Please detailed answers and try to use the TI BA II PLUS as much as possible. Really need help.

FIN 3000 Principles of Finance Practice for Final Exam Part B Spring 2017 Name___________________________________ Be sure to write the version letter of your exam paper on your scantron. Please use a pencil for your scantron. Pen is not acceptable. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The price of ABC stock is currently $42 per share, but in six months you expect it to rise to $50. ABC does not pay a dividend. You buy a six-month call on ABC, with a strike price of $45. The option cost $200. What holding period return do you expect on this call? Ignore transaction costs and taxes. A) 300% B) 250% C) 200% D) 150% 1) 2) Early in 2016, Mike is analyzing shares of Janeff Corp. He expects the following dividends per share (end of year) 2016 $0.80 2017 $0.96 2018 $1.24 He expects 2018 earnings per share to be $3.50 and Janeff's P/E ratio to be 24. His required rate of return for this stock is 7%. He should pay no more than A) $66.68 per share B) $71.17 per share C) $93.75 per share D) $76.15 per share 2) 3) Early in 2016, Mike is analyzing shares of Janeff Corp. He expects the following dividends per share 3) (end of year) 2016 $0.80 2017 $0.96 2018 $1.24 Since 2018, Janeff's dividends step into a constant growth stage. Mike expects the ROE of this firm to be 15% and payout ratio to be 60% since 2018. His required rate of return for this stock is 9%. He should pay no more than A) $33.54 per share B) $36.33 per share C) $67.02 per share D) $93.75 per share 4) Rob owns 200 shares of Blackwood common stock valued at $60a share. Blackwood has declared a 5-for-2 stock split effective tomorrow. After the split, Rob will own A) 80 shares valued at about $150 a share. B) 300 shares valued at about $24 a share. C) 500 shares valued at about $24 a share. D) 500 shares valued at about $27 a share. 4) 5) When the stock market has bottomed out and is beginning to recover, the best portfolio to own is the one with a beta of A) -1.0. B) 0.0. C) +2.0. D) +1.0. 5) 6) Bonds with one of the top four ratings (Aaa through Baa, or AAA through BBB) are designated as A) high-yield bonds. B) illiquid bonds. C) split bonds. D) investment grade bonds. 6) 1 7) Andrea wrote a three-month call on Echo stock. The option cost $200 and the strike price was $10. What does the market price of Echo have to be for Andrea to break-even on this investment if the option is exercised? Ignore transaction construed taxes. A) $10 B) $8 C) $12 D) cannot be determined from the information provided 7) 8) What is the required rate of return on a common stock that is expected to pay a $0.75 annual dividend next year if dividends are expected to grow at 2 percent annually and the current stock price is $8.59? A) 10.73% B) 8.91% C) 11.38% D) 8.73% 8) 9) What is the present value of $300 received at the beginning of each year for five years? Assume that the first payment is not received until the beginning of the third year (thus the last payment is received at the beginning of the seventh year). Use a 10% discount rate, and round your answer to the nearest $100. A) $1,000 B) $900 C) $1,100 D) $1,200 9) 10) When a corporation declares a stock split, it usually does so because A) there are too many shares of stock outstanding. B) the firm's retained earnings are excessive. C) investors sometimes require nontaxable returns. D) it wants to make its stock more affordable to average investors. 10) 11) Assume the Plum Corporation has two different issues of common stock. One issue carries voting rights, and the other issue does not. In this situation, Plum is said to have issued A) treasury stock. B) buy-back stock. C) OTC stock. D) classified stock. 11) 12) The Limberger Corporation declared a quarterly dividend of $0.10 per share. The ex-dividend date was July 15, the date of record was July 18, and the payment date was July 28. If you had owned 100 shares of the Limberger Corporation and sold them on July 16, then A) the purchaser would collect $10.00 in dividends, and you would not collect any dividends. B) you would collect $10.00 in dividends, and the purchaser would not collect any dividends. C) you would collect $5.00 in dividends, and the purchaser would collect $5.00 in dividends. D) neither you nor the purchaser would collect any money in dividends. 12) 13) Pilgrim Corp. stock currently sells for $25 per share? The dividend yield is $1.00 per share and earnings per share are $3.00. The dividend yield is ________ and the the dividend payout ratio is ________. A) 33%,4%. B) 12%, .48% C) 8.33%, 25% D) 4%, 33% 13) 14) The current annual sales of Flower Bud, Inc. are $178,000. Sales are expected to increase by 4% next year. The company has a net profit margin of 5% which is expected to remain constant for the next couple of years. There are 10,000 shares of common stock outstanding. The market multiple is 16.4 and the relative P/E of the firm is 1.21. What is the expected market price per share of common stock for next year? A) $19.29 B) $15.18 C) $18.37 D) $17.66 14) 2 15) Over the last year, a firm's earnings per share increased from $1.20 to $1.40, its dividends per share increased from $0.50 to $0.60, and its share price increased from $21 to $24. The firm maintained a relative P/E of 1.10 over the entire time period. Given this information, it follows that the A) current P/E of the overall market is 26.4. B) stock experienced an increase in its P/E ratio. C) company had a decrease in its dividend payout ratio. D) overall market P/E is declining. 15) 16) The common stock of Jennifer's Furniture Outlet is currently selling at $32.60 a share. The company adheres to a 60% dividend payout ratio and has a P/E ratio of 19. There are 21,000 shares of stock outstanding. What is the amount of the annual net income for the firm? A) $21,619 B) $36,032 C) $60,053 D) $48,327 16) 17) A portfolio contains 2 different assets (the weights of both assets are positive and sum to one), each asset has 25% expected return and 15% return standard deviation. The correlation coefficient between the two assets is 0.05. A) Portfolio standard deviation is smaller than 15% B) Portfolio standard deviation is equal to 15% C) Portfolio standard deviation is larger than 15% D) Can't be determined from information given 17) 18) The risk free rate is 2%. The expected rate of return on the market is 12%. Beta and the expected rate of return for four stocks are as follows.: ABC .8 , 10%; DEF 1, 12%; GHI 1.2 , 13%, and JKL 2, 22%. Which of these stocks should not be purchased? A) DEF B) JKL C) GHI D) ABC 18) 19) Winifred, Inc. paid $1.64 as an annual dividend per share last year. The company is expected to increase their annual dividends by 3% each year. How much should you pay to purchase one share of this stock if you require a 9% rate of return on this investment? A) $18.77 B) $28.15 C) $18.22 D) $27.33 19) 20) A company has an annual dividend growth rate of 5% and a retention rate of 40%. The company's dividend payout ratio is A) 40%. B) 35%. C) 60%. D) 45%. 20) 3 Spring 2017 Practice for Final Exam Part A 1. What is the EAR of 19% compounded annually? a) b) c) d) e) 20.397% 20.925% 20.745% 19.902% 19.000% 2. Romance Novels, Inc., Inc. has some bonds outstanding, currently with 23 years remaining to maturity. The coupon rate is 15%, and the interest is paid semi-annually. The face value of the bonds is $100. What is the present value of the principal payment of par value at maturity stream if the yield to maturity is 7%? a) b) c) d) e) $195.80 $190.80 $20.55 $169.08 $170.26 3. A zero coupon bond will mature in 10 years and pay its face value of $1,000. Its current market value is $540. What is its implicit yield to maturity based on semiannual compounding? a) b) c) d) e) 6.356% 46.00% 4.60% 3.13% 85.19% 4. A life insurance company is selling a perpetuity contract that will pay $900 per month. The contract sells for $70,000. What is the APR of this investment? a) b) c) d) e) 16.57% 1.17% 15.43% 2.59% 1.29% Page 1 5. The present value of regular annuity of $4,000 per year is $21,704.97. The annual interest rate is 13.00% per year. How many payments must there be? a) b) c) d) e) 9 payments 10 payments 7 payments 11 payments 8 payments 6. What is the present value of regular annuity of $4,000 per year for 5 years if the interest rate is 14% per year? a) b) c) d) e) $13,732 $15,655 $26,440 $6,838 $12,046 7. Nevada Casinos, Inc. stock currently sells in the market for $7.00/share. It just paid a dividend of $0.30/share, and investors expect that the dividend will grow at a constant rate of 4% per year in the future. What rate of return do investors require on this stock? a) b) c) d) e) 8.29% 8.12% 3.46% 8.46% 4.46% 8. Today an investor will pay $5,000 for a security that will return $9,627.07 in exactly 5 years. What annual rate of return will he receive on this investment? a) b) c) d) e) 92.54% 16.10% 14.00% 11.20% 48.06% Page 2 9. You saving up to buy a car. You plan on making your first savings deposit one year from today, and then making deposits for the following 3 years. These are the amounts you plan to save at the end of each year: Year 1 2 3 4 Projected Savings Amount $6,000 $5,000 $6,000 $7,000 You expect to earn an annual rate of 11% per year throughout. What amount will you have available at the end, at time 4, when you will buy the car? a) b) c) d) e) $24,000 $21,026 $6,660 $28,026 $26,640 10. American Bridge and Cable stock does not now pay dividends. Investors expect that it will begin paying a dividend of $0.75/share in exactly 5 years at time 5. That is, they forecast that D5 will be $0.75/share. Investors expect that the dividend will then remain at that level of $0.75/share forever after that. They require a return of 11.00% on this stock. What is the value of this stock today based on the discounted dividend model? a) b) c) d) e) $6.14 $6.82 $4.05 $4.99 $4.49 11. How many years will it take for the amount of $83,000 to grow to $1,392,451 at an annual rate of 16.00%? a) b) c) d) e) 17.00 years 22.00 years 19.00 years 23.00 years 20.00 years Page 3 12. Find the future value of $5,000 today that will be invested for 25 years. rate is 8% per year compounded monthly. a) b) c) d) e) The discount $5,903.54 $40,370.97 $681.18 $36,700.88 $34,242.38 13. What is the present value of an annuity due of $1,000 per year for 10 years if the interest rate is 11% per year? a) b) c) d) e) $5,889 $6,537 $16,722 $6,668 $18,561 14. One year ago you purchased a zero coupon bond and paid $575 for it. It now has 5 years remaining to maturity, and its yield to maturity is 8%. Its face value is $1,000. Find the change in dollar value of the bond in this period. Use semi-annual compounding. a) b) c) d) e) $105.58 $627.79 $680.58 $100.56 $894.33 15. You are offered an investment that will pay you a perpetuity of $1,000 per year forever. Its price is $34,500. What annual rate of return (discount rate) is implied in this value? a) b) c) d) e) 4.10% 2.90% 0.00% 4.25% 0.01% Page 4 16. A person who is now 40 years old is planning for his retirement. He hopes to have a total of $550,000 available when he retires in 25 years. Based on the current yield curve, he expects to earn an average rate of 5% per year. He will make the first deposit to his retirement savings account exactly one year from today. How much must he save each year to reach his retirement savings goal in 25 years? a) b) c) d) e) $10,975 $11,524 $12,100 $22,000 $47.73 17. A year ago, an investor purchased 400 shares of Western Cowboy Gear Corp. preferred stock at a price of $74.00/share. The firm has just paid its annual dividend of $1.3705. Now the share is priced at $68.52 in the market. What is the investor's return on this stock? a) 7.99% b) 9.40% c) 7.40% d) 5.55% e) 1.85% 18. Your firm's has some bonds outstanding, currently with 20 years remaining to maturity. The coupon rate is 13%, and the interest is paid annually. The face value of the bonds is $1,000. The bonds currently sell in the market at a price of $794.59. What is the yield to maturity of this bond? a) b) c) d) e) 14.52% 16.57% 14.21% 18.12% 19.13% Page 5 19. A year ago, an investor purchased 500 shares of Atlantic Industries stock at a price of $30.00/share. The firm has just paid its annual dividend of $0.50. Now the share is priced at $16.50 per share in the market. What is his holding period return on the stock? a) 0.79% b) 46.67% c) 45.00% d) 56.67% e) 43.33% 20. Rodeo Enterprises just paid a dividend, D0, of $0.30/share on its common stock. Investors expect that its dividend will decline at a constant rate of 4% per year. That is, the expected growth rate g is -4%. They require a return of 15% on this stock. What is the value of this stock based on the discounted dividend model? a) b) c) d) e) $1.58 $1.52 $2.62 $1.92 $2.84 Page 6 Answer Key 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. e c d c b a d c d e c d b d b b d b e b Page 7