Question 1

Suppose a Google.com bond will pay $4,500 ten years from now.If the going interest rate on safe 10-year bonds is 4.25%,how much is the bond worth today?

Accepted Answer

A)  $2,819.52
B)  $2,967.92
C)  $3,116.31
D)  $3,272.13
E)  $3,435.74F) B) and D)
G) None of the above

Question 2

An 8-year Treasury bond has a 10% coupon,and a 10-year Treasury bond has an 8% coupon.Both bonds have the same yield to maturity.If the yield to maturity of both bonds increases by the same amount,which of the following statements would be CORRECT?

Accepted Answer

A)  Both bonds would decline in price, but the 10-year bond would have the greater percentage decline in price.
B)  The prices of both bonds would increase by the same amount.
C)  One bond's price would increase, while the other bond's price would decrease.
D)  The prices of the two bonds would remain constant.
E)  The prices of both bonds will decrease by the same amount.F) A) and B)
G) A) and C)

Question 3

A portfolio's risk is measured by the weighted average of the standard deviations of the securities in the portfolio.It is this aspect of portfolios that allows investors to combine stocks and thus reduce the riskiness of their portfolios.

Accepted Answer

A) True 
 B)False

Question 4

Jenna holds a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each.The portfolio's beta is 1.12.Jenna plans to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80.What will the portfolio's new beta be?

Accepted Answer

A)  1.286
B)  1.255
C)  1.224
D)  1.194
E)  1.165F) B) and C)
G) C) and D)

Question 5

Cyberhost Corporation's sales were $225 million last year.If sales grow at 6% per year,how large (in millions) will they be 5 years later?

Accepted Answer

A)  $271.74
B)  $286.05
C)  $301.10
D)  $316.16
E)  $331.96F) A) and D)
G) A) and C)

Question 6

Stock A's beta is 1.7 and Stock B's beta is 0.7.Which of the following statements must be true,assuming the CAPM is correct?

Accepted Answer

A)  In equilibrium, the expected return on Stock B will be greater than that on Stock A.
B)  When held in isolation, Stock A has more risk than Stock B.
C)  Stock B would be a more desirable addition to a portfolio than A.
D)  In equilibrium, the expected return on Stock A will be greater than that on B.
E)  Stock A would be a more desirable addition to a portfolio then Stock B.F) A) and E)
G) A) and C)

Question 7

Your Green Investment Tips subscription is about to expire.You plan to subscribe to the magazine for the rest of your life,and you can renew it by paying $85 annually,beginning immediately,or you can get a lifetime subscription for $850,also payable immediately.Assuming that you can earn 6.0% on your funds and that the annual renewal rate will remain constant,how many years must you live to make the lifetime subscription the better buy?

Accepted Answer

A)  7.48
B)  8.80
C)  10.35
D)  12.18
E)  14.33F) C) and D)
G) D) and E)

Question 8

Suppose Randy Jones plans to invest $1,000.He can earn an effective annual rate of 5% on Security A,while Security B has an effective annual rate of 12%.After 11 years,the compounded value of Security B should be somewhat less than twice the compounded value of Security A.(Ignore risk,and assume that compounding occurs annually.)

Accepted Answer

A) True 
 B)False

Question 9

Gretta's portfolio consists of $700,000 invested in a stock that has a beta of 1.2 and $300,000 invested in a stock that has a beta of 0.8.The risk-free rate is 6% and the market risk premium is 5%.Which of the following statements is CORRECT?

Accepted Answer

A)  The required return on the market is 10%.
B)  The portfolio's required return is less than 11%.
C)  If the risk-free rate remains unchanged but the market risk premium increases by 2%, Gretta's portfolio's required return will increase by more than 2%.
D)  If the market risk premium remains unchanged but expected inflation increases by 2%, Gretta's portfolio's required return will increase by more than 2%.
E)  If the stock market is efficient, Gretta's portfolio's expected return should equal the expected return on the market, which is 11%.F) A) and B)
G) A) and C)

Question 10

Stock X has the following data.Assuming the stock market is efficient and the stock is in equilibrium,which of the following statements is CORRECT? Expected dividend,D1
$3) 00
Current Price,P0
$50
Expected constant growth rate
6) 0%

Accepted Answer

A)  The stock's expected dividend yield and growth rate are equal.
B)  The stock's expected dividend yield is 5%.
C)  The stock's expected capital gains yield is 5%.
D)  The stock's expected price 10 years from now is $100.00.
E)  The stock's required return is 10%.F) D) and E)
G) A) and E)

Question 11

Martin Ortner holds a $200,000 portfolio consisting of the following stocks:   Stock  Investment  Beta  A $50,0000.95 B 50,0000.80 C 50,0001.00 D 50,0001.20 Total $200,000\begin{array} { c r r } 	ext { Stock } & 	ext { Investment } & 	ext { Beta } \ 	ext { A } & \$ 50,000 & 0.95 \	ext { B } & 50,000 & 0.80 \	ext { C } & 50,000 & 1.00 \	ext { D } & 50,000 & 1.20 \	ext { Total } & \$ 200,000 &\end{array} Stock  A  B  C  D  Total ​ Investment $50,00050,00050,00050,000$200,000​ Beta 0.950.801.001.20​  What is the portfolio's beta?

Accepted Answer

A)  0.938
B)  0.988
C)  1.037
D)  1.089
E)  1.143 F) A) and C)
G) A) and E)

Question 12

A stock is expected to pay a year-end dividend of $2.00,i.e.,D1 = $2.00.The dividend is expected to decline at a rate of 5% a year forever (g = −5%) .If the company is in equilibrium and its expected and required rate of return is 15%,which of the following statements is CORRECT?

Accepted Answer

A)  The company's dividend yield 5 years from now is expected to be 10%.
B)  The constant growth model cannot be used because the growth rate is negative.
C)  The company's expected capital gains yield is 5%.
D)  The company's expected stock price at the beginning of next year is $9.50.
E)  The company's current stock price is $20.F) B) and C)
G) A) and E)

Question 13

Connolly Co.'s expected year-end dividend is D1 = $1.60,its required return is rs = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Connolly's expected stock price in 7 years,i.e.,what is 1 = $1.60,its required return is rs = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Connolly's expected stock price in 7 years,i.e.,what is   ? A) $37.52 B) $39.40 C) $41.37 D) $43.44 E) $45.61" class="answers-bank-image d-inline" rel="preload" > ?

Accepted Answer

A)  $37.52
B)  $39.40
C)  $41.37
D)  $43.44
E)  $45.61F) D) and E)
G) A) and E)

Question 14

Noncallable bonds that mature in 10 years were recently issued by Sternglass Inc.They have a par value of $1,000 and an annual coupon of 5.5%.If the current market interest rate is 7.0%,at what price should the bonds sell?

Accepted Answer

A)  $829.21
B)  $850.47
C)  $872.28
D)  $894.65
E)  $917.01F) A) and B)
G) D) and E)

Question 15

Suppose you deposited $5,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?

Accepted Answer

A)  $5,178.09
B)  $5,436.99
C)  $5,708.84
D)  $5,994.28
E)  $6,294.00F) B) and E)
G) A) and B)

Question 16

Burke Tires just paid a dividend of D0 = $1.32.Analysts expect the company's dividend to grow by 30% this year,by 10% in Year 2,and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?

Accepted Answer

A)  $41.59
B)  $42.65
C)  $43.75
D)  $44.87
E)  $45.99F) None of the above
G) A) and B)

Question 17

You are considering investing in one of these three stocks:   Stock  Standard Deviation  Beta  A 20%0.59 B 10%0.61 C 12%1.29\begin{array} { c c c } 	ext { Stock } & 	ext { Standard Deviation } & 	ext { Beta } \	ext { A } & 20 \% & 0.59 \	ext { B } & 10 \% & 0.61 \	ext { C } & 12 \% & 1.29\end{array} Stock  A  B  C ​ Standard Deviation 20%10%12%​ Beta 0.590.611.29​  If you are a strict risk minimizer,you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.

Accepted Answer

A)  A; B.
B)  B; A.
C)  C; A.
D)  C; B.
E)  A; A. F) B) and E)
G) A) and E)

Question 18

Stock A has a beta of 0.8,Stock B has a beta of 1.0,and Stock C has a beta of 1.2.Portfolio P has 1/3 of its value invested in each stock.Each stock has a standard deviation of 25%,and their returns are independent of one another,i.e.,the correlation coefficients between each pair of stocks is zero.Assuming the market is in equilibrium,which of the following statements is CORRECT?

Accepted Answer

A)  Portfolio P's expected return is equal to the expected return on Stock A.
B)  Portfolio P's expected return is less than the expected return on Stock B.
C)  Portfolio P's expected return is equal to the expected return on Stock B.
D)  Portfolio P's expected return is greater than the expected return on Stock C.
E)  Portfolio P's expected return is greater than the expected return on Stock B.F) C) and D)
G) B) and E)

Question 19

National Advertising just paid a dividend of D0 = $0.75 per share,and that dividend is expected to grow at a constant rate of 6.50% per year in the future.The company's beta is 1.25,the required return on the market is 10.50%,and the risk-free rate is 4.50%.What is the company's current stock price?

Accepted Answer

A)  $14.52
B)  $14.89
C)  $15.26
D)  $15.64
E)  $16.03F) None of the above
G) A) and E)

Question 20

Because of differences in the expected returns on different investments,the standard deviation is not always an adequate measure of risk.However,the coefficient of variation adjusts for differences in expected returns and thus allows investors to make better comparisons of investments' stand-alone risk.

Accepted Answer

A) True 
 B)False

Exam 29: Basic Financial Tools: a Review

A stock is expected to pay a year-end dividend of $2.00,i.e.,D₁ = $2.00.The dividend is expected to decline at a rate of 5% a year forever (g = −5%) .If the company is in equilibrium and its expected and required rate of return is 15%,which of the following statements is CORRECT?

Correct Answer
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Correct Answer
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Stock A's beta is 1.7 and Stock B's beta is 0.7.Which of the following statements must be true,assuming the CAPM is correct?

Correct Answer
verified

Suppose a Google.com bond will pay $4,500 ten years from now.If the going interest rate on safe 10-year bonds is 4.25%,how much is the bond worth today?

Correct Answer
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Correct Answer
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Cyberhost Corporation's sales were $225 million last year.If sales grow at 6% per year,how large (in millions) will they be 5 years later?

Correct Answer
verified

A portfolio's risk is measured by the weighted average of the standard deviations of the securities in the portfolio.It is this aspect of portfolios that allows investors to combine stocks and thus reduce the riskiness of their portfolios.

Correct Answer
verified

Correct Answer
verified

Jenna holds a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each.The portfolio's beta is 1.12.Jenna plans to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80.What will the portfolio's new beta be?

Correct Answer
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Burke Tires just paid a dividend of D₀ = $1.32.Analysts expect the company's dividend to grow by 30% this year,by 10% in Year 2,and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?

Correct Answer
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Suppose you deposited $5,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?

Correct Answer
verified

An 8-year Treasury bond has a 10% coupon,and a 10-year Treasury bond has an 8% coupon.Both bonds have the same yield to maturity.If the yield to maturity of both bonds increases by the same amount,which of the following statements would be CORRECT?

Correct Answer
verified

Gretta's portfolio consists of $700,000 invested in a stock that has a beta of 1.2 and $300,000 invested in a stock that has a beta of 0.8.The risk-free rate is 6% and the market risk premium is 5%.Which of the following statements is CORRECT?

Correct Answer
verified

Stock X has the following data.Assuming the stock market is efficient and the stock is in equilibrium,which of the following statements is CORRECT? Expected dividend,D₁ $3) 00 Current Price,P₀ $50 Expected constant growth rate 6) 0%

Correct Answer
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Correct Answer
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Correct Answer
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Connolly Co.'s expected year-end dividend is D₁ = $1.60,its required return is r_s = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Connolly's expected stock price in 7 years,i.e.,what is ?

Correct Answer
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Correct Answer
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Correct Answer
verified

Noncallable bonds that mature in 10 years were recently issued by Sternglass Inc.They have a par value of $1,000 and an annual coupon of 5.5%.If the current market interest rate is 7.0%,at what price should the bonds sell?

Correct Answer
verified

Exam 29: Basic Financial Tools: a Review

A stock is expected to pay a year-end dividend of $2.00,i.e.,D1 = $2.00.The dividend is expected to decline at a rate of 5% a year forever (g = −5%) .If the company is in equilibrium and its expected and required rate of return is 15%,which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Stock A's beta is 1.7 and Stock B's beta is 0.7.Which of the following statements must be true,assuming the CAPM is correct?

Correct AnswerverifiedShow Answer

Suppose a Google.com bond will pay $4,500 ten years from now.If the going interest rate on safe 10-year bonds is 4.25%,how much is the bond worth today?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Cyberhost Corporation's sales were $225 million last year.If sales grow at 6% per year,how large (in millions) will they be 5 years later?

Correct AnswerverifiedShow Answer

A portfolio's risk is measured by the weighted average of the standard deviations of the securities in the portfolio.It is this aspect of portfolios that allows investors to combine stocks and thus reduce the riskiness of their portfolios.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Jenna holds a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each.The portfolio's beta is 1.12.Jenna plans to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80.What will the portfolio's new beta be?

Correct AnswerverifiedShow Answer

Burke Tires just paid a dividend of D0 = $1.32.Analysts expect the company's dividend to grow by 30% this year,by 10% in Year 2,and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?

Correct AnswerverifiedShow Answer

Suppose you deposited $5,000 in a bank account that pays 5.25% with daily compounding based on a 360-day year.How much would be in the account after 8 months,assuming each month has 30 days?

Correct AnswerverifiedShow Answer

An 8-year Treasury bond has a 10% coupon,and a 10-year Treasury bond has an 8% coupon.Both bonds have the same yield to maturity.If the yield to maturity of both bonds increases by the same amount,which of the following statements would be CORRECT?

Correct AnswerverifiedShow Answer

Gretta's portfolio consists of $700,000 invested in a stock that has a beta of 1.2 and $300,000 invested in a stock that has a beta of 0.8.The risk-free rate is 6% and the market risk premium is 5%.Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Stock X has the following data.Assuming the stock market is efficient and the stock is in equilibrium,which of the following statements is CORRECT? Expected dividend,D1 $3) 00 Current Price,P0 $50 Expected constant growth rate 6) 0%

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Connolly Co.'s expected year-end dividend is D1 = $1.60,its required return is rs = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Connolly's expected stock price in 7 years,i.e.,what is ?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Noncallable bonds that mature in 10 years were recently issued by Sternglass Inc.They have a par value of $1,000 and an annual coupon of 5.5%.If the current market interest rate is 7.0%,at what price should the bonds sell?

Correct AnswerverifiedShow Answer

A stock is expected to pay a year-end dividend of $2.00,i.e.,D₁ = $2.00.The dividend is expected to decline at a rate of 5% a year forever (g = −5%) .If the company is in equilibrium and its expected and required rate of return is 15%,which of the following statements is CORRECT?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Burke Tires just paid a dividend of D₀ = $1.32.Analysts expect the company's dividend to grow by 30% this year,by 10% in Year 2,and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Stock X has the following data.Assuming the stock market is efficient and the stock is in equilibrium,which of the following statements is CORRECT? Expected dividend,D₁ $3) 00 Current Price,P₀ $50 Expected constant growth rate 6) 0%

Correct Answer
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Correct Answer
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Correct Answer
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Connolly Co.'s expected year-end dividend is D₁ = $1.60,its required return is r_s = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Connolly's expected stock price in 7 years,i.e.,what is ?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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