Finance Questions. 1. Video Fair, Inc., an all-equity firm, is considering the formation of a new division which will increase the assets of the firm by 50% (for example, from $1,000,000 to $1,500,000). Video currently has a required rate of return of 18%, U.S. Treasury bonds yield 5%, and the market risk premium is 10%. If Video wants to reduce its required rate of return to 16%, what is the maximum beta coefficient the new division could have? a. 0.7 b. 0.9 c. 1.1 d. 1.3 e. 1.4 2. A twenty-five year, 12 percent coupon rate, fixed coupon bond was just sold for $980 dollars. The bond makes coupon payments on an annual basis and has a face value of $1,000. What is the expected yield to maturity for this bond ? a. 11.43 percent b. 11.99 percent c. 12.26 percent d. 12.53 percent e. There is no solution to this problem. The calculator will display Error 5. 3. Pern Corp. just paid an annual dividend of $2.00. Dividends are expected to grow at a constant rate forever. The price of the stock is currently $28.40. The required rate of return for this stock is 14 percent. What is the expected growth rate of Pern's dividend? a. 6.50% b. 6.96% c. 7.48% d. 8.37% e. 19.66% 4. Two 6 year, 8% nominal rate savings certificates (initial investment =$1,000) are available with the exception that interest is compounded annually for one certificate and semiannually for the other certificate. What is the difference between the ending value of the savings certificate compounded semiannually and the one compounded annually? (Hint: A savings certificate pays out all the interest accrued over time at maturity, together with the initial investment) a. The semiannual is worth $14.16 more than the annual b. The semiannual is worth $14.16 less than the annual c. The semiannual is worth $21.54 more than the annual d. The semiannual is worth $21.54 less than the annual e. The semiannual is worth the same as the annual 5. You purchased a bond (with $1,000 principal value) five years ago at a price of $990.50. At the time of purchase, this bond had 20 years to maturity and a coupon rate of 8 percent with coupon payments made twice every year. Today, the nominal annual yield to maturity on similar bonds is one percent lower than when you purchased the bond five years ago. What is the market price of the bond today? a. $1,113.20 b. $1,082.57 c. $1,185.37 d. $1,110.91 e. $1,062.91