QUESTION 1A 25-year $1 000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $900. If the yield to maturity remains at its current rate what will the price be 5 years from now?$1 069.75$698.06$1 096.95$906.57$688.995 points QUESTION 2The Isberg Company just paid a dividend of $0.75 per share and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company’s beta is 1.25 the market risk premium is 5.00% and the risk-free rate is 4.00%. What is the company’s current stock price P ?$15.49$16.66$14.66$19.32$19.495 points QUESTION 3Mulherin’s stock has a beta of 1.23 its required return is 8.75% and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)5.94%8.63%7.92%7.21%6.26%5 points QUESTION 4Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 8.90%. Also corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?4.12%3.35%3.12%3.08%2.95%5 points QUESTION 5Consider the following information and then calculate the required rate of return for the Global Investment Fund which holds 4 stocks. The market’s required rate of return is 16.25% the risk-free rate is 7.00% and the Fund’s assets are as follows:StockInvestmentBetaA$200 0001.50B$300 000-0.50C$500 0001.25D$1 000 0000.7515.88 .18 .68 .05 .44%5 points QUESTION 6Mikkelson Corporation’s stock had a required return of 11.75% last year when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm’s beta remain unchanged. What is the company’s new required rate of return? (Hint: First calculate the beta then find the required return.)14.38 .74 .11 .49 .87%5 points QUESTION 7Consider the following information and then calculate the required rate of return for the Global Investment Fund which holds 4 stocks. The market’s required rate of return is 11.50% the risk-free rate is 7.00% and the Fund’s assets are as follows:StockInvestmentBetaA$200 0001.50B$300 000-0.50C$500 0001.25D$1 000 0000.7510.22 .20 .64%7.93 .43%5 points QUESTION 8The Isberg Company just paid a dividend of $0.75 per share and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company’s beta is 1.35 the market risk premium is 5.00% and the risk-free rate is 4.00%. What is the company’s current stock price P ?$15.83$14.02$11.61$18.84$15.075 points QUESTION 9Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 8.90%. Also corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?4.12%3.35%3.12%3.08%2.95%5 points QUESTION 10Kern Corporation’s 5-year bonds yield 6.80% and 5-year T-bonds yield 3.60%. The real risk-free rate is r* = 2.5% the default risk premium for Kern’s bonds is DRP = 1.90% versus zero for T-bonds the liquidity premium on Kern’s bonds is LP = 1.3% and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) 0.1% where t = number of years to maturity. What is the inflation premium (IP) on all 5-year bonds?0.70%0.60%0.81%0.86%0.85%5 points QUESTION 11Mulherin’s stock has a beta of 1.23 its required return is 11.75% and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)10.36 .62 .88 .15 .43%5 points QUESTION 12Kelly Inc’s 5-year bonds yield 7.50% and 5-year T-bonds yield 4.50%. The real risk-free rate is r* = 2.5% the default risk premium for Kelly’s bonds is DRP = 0.40% the liquidity premium on Kelly’s bonds is LP = 2.6% versus zero on T-bonds and the inflation premium (IP) is 1.5%. What is the maturity risk premium (MRP) on all 5-year bonds?0.38%0.50%0.40%0.59%0.56%5 points QUESTION 13Crockett Corporation’s 5-year bonds yield 6.85% and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.80% the default risk premium for Crockett’s bonds is DRP = 0.85% versus zero for T-bonds the liquidity premium on Crockett’s bonds is LP = 1.25% and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) ? 0.1% where t = number of years to maturity. What is the inflation premium (IP) on 5-year bonds?1.40%1.55%1.71%1.88%2.06%5 points QUESTION 145-year Treasury bonds yield 5.5%. The inflation premium (IP) is 1.9% and the maturity risk premium (MRP) on 5-year bonds is 0.4%. What is the real risk-free rate r*?2.59%2.88%3.20%3.52%3.87%5 points QUESTION 15Company A has a beta of 0.70 while Company B’s beta is 0.80. 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.)0.57%0.77%0.68%0.67%0.80%5 points QUESTION 16Schnusenberg Corporation just paid a dividend of D = $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 0.85 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?$22.16$26.54$25.77$29.37$27.835 points QUESTION 17The Francis Company is expected to pay a dividend of D = $1.25 per share at the end of the year and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company’s beta is 1.20 the market risk premium is 5.50% and the risk-free rate is 4.00%. What is the company’s current stock price?$22.83$27.99$27.17$22.01$24.185 points QUESTION 18Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00% and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 14.00%. Using the SML what is the firm’s required rate of return?13.08 .34 .95 .88 .40%5 points QUESTION 19Suppose you hold a portfolio consisting of a $10 000 investment in each of 8 different common stocks. The portfolio’s beta is 1.25. Now suppose you decided to sell one of your stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.65. What would the portfolio’s new beta be?1.481.331.531.321.035 points QUESTION 20Kay Corporation’s 5-year bonds yield 6.20% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5% the inflation premium for 5-year bonds is IP = 1.50% the default risk premium for Kay’s bonds is DRP = 1.30% versus zero for T-bonds and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) 0.1% where t = number of years to maturity. What is the liquidity premium (LP) on Kay’s bonds?0.52%0.61%0.38%0.50%0.56%
