4. What is the rate of return for an investor who buys a 3-year bond with a 7% coupon at a YTM of 5% and sells the bond 1 year later at a YTM of 6%?

A. 3.21%

B. 4.02%

C. 5.00%

D. 6.00%

E. 6.17%

18. A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 8.2%. What is the stock's current price?

a. $27.39

b. $29.02

c. $32.61

d. $38.80

e. $27.07

19. A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 14.1%, and the constant

growth rate is g = 4.0%. What is the current stock price?

a. $19.15

b. $12.97

c. $12.82

d. $18.84

e. $15.45

20. A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 14.2%, what is the stock price?

a. $12.70

b. $11.98

c. $14.61

d. $10.66

e. $12.10

21. If D1 = $1.25, g (which is constant) = 4.7%, and P0 = $22.00, what is the stock's expected dividend yield

for the coming year?

a. 5.40%

b. 6.25%

c. 5.68%

d. 6.08%

e. 4.26%

22. If D0 = $2.25, g (which is constant) = 3.5%, and P0 = $54, what is the stock's expected dividend yield for the coming year?

a. 4.23%

b. 3.45%

c. 3.75%

d. 4.31%

e. 5.05%

23. If D1 = $1.50, g (which is constant) = 2.1%, and P0 = $56, what is the stock's expected capital gains yield

or growth for the coming year?

a. 2.50%

b. 2.39%

c. 2.08%

d. 2.10%

e. 1.66%

24. If D1 = $1.25, g (which is constant) = 5.5%, and P0 = $40, what is the stock's expected total return for the coming year?

a. 8.80%

b. 10.09%

c. 6.47%

d. 10.35%

e. 8.63%

25. Mooradian Corporation's free cash flow during the just-ended year (t = 0) was $250 million, and its FCF is expected to grow at a constant rate of 5.0% in the future. If the weighted average cost of capital is 12.5%, what is the firm's total corporate value, in millions?

a. $3,500

b. $2,695

c. $3,255

d. $4,130

e. $3,850

26. Goode Inc.'s stock has a required rate of return of 11.50%, and it sells for $29.00 per share. Goode's

dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D0?

a. $0.95

b. $1.38

c. $1.37

d. $1.22

e. $1.06

27. Francis Inc.'s stock has a required rate of return of 10.25%, and it sells for $87.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D1?

a. $3.72

b. $2.79

c. $4.65

d. $3.16

e. $3.90

28. Sorenson Corp.'s expected year-end dividend is D1 = $4.00, its required return is rS = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Sorenson's expected stock price in 7 years, i.e., what is ?

a. $90.05

b. $85.36

c. $87.24

d. $76.92

e. $93.81

29. If a stock's market price exceeds its intrinsic value as seen by the marginal investor, then the investor will sell the stock until its price has fallen down to the level of the investor's estimate of the intrinsic value.

a. True

b. False

30. Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $27.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?

a. 6.01%

b. 5.54%

c. 6.07%

d. 6.91%

e. 5.95%

31. You have funds that you want to invest in bonds, and you just noticed in the financial pages of the local newspaper that you can buy a $1,000 par value bond for $800. The coupon rate is 10% (with annual payments), and there are 10 years before the bond will mature and pay off its $1,000 par value. You should buy the bond if your required return on bonds with this risk is 12%.

a. True

b. False

32. If the required rate of return on a bond (rd) is greater than its coupon interest rate and will remain above that rate, then the market value of the bond will always be below its par value until the bond matures, at which time its market value will equal its par value. (Accrued interest between interest payment dates should not be considered when answering this question.)

a. True

b. False

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

a. True

b. False

BONUS TVM QUESTION: Approximately how long must one wait (to the nearest year) for an initial

investment of $1,000 to triple in value if the investment earns 8% compounded annually?

A. 9 years

B. 14 years

C. 22 years

D. 25 years

BONUS TVM QUESTION: Given a set future value, which of the following will contribute to a lower present

value?

A. Higher discount rate

B. Fewer time periods

C. Less frequent discounting

D. Lower discount factor