Question 1

WhichBank has just issued 90-day bank bills with a face value of $400,000. If the current 90-day bill rate is 8.7% p.a., what is the current value of these bank bills?Enter your answer to the nearest dollar.

Question 2

Given the following information, which is closest to the expected share price for XYZ? Current annual dividend (just paid) of $1.50 per share, forecast growth in dividend of 2% indefinitely, required return on equity of 10% p.a..

a.15.75

b.22.13

c.15.95

d.19.13

Question 3

You own some bonds issued by Another Failing Airline Inc. (AFA).When AFA issued the bonds it was in good financial health and was able to get a coupon rate of 6.1%.The bonds pay coupons annually, and have exactly 10 years remaining until maturity. Each bond has a face value of $1000.

Due to the recent increase in operating costs, most notably fuel prices, AFA is no longer able to pay the coupon payments on its bonds.At a creditors meeting, bond holders agreed to forgive the next 3 interest payments (starting with the payment due one year from today).This means that the next interest payment on the bonds will be made 4 years from today.After that, interest payments will be made annually until maturity. Given the risk of AFA and its recent credit downgrade to CC, the required return on these bonds is now 21.6%.

What is the fair price of one AFA bond?Enter your answer to the nearest cent.

Question 4

PWW LTD has just paid a dividend of $2.50. Next year's dividend is expected to be 10% higher and remain at this level indefinitely. Assuming a shareholders require a rate of return of 15%, what is the price of stock today?

a.16.67

b.55

c.12.75

d.18.33

Question 5

Taggart Transcontinental has a dividend yield of 2.5%. Taggart's equity cost of capital is 10%, and its dividends are expected to grow at a constant rate.Based on this information, Taggart's constant growth rate in dividends is closest to:

a.10%

b.2.5%

c.5%

d.7.5%

Question 6

Growing Real Fast Company (GRF) is expected to have a 25 percent growth rate for the next four years (affecting D1, D2, D3, and D4).Beginning in year five, the growth rate is expected to drop to 1.8 percent per year and last indefinitely.If GRF just paid a $6.00 dividend and the appropriate discount rate is 14.2 percent, then what is the value of a share of GRF? Enter your answer to two decimal places.