QUESTION 2. You would like to have $ 1,500,000 accumulated by the time you turn 65, which will be 43 years from now. How much would you have to put away each year to reach your goal assuming you're starting from zero now and you earn 12% annual interest on your investment? (Use the PMT function)

VALUING BONDS

QUESTION 3. Route 66 has a 7.25 percent coupon bond outstanding that matures in 8.5 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 6.8 percent?

1. $899.80
2. $1,135.43
3. $967.24
4. $1,028.69
5. $1,029.15

QUESTION 4. Grand Adventure Properties offers a 10.2 percent coupon bond with annual payments. The yield to maturity is 15.1 percent and the maturity date is 11 years from today. What is the market price of this bond if the face value is $1,000?

1. 746.69
2. 835.62
3. 744.58
4. 953.30
5. 895.43

VALUING STOCK

QUESTION 5. Financial analysts forecast Limited Brands (LTD) growth rate for the future to be 13.3%. LTDs recent dividend was $0.450. What is the value of Limited Brands stock when the required return is 14.5%?

1. $33.75
2. $42.49
3. $35.63
4. $44.85
5. $40.68

QUESTION 6. A firm is expected to pay a dividend of 1.22 next year and 1.50 the following year. Financial analysts believe the stock will be at their price target of $ 66 in two years. Compute the value of this stock with a required return of 11%

1. 58.93
2. 63.28
3. 62.76
4. 55.88
5. 65.87

ESTIMATING RISK AND RETURN

QUESTION 7. You hold the positions in the table below. What is the beta of your portfolio? If you expect the market to earn 15 percent and the risk-free rate is 5 percent, what is the required return of the portfolio?

	PRICE	SHARES	BETA
WEBSITE.COM	21.34	100	3.2
BUDGET STORES	32.32	153	1.5
MANUFACTURING CORP.	61.79	85	2.4
PHARMACY CORP	26.22	200	0.75

1. 22.50%
2. 20.21%
3. 28.66%
4. 32.48%

QUESTION 8. Praxair's upcoming dividend is expected to be $2.35 and its stock is selling at $60. The firm has a beta of 0.8 and is expected to grow at 10% for the foreseeable future. Compute Praxair's required return using both CAPM and the constant growth model. Assume that the market portfolio will earn 13 percent and the risk-free rate is 3 percent

1. CAPM: 9.7%; Constant Growth Model: 12.56%
2. CAPM: 8.6%; Constant Growth Model: 13.46%
3. CAPM: 11.0%; Constant Growth Model: 13.92%
4. CAPM: 10.2%; Constant Growth Model: 12.56%

WACC

QUESTION 9. PAW Industries has 5 million shares of common stock outstanding with a market price of $8.00 per share. The company also has outstanding preferred stock with a market value of $20 million, and 100,000 bonds outstanding, each with face value $1,000 and selling at 96% of par value. The cost of equity is 19%, the cost of preferred is 15%, and the cost of debt is 9%. If PAW's tax rate is 34%, what is the WACC?

A. 10.14% B. 10.45% C. 12.51% D. 14.33%

CAPITAL INVESTMENTS

QUESTION 10. Calculate NPV and payback period for the following project given a required return of 10%:

Project Z
Time	0	1	2	3	4	5
Cash Flow	-11,000	6,230	4,120	1,530	3,500	990

VALUING BONDS

QUESTION 3. Route 66 has a 7.25 percent coupon bond outstanding that matures in 8.5 years. The bond pays interest semiannually. What is the market price per bond if the face value is $1,000 and the yield to maturity is 6.8 percent?

1. $899.80
2. $1,135.43
3. $967.24
4. $1,028.69
5. $1,029.15