Answers only please

QUESTION 11

1. The Bank of Fast Loans uses the following rating scheme to classify the riskiness of its customers.

Risk ClassRisk Premium (%)

Prime .05

High grade 1.0

Upper medium grade 1.5

Lower medium grade 2.0

Speculative: Non-investment grade 4.0

Speculative: Highly 6.0

Substantial risks 9.0

Extremely speculative 12.0

The bank's pure rate of interest is 2% and the inflation premium is 3.5%.

1. The bank offers an annual rate of 11.90% to a customer. What is the risk class of this customer?
2. A.Lower medium grade
3. B.Speculative: Highly
4. C.High grade
5. D.Substantial risks
6. E.Upper medium grade
7. F.Speculative: Non-investment grade

5 points

QUESTION 12

1. Shady Rack Inc. has a bond outstanding with 8.75 percent coupon, paid semiannually, and 25 years to maturity. The market price of the bond is $1,052.58. Calculate the bond's yield to maturity (YTM). Now, if due to changes in market conditions, the market required YTM suddenly increases by 2% from your calculated YTM, what will be thepercent changein the market price of the bond?
2. A.-14.01%
3. B.-17.76%
4. C.-14.87%
5. D.-17.09%
6. E.-15.66%
7. F.-16.39%

5 points

QUESTION 13

1. Sales and profits of Growth Inc. are expected to grow at a rate of 25% per year for the next six years but the company will pay no dividends and reinvest all earnings. After that, the dividends will grow at a constant annual rate of 7%. At the end of year 7, the company plans to pay its first dividend of $3.50 per share. If the required return is 16%, how much is the stock worth today?
2. A.$22.80
3. B.$25.08
4. C.$15.96
5. D.$13.68
6. E.$20.52
7. F.$18.24

5 points

QUESTION 14

1. Bonds of Riverhawk Sport Authority (RSA) are selling in the market for $896.33.These bonds carry a 9.25 percent coupon paid semiannually, and have 20 years remaining to maturity. What is the bond's yield to maturity?
2. A.8.50%
3. B.9.00%
4. C.11.00%
5. D.10.00%
6. E.10.50%
7. F.9.50%

5 points

QUESTION 15

1. Riverhawk Sport Authority (RSA) will pay a dividend of $7 for each of the next 3 years, $8 for each of the years 4-6, $9 for each of the years 7-9, and a dividend of $10 for year 10. Thereafter, the company will pay no dividends.If you require 13 percent rate of return on investments in this risk class, how much is this stock worth to you?
2. A.$41.00
3. B.$37.80
4. C.$46.68
5. D.$39.35
6. E.$42.77
7. F.$44.66

5 points

QUESTION 16

1. The dividend yield of a stock is 9 percent. If the market price of the stock is $18 per share and its dividends have been growing at a constant rate of 6%, what was the most recent dividend paid by the company?
2. A.$0.85
3. B.$1.70
4. C.$1.19
5. D.$1.36
6. E.$1.53
7. F.$1.02

5 points

QUESTION 17

1. Games R' Us Inc. is expected to pay no dividends for the next six years. At the end of the sixth year it will pay a dividend of $25 and cease operations. How much would you pay for the stock if you require a 10% rate of return?
2. A.$22.58
3. B.$16.93
4. C.$19.76
5. D.$25.40
6. E.$14.11
7. F.$28.22

5 points

QUESTION 18

1. A stock has a beta of 1.4. The pure rate of interest is 2.25 percent and investors require a 3 percent inflation premium. What is the required rate of return on this stock if the market risk premium is 6 percent? (Hint: First, calculate the risk-free rate using the pure rate and the inflation premium. Next, use this risk-free rate to find the required return on the stock.)
2. A.15.7%
3. B.13.7%
4. C.17.4%
5. D.16.5%
6. E.12.9%
7. F.14.8%

5 points

QUESTION 19

1. The Declining Company's dividends are declining at an annual rate of 6 percent.The company just paid a dividend of $4 per share.You require a 16 percent rate of return.How much will you pay for this stock?
2. A.$17.09
3. B.$19.20
4. C.$21.78
5. D.$15.33
6. E.$12.57
7. F.$13.85

5 points

QUESTION 20

1. You purchased a stock for $20 per share. The most recent dividend was $2.50 and dividends are expected to grow at a rate of 8% indefinitely. What is your required rate of return on the stock?
2. A.21.50%
3. B.19.25%
4. C.17.64%
5. D.17.00%
6. E.20.27%
7. F.18.38%

5 points

QUESTION 21

1. The last dividend on Riverhawk Corporation's common stock was $3.50, and the expected constant growth rate is 10 percent. If you require a rate of return of 20 percent, what is the highest price you should be willing to pay for this stock?
2. A.$ 33.00
3. B.$ 60.50
4. C.$ 49.50
5. D.$ 55.00
6. E.$ 44.00
7. F.$ 38.50