## Transcribed Text

QUESTION 1
1. ABC Company's last dividend was $2.8. The dividend growth rate is expected to be constant at 8% for 3
years, after which dividends are expected to grow at a rate of 4% forever. The firm's required return (rs)
is 14%. 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.
1 points
QUESTION 2
1. ABC’s last dividend paid was $3.42, its required return is 22%, its growth rate is 7%. What is ABC's
expected stock price in 8 years?
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.
1 points
QUESTION 3
1. You have observed the following returns on ABC's stocks over the last six years:
18.6%, 4.3%, 11.7%, -7.2%, 5.5%, -11%
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.
1 points
QUESTION 4
1. How many years will it take for your money to grow from $334 to $1,438 at 7% compounded semiannually?
Enter your answer rounded off to two decimal points.
1 points
QUESTION 5
1. 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 1.53. What does the beta of the second stock have to be if you want the portfolio to have a
beta of 1.05?
Enter your answer rounded off to two decimal points.
1 points
QUESTION 6
1. You have observed the following returns on ABC's stocks over the last five years:
22.9%, 12.8%, -4%, 18.6%, 5.4%
What is the arithmetic average returns on the stock over this five-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.
1 points
QUESTION 7
1. The ABC Company has a cost of equity of 10.5 percent, a pre-tax cost of debt of 5.9
percent, and a tax rate of 25 percent. What is the firm’s weighted average cost of capital if the
weight of debt is 47 percent?
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.
1 points
QUESTION 8
1. ABC company’s market value of common stock is $200 million, preferred stock is $300 million, and debt
is $500 million. Suppose that the cost of equity is 7%, the before-tax cost of debt is 5.9%, cost of
preferred stock is 5.1%, and the tax rate is 31%.
Compute the WACC.
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.
1 points
QUESTION 9
1. If the market value of debt is $184,070, market value of preferred stock is $178,165, and market value of
common equity is 128,910, what is the weight of preferred stock?
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.
1 points
QUESTION 10
1. Suppose that today's stock price is $42.2. If the required rate on equity is 12.1% and the growth rate is
6.3%, 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.
1 points
QUESTION 11
1. You take a loan of $36,532 to buy a car. As per the terms of the loan, you need to make monthly
payments for 5 years at a 3.2% rate of interest. What is the amount of each monthly payment?
Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box.
1 points
QUESTION 12
1. One year ago, you puchased 55 shares of ABC stock for $21.1 per share. During the year, you received a
dividend of $2.3 per share. Today, you sold all your shares for $27. What are the percentage return on
your investment?
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.
1 points
QUESTION 13
1. If you receive $1,177 at the end of each year for the first three years and $4,724 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 4.3%.
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.
1 points
QUESTION 14
1. The square-root of the variance is:
correlation coefficient
covariance
standard deviation
half-variance
beta
1 points
QUESTION 15
1. The nominal rate is 18.2% compounded monthly. Compute the effective rate.
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.
1 points
QUESTION 16
1. A bond that sells for less than face value is called as:
discount bond
perpetuity
par value bond
debenture
premium bond
1 points
QUESTION 17
1. 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 10 1.4
B 21 0.3
C ? 1.7
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.
1 points
QUESTION 18
1. The common stock of ABC Industries is valued at $70.1 a share. The company increases their dividend
by 6 percent annually and expects their next dividend to be $1.6. What is the required rate of return on
this stock?
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.
1 points
QUESTION 19
1. The ABC Co. has $1,000 face value stock outstanding with a market price of $1,094.2. The stock pays
interest annually, matures in 10 years, and has a yield to maturity of 9.7 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.
1 points
QUESTION 20
1. The risk-free rate is 4.7%, the market risk premium is 6%, and the stock’s beta is 1.67. What is the cost
of common stock (Ke)?
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.
1 points
QUESTION 21
1. You have a portfolio of two risky stocks which turns out to have no diversification benefit.
The reason you have no diversification is the returns:
are completely unrelated to one another.
are too large to offset.
move perfectly with one another.
move perfectly opposite of one another.
are too small.
1 points
QUESTION 22
1. Suppose the nominal rate is 17.4% and the inflation rate is 5.7%. Solve for the real rate.
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.
1 points
QUESTION 23
1. The beta of the risk-free asset is:
0
1
1.5
2
1 points
QUESTION 24
1. A stock just paid a dividend of D0 = $2.8. The required rate of return is rs = 18%, and the constant growth
rate is g = 3.8%. What is the current stock price?
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.
1 points
QUESTION 25
1. The principal amount of a bond that is repaid at the end of term is called the par value or the:
call premium
back-end value
face value
coupon value
perpetuity value
1 points
QUESTION 26
1. ABC Inc. issued eight-year, 8 percent semi-annual coupon bonds at par. Today, the bonds are priced at
$888. What is the firm’s after-tax cost of debt if the tax rate is 38%?
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.
1 points
QUESTION 27
1. If the coupon rate is greater than the yield to maturity, the bond will:
sell at par
sell at a discount
sell at a premium
1 points
QUESTION 28
1. An investor puts $20,000 in a risk-free asset and $40,000 in the market portfolio. Compute the beta of his
portfolio.
2
0.50
0.33
1
0.67

This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.

1. ABC Company's last dividend was $2.8. The dividend growth rate is expected to be constant at 8% for 3 years, after which dividends are expected to grow at a rate of 4% forever. The firm's required return (rs) is 14%. What is its current stock price (i.e. solve for Po)?

Answer: 111.96

2. ABC’s last dividend paid was $3.42, its required return is 22%, its growth rate is 7%. What is ABC's expected stock price in 8 years?

Answer:...