During the past 15 years, Saturn's common stock dividends have grown from $0.28 to $1.86. If the past growth of dividends is expected to continue at the same rate in the future, what is the current value of Saturn's common stock to an investor who requires an 18% rate of return? a. $46.43 b. $40.92 c. $15.68 d. $11.72 3. P&G Corporations bond carries a 9.75 percent coupon, pays interest annually, and has 13 years to maturity. What is the bond's yield to maturity to the investor if the investor purchases the bond at the price $862.50? a. 9.12% b. 11.88% c. 6.01% d. 12.29% 4. Twenty years ago, JCrew Inc. began manufacturing and selling coin-operated arcade games. Dividends are currently $4.50 per share, having grown at a 12 percent compound annual rate over the past 12 years. That growth rate is expected to be maintained for the next 2 years, after which dividends are expected to grow at half that rate for 2 years. Beyond that time, JCrew's dividends are expected to grow at 5 percent per year. What is the current value of a share of JCrew common stock if your required rate of return is 20%? a. $45.71 b. $60.52 c. $55.87 d. $36.05 5. What is the current share value of L-S Mining Company's stock to an investor who has a required rate of return of 28 percent? The current dividend is $2.75(D0) and the dividends are expected to grow 5 percent per year for 5 years. At the end of 5 years, the investor expects to sell the security for $50. a. $22.44 b. $31.28 c. $65.07 d. $25.28 6. The World Tobacco Company is expected to pay a dividend of $5 per share at the end of year 1(D1) and the dividends are expected to grow at a constant rate of 8% forever. If the current price of the stock is $25 per share, calculate the expected return or the cost of equity capital for the firm. a. 20% b. 28% c. 25% d. 32% 7. Tyson Inc. is planning to offer a $1,000 par value 18-year maturity bond with a coupon interest rate that changes every 6 years. The coupon rate for the first six years is 7.75 percent, 9.75 percent for the next 6years, and 12.75 percent for the final 6 years. If you require an 18 percent rate of return on a bond of this quality and maturity, what is the maximum price you would pay for the bond? (Assume interest is paid annually at the end of each year.) a. $557.34 b. $754.63 c. $926.78 d. $509.41 8. What is the value of a Saturn Companys bond that has a 11.25 percent coupon, pays interest semiannually, and has 10 years to maturity, if the required rate of return is 16 percent? a. $732.63 b. $770.42 c. $766.82 d. $552.27 9. What is the present value of the following mixed cash flow stream if interest is 10% with annual compounding?

YEAR CASH FLOW 0 -$33,500 1 $2,000 2 $2,000 3 $5,000 4 $5,000 5 $5,000 6 $22,000 7 $7,500 8 $12,880

a. $18,987.21 b. $2,523.05 c. $1,353.52 d. $3,821.01 10. North Park International LLC has issued preferred stock ($65 par value) that pays an annual dividend of $5.80. The preferred stock matures in 20 years. At that time, holders of the stock will receive, at their option, either $65 or one share of common stock with a value up to $90. If the common stock is trading at a price above $90, the preferred stockholders will receive a fractional share of common stock worth $90. The current common stock pays a $1.5 per share dividend. This dividend is expected to grow at a 3 percent rate per year for the next 20 years. If the market requires a 24% rate of return on a stock of this risk and maturity, what is the maximum value for which the share can be expected to trade? a. $25.06 b. $136.12 c. $23.84 d. $24.72