Question 1 1. You have a portfolio of two risky stocks which turns out to have no diversification benefit. The reason you have no diversification is the returns: move perfectly

Question 1 1. You have a portfolio of two risky stocks which turns out to have no diversification benefit. The reason you have no diversification is the returns: move perfectly with one another. are too small. move perfectly opposite of one another. are completely unrelated to one another. are too large to offset. Question 2 1. Below is the stock split data for ABC Company: Stock splits 31-Dec-90 31-Dec-91 2 for 1 31-Dec-92 31-Dec-93 6 for 2 31-Dec-94 31-Dec-95 31-Dec-96 1.5 for 1 31-Dec-97 31-Dec-98 3 for 1 31-Dec-99 If you bought 2,655 shares in the beginning of 1990 and during the period of 10 years never bought or sold additional shares, how many shares would you have by the end of 1999? Question 3 1. A stock just paid a dividend of D0 = $1.2.  The required rate of return is rs = 19.9%, and the constant growth rate is g = 3.8%.  is the current stock price? Question 4 1. The ABC Co. has $1,000 face value stock outstanding with a market price of $1,003.7. The stock pays interest annually, matures in 18 years, and has a yield to maturity of 10 percent. is the annual coupon amount? Question 5 1. A bond that sells for less than face value is called as: perpetuity debenture discount bond premium bond par value bond Question 6 1. The ABC Company has a cost of equity of 12.6 percent, a pre-tax cost of debt of 5.3 percent, and a tax rate of 38 percent. is the firm’s weighted average cost of capital if the weight of debt is 67 percent? Question 7 1. The spot rate for the pound is £0.676 = $1 and the spot rate for the Canadian dollar is C$1.2012 = $1. is the £/C$ cross rate? Question 8 1. The principal amount of a bond that is repaid at the end of term is called the par value or the: call premium perpetuity value face value back-end value coupon value Question 9 1. ABC company’s market value of common stock is $200 million, preferred stock is $300 million, and debt is $500 million. Suppose that the cost of equity is 7%, the before-tax cost of debt is 4.6%, cost of preferred stock is 6.8%, and the tax rate is 27%. Compute the WACC. Question 10 1. You would like to create a portfolio that is equally invested in a risk-free asset and two stocks. One stock has a beta of 1.83. does the beta of the second stock have to be if you want the portfolio to have a beta of 0.79? Question 11 1. Suppose the exchange rate is $1.594 per euro. If the euro appreciates by 24% against the dollar, how many euros would a dollar buy tomorrow? Question 12 1. The beta of the risk-free asset is: 0 1 1.5 2 Question 13 1. You want to create a portfolio as risky as the market. Suppose you invest your money in Stocks A, B, C, and the risk-free asset. is the weight of Stock C in your portfolio? Stock     Weights(%)     Beta A               17                1.2 B               17                0.3 C               ?                  1.4 Rf              ?                   ? Question 14 1. Suppose the nominal rate is 19% and the inflation rate is 3.8%. Solve for the real rate. Use the Fisher Equation to get your answer. Question 15 1. Suppose that today’s stock price is $36.5. If the required rate on equity is 18.7% and the growth rate is 5.2%, compute the expected dividend (i.e. compute D1) Question 16 1. ABC’s last dividend paid was $4.66, its required return is 24%, its growth rate is 5%. is ABC’s expected stock price in 7 years? Question 17 1. If the market value of debt is $46,889, market value of preferred stock is $61,827, and market value of common equity is 28,327, what is the weight of preferred stock? Question 18 1. You have observed the following returns on ABC’s stocks over the last six years: 8.8%, 19.4%, 8.8%, -8.1%, 6.6%, -13.2% is the geometric average returns on the stock over this six-year period. Question 19 1. Standard deviation measures: total risk systematic risk economic risk unsystematic risk diversifiable risk Question 20 1. Based on the following data, calculate the returns for June 2014 Year Month Div Price 2012 May $0.50 $14.44 2012 June $0.60 $18 2012 July $0.70  $22.12 Question 21 1. One year ago, you puchased 74 shares of ABC stock for $21.6 per share. During the year, you received a dividend of $2.6 per share. Today, you sold all your shares for $28.7. are the percentage return on your investment? Question 22 1. The common stock of ABC Industries is valued at $34.8 a share. The company increases their dividend by 4.4 percent annually and expects their next dividend to be $2.79. is the required rate of return on this stock? Question 23 1. ABC Company’s last dividend was $1.7.  The dividend growth rate is expected to be constant at 9% for 3 years, after which dividends are expected to grow at a rate of 4% forever.  The firm’s required return (rs) is 17%.  is its current stock price (i.e. solve for Po)? Question 24 1. The risk-free rate is 4.4%, the market risk premium is 7.5%, and the stock’s beta is 0.66.  is the cost of common stock? Question 25 1. ABC, Inc. has 6 percent bonds outstanding that mature in 13 years. The bonds pay interest semiannually and have a face value of $1,000. Currently, the bonds are selling for $993 each. is the firm’s after-tax cost of debt if the tax rate is 21%? Question 26 1. An investor puts $40,000 in a risk-free asset and $20,000 in the market portfolio. Compute the beta of his portfolio. 0.50 0.67 1 0.33 2 Question 27 1. If the coupon rate is less than the yield to maturity, the bond will: sell at a discount sell at a premium sell at par Question 28 1. You are planning a trip to London and plan on spending 7,806 pounds. How many dollars will this trip cost you in dollars if one U.S. dollar is worth 0.6167 pounds.

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