1. A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity. Which of the following statements is CORRECT?

a. The bond sells at a price below par.

b. The bond has a current yield greater than 8%.

c. The bond sells at a discount.

d. The bond's required rate of return is less than 7.5%.

e. If the yield to maturity remains constant, the price of the bond will decline over time

2. Grossnickle Corporation issued 20-year, noncallable, 7.5% annual coupon bonds (i.e., one coupon per year) at their par value of $1,000 one year ago. Today, the required return on these bonds is 5.5%. What is the current price of the bonds, given that they now have 19 years to maturity? a. $1,113.48

3. Keenan Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,120. What is the bond's nominal yield to call?

4. Huang Company's last dividend was $1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its current stock price?

5. Dyl Inc.'s bonds currently sell for $1,040 and have a par value of $1,000. The bond pays a $65 annual coupon (i.e., one coupon per year) and has a 15-year maturity, but the bond can be called in 5 years at $1,100. What is the bond's yield to maturity (YTM)?

6. Which of the following statements is CORRECT?

a. A zero coupon bond's current yield is equal to its yield to maturity.

b. If a bond's yield to maturity exceeds its coupon rate, the bond will sell at par.

c. All else equal, if a bond's yield to maturity increases, its price will fall.

d. If a bond's yield to maturity exceeds its coupon rate, the bond will sell at a premium over par.

e. All else equal, if a bond's yield to maturity increases, its current yield will fall

7. Stock A has a beta of 0.7, whereas Stock B has a beta of 1.3. Portfolio P has 50% invested in both A and B. Which of the following would occur if the market risk premium increased by 1% but the risk-free rate remained constant?

a. The required return on Portfolio P would increase by 1%.

b. The required return on both stocks would increase by 1%.

c. The required return on Portfolio P would remain unchanged.

d. The required return on Stock A would increase by more than 1%, while the return on Stock B would increase by less than 1%.

e. The required return for Stock A would fall, but the required return for Stock B would increase.

8. Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share. If the required return on this preferred stock is 6.5%, at what price should the stock sell?

9. Schnusenberg Corporation 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?

10. Suppose Boyson Corporation's projected free cash flow for next year is FCF1 = $150,000, and FCF is expected to grow at a constant rate of

6.5%. If the company's weighted average cost of capital is 11.5%, what is the firm's total corporate value?

11. Dothan Inc.'s stock has a 25% chance of producing a 30% return, a 50% chance of producing a 12% return, and a 25% chance of producing a -18% return. What is the firm's expected rate of return?

12. Kale Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11.0% and FCF is expected to grow at a rate of 5.0% after Year 2, what is the firm's total corporate value, in millions?