1. At the end of the year, ABC will pay a $3.64 dividend per share After that the dividend is expected to increase at a constant rate of 5% p.a. If you require a 19%p.a. return on the stock, what is the value of ABC stock? (round to the nearest cent; dont use $ sign) Answer:

2.

Suppose an investor earned a yield of 12.5 percent p.a on a bond paying coupons twice a year. What is the effective annual yield (EAY) on this investment? (answer as a percentage rounded to two decimal places without % sign. eg 2.889% would be written 2.89)

Answer:

3. What is the value (to the nearest cent) of a 9 year 8.1% coupon bond with a face value of $1,000. The yield-to-maturity on the bond is 7.4% and the bond makes semi-annual coupon payments.

Question 7Answer

a.

$525.97

b.

$2364.54

c.

$1045.41

d.

$1044.84

4. ABC Limited will pay a $2.62 dividend next year (t=1) on its ordinary shares. The shares are currently selling at $57.05 per share. What is the market's required return on this investment if the dividend is expected to grow at 2% forever? (as a percentage to nearest two decimal places; don't use % sign)

Answer:

5. A company has just paid its annual dividend of $6.18 yesterday, and it is unlikely to change the amount paid out in future years. If the required rate of return is 13 percent p.a., what is the share worth today? (to the nearest cent; dont include $ sign)

Answer:Question 9

6. Jenny is looking to invest in some five-year bonds that pay semi-annual coupons at 6.25 percent per annum and are currently selling at $912.34. The face value is $1,000. The current market yield on such bonds is closest to: (USE EXCEL or FINANCIAL CALCULATOR.)

Question 10Select one:

A.

7.44%

B.

8.50%

C.

8.44%

D.

7.50%

7. The Australian Treasury has issued 9.0-year zero coupon bonds with a face value of $1,000. Assume that coupon payments are normally semiannual. What will be the current market price of these bonds if the yield for similar investments in the market is 5.3 percent p.a.? (Round to the nearest dollar; do not use $ sign or commas))

Answer:

8. After paying a dividend of $1.90 last year, a company does not expect to pay a dividend for the next year. After that it plans to pay a dividend of 4.95 in year 2 and then increase the dividend at a rate of 5 percent per annum in years 3 to 6. What is the expected dividend to be paid in year 4? (to nearest cent; don't include $ sign)

Answer

9.Applying the valuation procedure to ordinary shares is more difficult than applying it to bonds because:

Question 13Select one:

A.

the size and timing of the dividend cash flows are less certain.

B.

ordinary shares have no final maturity date.

C.

the rate of return on ordinary shares is not directly observable.

D.

All of the above are true.

10. Which ONE of the following statements is true?

Question 14Select one:

A.

The longer the maturity of a bond, the greater its interest rate risk.

B.

The longer the maturity of a bond, the less its interest rate risk.

C.

The higher the coupon rate, all else equal, the higher the interest rate risk.

D.

Zero coupon bonds have lower interest rate risk than coupon paying bonds, all else equal.