One-year Treasury bills yield 6%, while 2-year Treasury notes yield 6.7%. If the expectations theory holds, what is the markets forecast of what 1-year T-bills will be yielding one year from now?

A. 8.00%

B. 6.70%

C. 7.80%

D. 7.40%

1 points

QUESTION 2

One-year Treasury securities yield 5%, 2-year Treasury securities yield 5.5%, and 3-year Treasury securities yield 6%. Assume that the expectations theory holds. What does the market expect will be the yield on 1-year Treasury securities two years from now?

A. 7.01%

B. 6.01%

C. 7.51%

D. 6.51%

1 points

QUESTION 3

Keys Corporation's 5-year bonds yield 6.50%. The default risk premium for Keys' bonds is DRP = 0.40%, the liquidity premium on Keys' bonds is LP = 1.70% versus zero on T-bonds, inflation premium (IP) is 1.5%, and the maturity risk premium (MRP) on 5-year bonds is 0.40%. What is the real risk-free rate, r*?

A. 2.30%

B. 2.50%

C. 2.10%

D. 2.20%

1 points

QUESTION 4

Suppose that the annual expected rates of inflation over each of the next five years are 4%, 7%, 8%, 11%, and 10%, respectively. What is the average expected inflation rate over the 5-year period? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

A. 8%

B. 9%

C. 7%

D. 6%

1 points

QUESTION 5

The real risk-free rate, r*, is 3%. Inflation is expected to average 2% a year for the next three years, after which time inflation is expected to average 3.5% a year. Assume that there is no maturity risk premium. A 7-year corporate bond has a yield of 7.6%. Assume that the liquidity premium on the corporate bond is 0.4%. What is the default risk premium on the corporate bond? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

A. 1.34%

B. 0.70%

C. 1.45%

D. 2.01%

1 points

QUESTION 6

If 10-year T-bonds have a yield of 5.2%, 10-year corporate bonds yield 7.5%, the corporate bonds have a 0.2% default risk premium, what is the liquidity premium on the corporate bond?

A. 2.10%

B. 2.30%

C. 1.20%

D. 1.00%

1 points

QUESTION 7

Keys Corporation's 5-year bonds yield 6.50%, and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the default risk premium for Keys' bonds is DRP = 0.40%, the liquidity premium on Keys' bonds is LP = 1.7% versus zero on T-bonds, and the inflation premium (IP) is 1.5%. What is the maturity risk premium (MRP) on a 5-year bond?

A. 0.20%

B. 0.30%

C. 0.40%

D. 0.50%

1 points

QUESTION 8

The real risk-free rate is 2%. The inflation rate is expected to be 3% a year for the next three years and then 4% a year thereafter. Assume that the default risk and liquidity premiums on all Treasury securities equal zero. You observe that 10-year Treasury bonds yield 1% more than the yield on 5-year Treasury bonds. What is the difference in the maturity risk premium on the two bonds? (That is, what is MRP10 - MRP5?) Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

A. 0.7%

B. 0.5%

C. 0.1%

D. 0.3%

1 points

QUESTION 9

Ken Williams Ventures' recently issued bonds that mature in 15 years. They have a par value of $1,000 and an annual coupon of 6%. If the current market interest rate is 8%, at what price should the bonds sell?

A. $830.53

B. $814.74

C. $801.80

D. $828.81

1 points

QUESTION 10

You intend to purchase a 10-year, $1,000 face value bond that pays interest of $60 every 6 months. If your nominal annual required rate of return is 10% with semiannual compounding, how much should you be willing to pay for this bond?

A. $ 826.31

B. $1,086.15

C. $1,431.49

D. $1,124.62

1 points

QUESTION 11

A 20-year, $1,000 par value bond has a 9% annual coupon. The bond currently sells for $925. If the yield to maturity remains at its current rate, what will the price be 5 years from now?

A. $941.86

B. $933.09

C. $951.87

D. $965.84

1 points

QUESTION 12

A $1,000 face value corporate bond pays a $50 coupon every six months. The bond matures in 12 years and sells at a price of $1,080. What is the bonds nominal yield to maturity?

A. 8.28%

B. 9.31%

C. 8.90%

D. 8.65%

1 points

QUESTION 13

A 12-year, 8.5% annual coupon bond has a yield to maturity of 9.5% and a par value of $1,000. What is the bonds current yield?

A. 9.14%

B. 2.15%

C. 8.95%

D. 6.36%

1 points

QUESTION 14

An 11-year, $1,000 face value bond has an annual coupon rate of 8% and its yield to maturity is 7.5%. The bond can be called 3 years from now at a price of $1,060. What is the bonds nominal yield to call?

A. 8.54%

B. 9.82%

C. 8.38%

D. 8.41%

1 points

QUESTION 15

Kholdy Inc's bonds currently sell for $1,275. They pay a $120 annual coupon and have a 20-year maturity, but they can be called in 5 years at $1,120. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between the bond's YTM and its YTC?

A. 1.68%

B. 1.82%

C. 1.48%

D. 1.54%

1 points

QUESTION 16

T. Martell Inc.'s stock has a 50% chance of producing a 30% return, a 25% chance of producing a 9% return, and a 25% chance of producing a -25% return. What is Martell's expected return?

A. 16.8%

B. 11.0%

C. 15.2%

D. 16.0%

1 points

QUESTION 17

Given the following probability distribution, what are the expected return and the standard deviation of returns for Security J?

State Pi kJ

1 0.2 10%

2 0.6 15

3 0.2 20

A. 15%; 6.50%

B. 15%; 3.16%

C. 12%; 5.18%

D. 15%; 10.00%

1 points

QUESTION 18

Miller Inc. is considering a capital budgeting project that has an expected return of 10% and a standard deviation of 25%. What is the project's coefficient of variation?

A. 3.0

B. 3.4

C. 1.8

D. 2.5

1 points

QUESTION 19

The CFO of Brady Boots has estimated the returns to Bradys stock, depending on the state of the economy. He has also compiled analysts expectations for the economy.

Economy Probability Return

Recession 0.1 -23%

Below average 0.1 -8

Average 0.4 6

Above average 0.2 17

Boom 0.2 24

Given this data, what is the companys coefficient of variation?

A. 25.39

B. 2.26

C. 1.84

D. 1.94

1 points

QUESTION 20

Apex Roofing's stock has a beta of 1.50, its required return is 14.00%, and the risk-free rate is 5.00%. What is the required rate of return on the stock market? (Hint: First find the market risk premium.)

A. 11.50%

B. 10.50%

C. 12.00%

D. 11.00%

1 points

QUESTION 21

Niendorf Corporation's stock has a required return of 13.00%, the risk-free rate is 7.00%, and the market risk premium is 4.00%. Now suppose there is a shift in investor risk aversion, and the market risk premium increases by 2.00%. What is Niendorf's new required return?

A. 15.00%

B. 14.00%

C. 16.00%

D. 17.00%

1 points

QUESTION 22

Assume that you are the portfolio manager of the Delaware Fund, a $4 million mutual fund that contains the following stocks:

Stock Amount Beta

A $400,000 1.50

B $600,000 0.50

C $1,000,000 1.25

D $2,000,000 0.75

The required rate of return in the market is 14.00% and the risk-free rate is 6.00%. What rate of return should investors expect (and require) on their investment in this fund?

A. 10.90%

B. 11.50%

C. 12.10%

D. 13.28%

1 points

QUESTION 23

Bradley Hotels has a beta of 1.3, while Douglas Farms has a beta of 0.7. The required return on an index fund that holds the entire stock market is 12%. The risk-free rate is 7%. By how much does Bradleys required return exceed Douglas required return?

A. 3.0%

B. 6.0%

C. 6.5%

D. 5.0%

1 points

QUESTION 24

Albright Motors is expected to pay a year-end dividend of $3.00 a share (D1 = $3.00). The stock currently sells for $30 a share. The required rate of return on the stock is 16%. If the dividend is expected to grow at a constant rate, g, what is g?

A. 13.00%

B. 10.05%

C. 6.00%

D. 5.33%

1 points

QUESTION 25

A stock is expected to pay a dividend of $1 at the end of the year. The required rate of return is rs = 11%, and the expected constant growth rate is 5%. What is the current stock price?

A. $21.67

B. $20.00

C. $16.67

D. $18.83

1 points

QUESTION 26

Mack Industries just paid a dividend of $1.00 per share (D0 = $1.00). Analysts expect the companys dividend to grow 20% this year (D1 = $1.20) and 15% next year. After two years the dividend is expected to grow at a constant rate of 5%. The required rate of return on the companys stock is 12%. What should be the companys current stock price?

A. $16.91

B. $18.67

C. $16.65

D. $12.33

1 points

QUESTION 27

The Connors Company's last dividend was $1.00. Its dividend growth rate is expected to be constant at 15% for 2 years, after which dividends are expected to grow at a rate of 10% forever. Connors required return (rs) is 12%. What is Connors current stock price?

A. $54.91

B. $58.15

C. $56.82

D. $60.07

1 points

QUESTION 28

You must estimate the intrinsic value of Gallovits Technologies stock. Gallovitss end-of-year free cash flow (FCF) is expected to be $25 million, and it is expected to grow at a constant rate of 8.5% a year thereafter. The companys WACC is 11%. Gallovits has $200 million of long-term debt plus preferred stock, and there are 30 million shares of common stock outstanding. What is Gallovits' estimated intrinsic value per share of common stock?

A. $26.67

B. $22.67

C. $25.33

D. $24.00

1 points

QUESTION 29

Given the following information, calculate the expected capital gains yield for Chicago Bears Inc.: beta = 0.6; RP M = 7%; rRF = 8%; D1 = $2.00; P0 = $25.00. Assume the stock is in equilibrium and exhibits constant growth.

A. 8.0%

B. 4.2%

C. 3.8%

D. 2.5%

1 points

QUESTION 30

Thames Inc.s most recent dividend was $2.40 per share (D0 = $2.40). The dividend is expected to grow at a rate of 6% per year. The risk-free rate is 5% and the market risk premium is 4%. If the companys beta is 1.3, what is the price of the stock today?

A. $68.06

B. $72.14

C. $60.57

D. $57.14