were 8.15 percent, -1.59 percent, and -.14 percent. What is your portfolio return?

2.14%

6.42%

3.29%

2.13%

The standard deviation of the past five monthly returns for PG Company are 2.75 percent, -0.75 percent, 4.15 percent, 6.29 percent, and 3.84 percent. What is the standard deviation?

2.309 percent

2.581 percent

3.256 percent

3.406 percent

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 10 percent and standard deviation of 19 percent. The average return and standard deviation of Idol Staff are 12 percent and 22 percent; and of Poker-R-Us are 11 percent and 25 percent.

Idol Staff, Rail Haul, Poker-R-Us

Rail Haul, Idol Staff, Poker-R-Us

Idol Staff, Poker-R-Us, Rail Haul

Poker-R-Us, Rail Haul, Idol Staff

Which of the following statements is correct?

A single stock has a lot of diversifiable risk.

A single stock has more market risk than a diversified portfolio of stocks.

Bonds and stocks have a high correlation because they are both financial assets.

None of these statements is correct.

Which of the following statements is correct with regards to diversification?

Diversifying reduces the return of the portfolio.

Diversifying reduces the market risk of the portfolio.

Diversifying reduces the dollar return of the portfolio.

None of these statements is correct.

Expected Return Compute the expected return given these three economic states, their likelihoods, and the potential returns:

Economic State	Probability	Return
Fast Growth	.1	29%
Slow Growth	.8	14%
Recession	.1	-29%

14.0%

14.3%

11.2%

17.0%

Risk Premium If the annual return on the S&P 500 Index was 14.00 percent. The annual T-bill yield during the same period was 6.50 percent. What was the market risk premium during that year?

20.50%

14.00%

7.50%

6.50%

CAPM Required Return A company has a beta of .69. If the market return is expected to be 13.9 percent and the risk-free rate is 5.95 percent, what is the company's required return?

11.44%

15.54%

17.39%

9.59%

Portfolio Beta You have a portfolio with a beta of .94. What will be the new portfolio beta if you keep 40 percent of your money in the old portfolio and 60 percent in a stock with a beta of 1.54?

1.24

1.00

1.30

2.48

Under/Over Valued Stock A manager believes his firm will earn a 17.8 percent return next year. His firm has a beta of 1.68, the expected return on the market is 15.8 percent, and the risk-free rate is 5.8 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.

22.6%, under-valued

27.544%, under-valued

27.544%, over-valued

22.6%, over-valued

ultramarinelion8

Question 1 of 25

You are planning to deposit $1,000 in a savings account. Account A compounds semiannually while account B compounds monthly. If both accounts have the same quoted annual rate of interest, you should choose _______________.

A. either account since both quote the same rate of interest

B. account A because it has a higher APR

C. account A because it has a higher EAR

D. account B because it is compounded more often

Question 2 of 25

You are evaluating two annuities. They are identical in every way, except that one is an ordinary annuity and the other is an annuity due. Which of the following is FALSE?

A. The ordinary annuity must have a lower future value than the annuity due.

B. The ordinary annuity must have a higher present value than the annuity due.

C. The two annuities will differ in present value by the amount (1+r).

D. The annuity due and the ordinary annuity will make the same number of total payments over time.

Question 3 of 25

What is the total present value of $80 received in one year, $300 received in two years, and $700 received in six years if the discount rate is 7%? Note: There is no direct formula for this kind of PV computation other than the basic equation, PV = FV/(1+r)t. 0 1 2 3 4 5 6 |-----------|----------|----------|----------|----------|---------| PV=? $80 $300 $700

A. $582.72

B. $681.68

C. $757.25

D. $803.24

Question 4 of 25

You need to borrow $23,000 to buy a car. The current loan rate is 7.9% APR compounded monthly and you want to pay the loan off in equal monthly payments over 5 years. What is the correct computation to find your monthly payment (C)?

A. C = $23,000 [PVIFA(7.9%/12, 60)]

B. $23,000 = C [1 - (1/1.0795)] / .079

C. $23,000 = C [1 - (1 /1.0065860)] / .00658

D. C = $23,000 [1 - (1/1.07960)] / .079

Question 5 of 25

The monthly mortgage payment on your house is $821.69. It is a 30-year mortgage at an APR of 6.5% compounded monthly. How much did you borrow? Note: PVIFA(r, t) = [1 â 1/(1+r)t] / r, and of course, you can use your calculator here.

A. $100,000

B. $115,000

C. $130,000

D. $140,000

Question 6 of 25

You just won the lottery and you are given two choices for your prize money: (1) A present lump sum of $20 million or (2) $1 million per year that you and your heirs will receive forever, beginning one year from now. If the appropriate interest rate is 5%, which should you choose and why? Note: PV of a perpetuity = C/r

A. Either, because both have the same present value.

B. (1) because it has a higher present value.

C. (2) because it has a higher present value.

D. (2) because it has a higher future value.

Question 7 of 25

What is the effective annual rate of 6% compounded quarterly? Note: EAR = (1 + APR/m)m â 1.0, where m is the number of compoundings in a year.

A. 6.00%

B. 6.14%

C. 7.50%

D. 24.00%

Question 8 of 25

At the end of each year for the next 8 years you will receive cash flows of $500. The initial investment is $2,500. Which of the following is the correct equation to find the rate of return (r) you are expecting from this investment?

A. $2,500 = $500 [1/(1+r)8 â 1] / r

B. $500 = $2,500 [PVIFA(r%,8)]

C. $500 = $2,500 [FVIFA(r%,8)]

D. $2,500 = $500 [1 â 1/(1+r)8] / r

Question 9 of 25

Consider the following cash flow stream. What is the correct way to find the present value of this cash flow stream at a 10% discount rate? 0 1 2 3 4 5 6 7 8 9 10 |----------|----------|----------|----------|----------|----------|---------|----------|----------|----------| PV=? $35 $35 $35 $35 $35 $35 $20 $20 $20 $20

A. PV = 35 [PVIFA(10%, 6)] + 20 [PVIFA(10%, 4)]

B. PV = 20 [PVIFA(10%, 10)] + 15 [PVIFA(10%, 6)]

C. PV = 35 [PVIFA(10%, 10)] â 15 [PVIFA(10%, 4)]

D. PV = 35 [PVIFA(10%, 6)]/(1.10)6 + 20 [PVIFA(10%, 4)]

Question 10 of 25

You plan to amortize your $10,000 loan by making five equal payments over the next 5 years. The interest rate is 5% compounded annually. What number should appear in (A) of your amortization table below? Note: PVIFA(5%, 5)=4.3295.

Beginning Ending Year Loan Balance Payment Interest Principal Loan Balance

----------------------------------------------------------------------------------------------

1 $10,000 xxxx xxx xxx xxxx

2 ( A ) xxxx xxx xxx xxxx

3 xxxx xxxx xxx xxx xxxx

4 xxxx xxxx xxx xxx xxxx

5 xxxx xxxx xxx xxx 0

A. $8,457.12

B. $8,190.26

C. $7,690.26

D. $6,809.74

Question 11 of 25

The rate of return required by investors for owning a bond to its maturity is called the

A. coupon rate.

B. current yield.

C. dividend yield.

D. yield to maturity.

Question 12 of 25

Which of the following statements regarding bond terminologies is INCORRECT?

A. The written, legally binding agreement between the corporate borrower and the lender detailing the terms of a bond issue is called the indenture.

B. The unsecured long-term debts of a firm are commonly called debentures.

C. An agreement giving the bond issuer the option to repurchase the bond at a specified price prior to maturity is called the zero provision.

D. A special account that sets aside periodic payments for bond redemption is called a sinking fund.

Question 13 of 25

Which of the following statements regarding bond trading is INCORRECT?

A. The long-term bonds issued by state and local governments in the United States are called municipal bonds.

B. The long-term bonds issued by the U.S. government are called Treasury Bills.

C. A bond that makes no coupon payments (and thus is initially priced at a deep discount) is called a zero coupon bond.

D. The price a dealer is willing to pay for a security is called the bid price.

Question 14 of 25

Which bond would most likely possess the least degree of interest rate risk?

A. 8% coupon rate, 12 years to maturity

B. 8% coupon rate, 15 years to maturity

C. 10% coupon rate, 10 years to maturity

D. 12% coupon rate, 8 years to maturity

Question 15 of 25

What is the value of a bond that will pay a total of 50 semiannual coupons of $80 each over the remainder of its life? The yield to maturity is 12%, p.a. Note: B = C [{1 â 1/(1+y)t}/y] + F /(1+y)t. Be careful about specifying t and y for this semiannual bond.

A. $ 734.86

B. $ 942.26

C. $1,135.90

D. $1,315.24

Question 16 of 25

Dizzy Corporationâs 10-year semiannual bond bearing a coupon rate of 12% is currently selling for $950. Given this information, which of the following is the correct valuation equation for this bond?

A. B = 120 [PVIFA(12%, 10)] + 1,000 [PVIF(12%, 10)]

B. $950 = 60 [PVIFA(r/2, 20)] + 1,000 [PVIF(r/2, 20)]

C. $950 = 120 [PVIFA(r, 10)] + 1,000 [PVIF(r, 10)]

D. B = 60 [PVIFA(6%, 20)] + 1,000 [PVIF(6%, 20)]

Question 17 of 25

To find the yield-to-maturity of the bond in Question #16 by trial and error, which number (as a semiannual YTM) should you pick as your first try?

A. 5%

B. 6%

C. 7%

D. Any number (like one of your favorite lotto numbers).

Question 18 of 25

George bought an investment one year ago and just calculated his return on investment. He found that his purchasing power has increased by 15% as a result of his investment. If the inflation over the period was 4%, his _______________. Note: (1+R) = (1+r)(1+h), but you donât need calculation here.

A. real return on investment is more than 15%

B. nominal return on investment is more than 15%

C. nominal return on investment is 11%

D. real return on investment is equal to 4%

Question 19 of 25

Which statement is INCORRECT given the following Treasury quotes? Maturity Coupon Bid Ask(ed) Chg Ask(ed) Yld ---------------------------------------------------------------------------------------- 5/15/2030 6.250 150.7188 150.7500 .8906 2.713

A. The amount of each coupon on this bond is $31.25.

B. The ask(ed) price is $1,507.50.

C. The dealer is willing to sell this bond to you for 150.7188% of par.

D. This bondâs ask(ed) price rose by $8.906 (i.e., eight dollars and 90+ cents) from the previous trading day.

Question 20 of 25

Which of the following statements regarding stock trading is INCORRECT?

A. Stock that has priority for dividends and bankruptcy liquidation is called priority equity.

B. The short alphabetic abbreviation for an exchange-listed stock by which the issue is identified in the market is called the stock's ticker symbol.

C. Capital gains yield is the rate of return based on the stock price increase.

D. Proxy voting is the voting procedure where shareholders grant authority to another individual to vote their shares.

Question 21 of 25

What would you pay for a share of ABC Corporation stock today if the next dividend will be $3 per share, your required return on equity investments is 15%, and the stock is expected to be worth $90 one year from now? (Remember the stock price today is the PV of its future cash flows, i.e., dividends and the future stock price, properly discounted)

A. $75.00

B. $78.26

C. $80.87

D. $90.00

Question 22 of 25

A preferred stock that pays a constant dividend of $1.50 currently sells for $10.71. What is the required rate of return? Note: P0 = D/R for a preferred stock.

A. 14%

B. 13%

C. 12%

D. 10%

Question 23 of 25

A stock with a constant dividend growth rate of 5% is expected to make a $2 dividend in one year. If you require a 12% return on your investment, which of the following statements is INCORRECT? Note: P0 = D1/(Râg) or R = (D1/P0) + g.

A. The current stock price is $28.57.

B. The dividend yield is 7%.

C. The capital gains yield is 12%.

D. The stock price will grow at an annual 5%.

Question 24 of 25

McIver, Inc. currently pays a $2 annual dividend. Investors believe that dividends will grow at 20% next year, 12% for the following year, and 6% annually thereafter. The required return is 10%. What is the current price of the stock?

A. $63.27

B. $60.80

C. $58.71

D. $54.90

Question 25 of 25

Which statement is INCORRECT given the following stock quotes? Prev Close 44.34 Dayâs Range 43.45 â 44.37 Bid 44.01 x 1,200 Volume 908,587 Ask 44.02 x 400 P/E 17.26 Beta 2.4 EPS 2.55 Market Cap 10.11B Div & Yield 0.50 (1.10%)

A. At this point someone was willing to buy 1,200 shares of this stock for $44.01 a share.

B. The yield-to-maturity for this stock is 1.1%.

C. On this trading day so far 908,587 shares changed hands.

D. The total value of this companyâs stock is (about) $10,110 million.

FINC-220 Lecture Notes - Lecture 6: Bond Valuation, Current Yield, Zero-Coupon Bond

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