1. Carter's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $72.50, what is its nominal (not effective) annual rate of return?

   4.74%

   5.19%

   4.14%

   6.68%

   5.52%

5 points

QUESTION 2

1. A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $900. If the yield to maturity remains at its current rate, what will the price be 5 years from now?

   $1,069.75

   $698.06

   $1,096.95

   $906.57

   $688.99

5 points

QUESTION 3

1. Mulherin's stock has a beta of 1.23, its required return is 8.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)

   5.94%

   8.63%

   7.92%

   7.21%

   6.26%

5 points

QUESTION 4

1. Carter's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $57.50, what is its nominal (not effective) annual rate of return?

   7.86%

   8.14%

   7.72%

   7.37%

   6.96%

5 points

QUESTION 5

1. Suppose you hold a portfolio consisting of a $10,000 investment in each of 8 different common stocks. The portfolio's beta is 1.25. Now suppose you decided to sell one of your stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 0.75. What would the portfolio's new beta be?

   1.22

   1.13

   1.49

   1.41

   1.08

5 points

QUESTION 6

1. In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows:

   Long-term debt (bonds, at par)	$23,500,000
   Preferred stock	2,000,000
   Common stock ($10 par)	10,000,000
   Retained earnings	4,000,000
   Total debt and equity	$39,500,000

   The bonds have a 7.4% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt?

   $23,056,235

   $21,580,636

   $16,047,140

   $18,444,988

   $16,969,389

5 points

QUESTION 7

1. Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 6.90%, based on semiannual compounding. What is the bond's price?

   $1,032.39

   $1,125.30

   $991.09

   $867.21

   $1,218.22

5 points

QUESTION 8

1. Mikkelson Corporation's stock had a required return of 11.75% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rate of return? (Hint: First calculate the beta, then find the required return.)

   14.38%

   14.74%

   15.11%

   15.49%

   15.87%

5 points

QUESTION 9

1. Company A has a beta of 0.70, while Company B's beta is 0.80. The required return on the stock market is 11.00%, and the risk-free rate is 4.25%. What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium, then find the required returns on the stocks.)

   0.57%

   0.77%

   0.68%

   0.67%

   0.80%

5 points

QUESTION 10

1. Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 14.00%. Using the SML, what is the firm's required rate of return?

   13.08%

   13.34%

   12.95%

   10.88%

   11.40%

5 points

QUESTION 11

1. Keys Corporation's 5-year bonds yield 7.70% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the liquidity premium for Keys' bonds is LP = 0.5% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) 0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Keys' bonds?

   3.22%

   2.80%

   3.28%

   2.69%

   3.47%

5 points

QUESTION 12

1. Keys Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity premium for Keys' bonds is LP = 0.75% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) ? 0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Keys' bonds?

   0.99%

   1.10%

   1.21%

   1.33%

   1.46%

5 points

QUESTION 13

1. 5-year Treasury bonds yield 5.5%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year bonds is 0.4%. What is the real risk-free rate, r*?

   2.59%

   2.88%

   3.20%

   3.52%

   3.87%

5 points

QUESTION 14

1. Company A has a beta of 0.70, while Company B's beta is 1.30. The required return on the stock market is 11.00%, and the risk-free rate is 4.25%. What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium, then find the required returns on the stocks.)

   4.74%

   4.05%

   3.77%

   4.94%

   4.70%

5 points

QUESTION 15

1. Kay Corporation's 5-year bonds yield 6.20% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the default risk premium for Kay's bonds is DRP = 1.30% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Kay's bonds?

   0.52%

   0.61%

   0.38%

   0.50%

   0.56%

5 points

QUESTION 16

1. Niendorf Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) ? 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Niendorf's bonds?

   0.49%

   0.55%

   0.61%

   0.68%

   0.75%

5 points

QUESTION 17

1. Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 8.90%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?

   4.12%

   3.35%

   3.12%

   3.08%

   2.95%

5 points

QUESTION 18

1. Nachman Industries just paid a dividend of D0 = $1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock's current market value?

   $41.59

   $42.65

   $43.75

   $44.87

   $45.99

5 points

QUESTION 19

1. Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 13.25%. Using the SML, what is the firm's required rate of return?

   10.20%

   13.03%

   14.50%

   12.29%

   11.18%

5 points

QUESTION 20

1. You hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each. The portfolio's beta is 1.12. You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80. What will the portfolio's new beta be?

   1.286

   1.255

   1.224

   1.194

   1.165