1. A 10-year, $1,000 face value semi-annual bond with a 12% annual coupon rate is currently trading at $1,124.62. what is the bond's effective annual yield?

a) 8%

b) 8.16%

c) 10.25%

d) 8.16%

2. Only incremental operating costs should be considered in the cashflows for the NPV calculation for a project.

a) True

b) False

3. In the Gordon dividend model for share-pricing, the share price is expected to grow at a rate not equal to the expected per-share dividend growth rate.

a) True

b) False

4. A firm retains 80% of its annual earnings for reinvestment in new projects and has a 15% annual return on its equity capital (i.e. ROE = 15%). What is the firm's annual per-share growth rate?

a) 12%

b) 15%

c) 18%

d) 20%

5. Your company has just paid a $5 per-share dividend today which is expected to steadily grow at 4% per year in the future. The current stock price is $80 per share. What is the cost of outstanding common share equity?

a) 10.50%

b) 11.60%

c) 9.75%

d) 12.25%

e) None of the above

5. A firm has paid $4 per-share dividend today which is expected to steadily decline 10% per year in the future. At what price should the firm's common shares be trading if the required rate of return on the firm's common shares is 20%.

a) $12

b) $18

c) $36

d) $40