1) Healthy Foods just paid its annual dividend of $1.62 a share. The firm recently announced that all future dividends will be increased by 2.1 percent annually. What is one share of this stock worth to you if you require a rate of return of 15.7 percent? A) $13.07 B) $12.95 C) $10.54 D) $11.91 E) $12.16 2) A bond's annual interest divided by its face value is referred to as the A) coupon rate. B) yield-to-maturity C) market rate. D) call rate. E) current yield 3) What is the principal amount of a bond that is repaid at the end of the loan term called? A) Coupon B) Accrued price C) Dirty price D) Market price E) Face value 4) A semiannual 5.4 percent coupon bond currently sells for par value. What is the maturity on this bond? A) The bond must be a perpetual security. B) The bond must mature in one year. C) The bond must be maturing today. D) The bond could have any maturity date. E) The bond must mature in 10 years. 5) Systematic risk is defined as: 5 A A) any risk that affects a large number of assets. B) diversifiable risk. C) asset-specific risk. D) the risk unique to a firm's management. E) the total risk of an individual security. 6) Crocodile Swimwear pays a constant annual dividend of $1.88 per share. How much are you willing to pay for one share if you require a rate of return of 11.1 percent? C A) $14.72 B) $16.94 C) $13.90 D) $1.69 E) $8.47 7) Kate could not attend the last shareholders' meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which term applies to this granting of authority? 7 B A) Cumulative B) Proxy C) Straight D) In absentia E) Consent-form Which one of the following statements is correct? SE A The payback period considers the timing and amount of all of a project's cash flows B) The payback period ignores the time value of money C) The payback rule is based in favor of long-term projects D) A longer payback period is preferred over a shorter payback period. E) The payback rule states that you should accept a project if the payback period is less than one year Ve Version 2 2 9) What is the price of a $1,000 face value bond if the quoted price is 102.1? 9 A A) $1,021.00 B) $1,020.10 C) $1.020.01 D) $102.10 E) $1.002.10 10) A bond has a par value of $1,000, a current yield of 6.25 percent, and semiannual interest payments. The bond quote is 100.8. What is the amount of each coupon payment? yos B A) $31.50 B) $37.50 C) $31.25 D) $63.00 E) S62.50 Standard deviation measures risk while beta measures risk. C A) asset-specific, market B) total; systematic C) systematic, unsystematic D) total: unsystematic E) unsystematic systematic 12) Which term best refers to the practice of investing in a variety of diverse assets as a means of reducing risk? 12) A A) Diversification B) Capital asset pricing model C) Systematic D) Security market line El Unsystematic Version 2 14) What is the net present value of a project with the following cash flows if the discount rate is 13 percent? Year 0 1 Cash Flow -$ 75,000 32,500 45,000 3 50,000 10 B A) $17.126.22 B) $20,933.78 C) $23,655.17 D) -$16,456.23 E) -$17,126.22 15) Lamey Gardens has a dividend growth rate of 5.6 percent, a market price of $13.16 a share, and a required return of 14 percent. What is the amount of the last dividend this company paid? WE A) S1.15 B) $1.30 C) $1.05 D) $1.55 E) $1.60 16) Whitts BBQ would like to issue some 10-year, semiannual coupon bonds at par. Comparable bonds have a current yield of 9.16 percent, an effective annual yield of 9.68 percent. and a yield to maturity of 9.50 percent. What coupon rate should Whitts BBQ set on its bonds? 165 A A) 9.16 percent B) 9.00 percent C) 10.00 percent D) 9.50 percent E) 9.68 percent 17) Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. Which one of the following terms best describes the relationship between Project A and Project B? inc A) Mutually exclusive B) Crosswise C) Conventional D) Multiple choice E) Dual return 18) The Black Horse is currently considering a project that will produce cash inflows of $11.000 a year for three years followed by $6,500 in Year 4. The cost of the project is $38,000. What is the profitability index if the discount rate is 9 percent? 185 D A) .93 B) 1.09 C) 1.04 D) 1.12 E) 85 19) Computing the present value of a growing perpetuity is most similar to computing the current value of which one of the following? B 19) A) Stock with growing dividends for a limited period of time B) Stock with a constant-growth dividend C) Stock with irregular dividends D) Stock with a constant dividend E) Non-dividend-paying stock 20) A corporate bond pays 6.25 percent interest. How much would a municipal bond have to pay to be equivalent to this on an after tax basis if you are in the 28 marginal percent tax bracket? 70 E A) 4.50 percent B) 7.82 percent C) 8.38 percent D) 5.79 percent E) 7.26 percent 23) and only makes one payment to bondholders? Which one of the following terms applies to a bond that initially sells at a deep discount 25 A) Callable B) Tax-free C) Zero coupon D) Income E) Convertible 2N) The stock of Wiley United has a beta of 98. The market risk premium is 7.6 percent and the risk-free rate is 3.9 percent. What is the expected return on this stock? 28 D A) 12.01 percent B) 11.52 percem C) 11.35 percent D) 7.53 percent E) 7.69 percent 29) Far West Trading expects to pay an annual dividend of $1.75 per share next year. What is the anticipated dividend for Year 3 i the firm increases its dividend by 3 percent annually? FB 293 A) $1.75 (1.03) B) S1.75 (1.03) C) $1.75 (1.03) D) $1.75 (1.03) E) $1.75 (1.03) x 30) Woodcrafters requires an average accounting return (AAR) of at least 17.5 percent on all fixed asset purchases. Currently, it is considering some new equipment costing $169,700. This equipment will have a four-year life over which time it will be depreciated on a straight-line basis to a zero book value. The annual net income from this equipment is estimated at $7,100, $13.300. $18.600, and $19.200 for the four years. Should this purchase occur based on the accounting rate of return? Why or why not? 301 A) Yes, because the AAR is less than 17.5 percent B) Yes; because the AAR is greater than 17.5 percent C) Yes, because the AAR is equal to 17.5 percent D) No; because the AAR is greater than 17.5 percent E) No; because the AAR is less than 17.5 percent When valuing a stock using the constant-growth model, D, represents the: 3B A) the next expected annual dividend. B) expected difference in the stock price over the next year. C) discount rate, D) expected stock price in one year. E) last annual dividend paid. 34) A bond has a $1,000 face value, a market price of $1,023.32, and pays interest payments of $54.00 every year. What is the coupon rate? 34 E A) 4.50 percent B) 5.27 percent C) 6.76 percent D) 5.40 percent E) 5.35 percent 36) Stock A has a beta of 1.1 and an expected return of 13.1 percent. Stock B has a beta of.86 and an The risk-free rate is 3.7 percent and the expected return on the market is 12.3 percent. expected return of 11.4 percent. Are these stocks correctly priced? Why or why not? A No, Stock A is underpriced but Stock B is correctly priced. B No, Stock A is overpriced but Stock B is correctly priced. No, Stock A is underpriced and Stock B is overpriced. D No. Stock A is overpriced and Stock B is underpriced. E) No, both stocks are overpriced. A project has the following cash flows. What is the payback period? Year O Cash Flow 20,000 8,000 1 2 11.000 12,000 15,000 36 B A) 2.24 years B) 2.95 years C) 2.08 years D) 2.50 years E) 2.25 years 39) Which type of stock pays a fixed dividend, receives first priority in dividend payment, and maintains the right to a dividend payment, even if that payment is deferred? A) Noncumulative preferred B) Cumulative preferred C) Senior common D) Cumulative common E) Noncumulative common 40) Portfolio diversification eliminates: C. A) unsystematic risk. B) market risk. C) all investment risk. D) the portfolio risk premium. E) the reward for bearing risk