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11. Ezzell Enterprises non-callable bonds currently sell for $1,165. They have a 15-year maturity, an annual coupon of $95, and a par value of $1,000. What is their yield to maturity?

• 6.20%
• 6.53%
• 6.87%
• 7.62%

Question 12.12. D. J. Masson Inc. recently issued non-callable bonds that mature in 10 years. They have a par value of $1,000 and an annual coupon of 5.5%. If the current market interest rate is 7.0%, at what price should the bonds sell?

• $829.21
• $850.47
• $872.28
• $894.65

Question 13.13. A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT?

• If the yield to maturity remains constant, the bonds price one year from now will be higher than its current price.
• The bond is selling below its par value.
• The bond is selling at a discount.
• If the yield to maturity remains constant, the bonds price one year from now will be lower than its current price.

Question 14.14. Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse.

True

False

Question 15.15. Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?

• The companys bonds are downgraded.
• Market interest rates rise sharply.
• Market interest rates decline sharply.
• The company's financial situation deteriorates significantly.

Question 16.16. You hold a diversified portfolio consisting of a $5,000 investment in each of 20 different common stocks. The portfolio beta is equal to 1.12. You have decided to sell a lead mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a steel company stock (b = 2.00). What is the new beta of the portfolio?

• 1.1139
• 1.1700
• 1.2311
• 1.2927

Question 17.17. Consider the following information and then calculate the required rate of return for the Scientific Investment Fund, which holds 4 stocks. The markets required rate of return is 15.0%, the risk-free rate is 7.0%, and the Fund's assets are as follows: 30

Stock Investment Beta

A $ 200,000 1.50

B 300,000 -0.50

C 500,000 1.25

D 1,000,000 0.75

• 10.67%
• 11.23%
• 11.82%
• 13.10%

Question 18.18. A stock with a beta equal to -1.0 has zero systematic (or market) risk. (Points : 4)

True

False

Question 19.19. Which is the best measure of risk for an asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?

• Variance; correlation coefficient.
• Standard deviation; correlation coefficient.
• Beta; variance.
• Coefficient of variation; beta.

Question 20.20. In a portfolio of three different stocks, which of the following could NOT be true?

• The riskiness of the portfolio is less than the riskiness of each of the stocks if they were held in isolation.
• The riskiness of the portfolio is greater than the riskiness of one or two of the stocks.
• The beta of the portfolio is less than the betas of each of the individual stocks.
• The beta of the portfolio is greater than the beta of one or two of the individual stocks betas.

Question 21.21. A companys perpetual preferred stock currently sells for $92.50 per share, and it pays an $8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the issue price. What is the firm's cost of preferred stock?

• 7.81%
• 8.22%
• 8.65%
• 9.10%

Question 22.22. Simms Corp. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the WACC or negative, in both cases it will be rejected.

Year 0 1 2 3

Cash flows -$1,000 $425 $425 $425 (Points : 4)

• 12.55%
• 13.21%
• 13.87%
• 14.56%