Question 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:

move perfectly with one another.

are too small.

move perfectly opposite of one another.

are completely unrelated to one another.

are too large to offset.

Question 2

Below

is the stock split data for ABC Company:

Stock

splits

31-Dec-90

31-Dec-91

2 for 1

31-Dec-92

31-Dec-93

6 for 2

31-Dec-94

31-Dec-95

31-Dec-96

1.5 for 1

31-Dec-97

31-Dec-98

3 for 1

31-Dec-99

If you bought 2,655 shares in the beginning of 1990 and

during the period of 10 years never bought or sold additional shares, how many

shares would you have by the end of 1999?

Question 3

A

stock just paid a dividend of D0 = $1.2. The required

rate of return is rs = 19.9%, and the constant growth rate is g

= 3.8%. What is the current stock price?

Question 4

The ABC

Co. has $1,000 face value stock outstanding with a market price of

$1,003.7. The stock pays interest annually, matures in 18 years, and

has a yield to maturity of 10 percent. What is the annual coupon amount?

Question 5

A

bond that sells for less than face value is called as:

perpetuity

debenture

discount bond

premium bond

par value bond

Question 6

The

ABC Company has a cost of equity of 12.6 percent, a pre-tax cost of

debt of 5.3 percent, and a tax rate of 38 percent. What is the

firms weighted average cost of capital if the weight of debt is 67

percent?

Question 7

The

spot rate for the pound is 0.676 = $1 and the spot rate for the Canadian

dollar is C$1.2012 = $1. What is the /C$ cross rate?

Question 8

The

principal amount of a bond that is repaid at the end of term is called the

par value or the:

call premium

perpetuity value

face value

back-end value

coupon value

Question 9

ABC

companys 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 4.6%, cost of preferred stock is 6.8%,

and the tax rate is 27%.

Compute the WACC.

Question 10

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 1.83. What does the beta of

the second stock have to be if you want the portfolio to have a beta of

0.79?

Question 11

Suppose

the exchange rate is $1.594 per euro. If the euro appreciates by 24%

against the dollar, how many euros would a dollar buy tomorrow?

Question 12

The

beta of the risk-free asset is:

0

1

1.5

2

Question 13

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. What is the weight of

Stock C in your portfolio?

Stock Weights(%)

Beta

A

17

1.2

B 17 0.3

C ?

1.4

Rf ? ?

Question 14

Suppose

the nominal rate is 19% and the inflation rate is 3.8%. Solve for the real

rate.

Use the Fisher Equation to get your answer.

Question 15

Suppose

that today’s stock price is $36.5. If the required rate on equity is 18.7%

and the growth rate is 5.2%, compute the expected dividend (i.e.

compute D1)

Question 16

ABCs

last dividend paid was $4.66, its required return is 24%,

its growth rate is 5%. What is ABC’s expected stock price

in 7 years?

Question 17

If

the market value of debt is $46,889, market value of preferred stock is

$61,827, and market value of common equity is 28,327, what is the weight

of preferred stock?

Question 18

You

have observed the following returns on ABC’s stocks over the last six

years:

8.8%, 19.4%, 8.8%, -8.1%, 6.6%, -13.2%

What is the geometric average returns on the stock over

this six-year period.

Question 19

Standard

deviation measures:

total risk

systematic risk

economic risk

unsystematic risk

diversifiable risk

Question 20

Based

on the following data, calculate the returns for June 2014

Year

Month

Div

Price

2012

May

$0.50

$14.44

2012

June

$0.60

$18

2012

July

$0.70

$22.12

Question 21

One

year ago, you puchased 74 shares of ABC stock for $21.6 per share. During

the year, you received a dividend of $2.6 per share. Today, you sold

all your shares for $28.7. What are the percentage return on your

investment?

Question 22

The

common stock of ABC Industries is valued at $34.8 a share. The company

increases their dividend by 4.4 percent annually and expects their

next dividend to be $2.79. What is the required rate of return on this

stock?

Question 23

ABC Company’s

last dividend was $1.7. The dividend growth rate is expected to be

constant at 9% for 3 years, after which dividends are expected to

grow at a rate of 4% forever. The firm’s required return (rs)

is 17%. What is its current stock price (i.e. solve for Po)?

Question 24

The

risk-free rate is 4.4%, the market risk premium is 7.5%, and the stocks

beta is 0.66. What is the cost of common stock?

Question 25

ABC,

Inc. has 6 percent bonds outstanding that mature in 13 years. The bonds

pay interest semiannually and have a face value of $1,000. Currently, the

bonds are selling for $993 each. What is the firm’s after-tax cost of debt

if the tax rate is 21%?

Question 26

An

investor puts $40,000 in a risk-free asset and $20,000 in the market

portfolio. Compute the beta of his portfolio.

0.50

0.67

1

0.33

2

Question 27

If

the coupon rate is less than the yield to maturity, the bond will:

sell at a discount

sell at a premium

sell at par

Question 28

You

are planning a trip to London and plan on spending 7,806 pounds. How many

dollars will this trip cost you in dollars if one U.S. dollar is worth

0.6167 pounds.