Time-Value-of-Money:
1. How much will accumulate in an account with an initial deposit of $100, and which earns 10% interest compounded quarterly for three years?
A) $107.69
B) $133.10
C) $134.49
D) $313.84
2. A corporation has promised to pay $1,000 twenty years from today for each bond sold now. No interest will be paid on the bonds during the twenty years, and the bonds are said to offer a 7% interest rate. Approximately how much should an investor pay for each bond?
A) $70.00
B) $258.42
C) $629.56
D) $857.43
PV = $1,000/(1.07)20
= $1,000/3.8697
= $258.42
3. If $120,000 is borrowed for a home mortgage, to be repaid at 9% interest over 30 years with monthly payments of $965.55, how much interest is paid over the life of the loan?
A) $120,000
B) $162,000
C) $181,458
D) $227,598
(965.55 x 360) – 120,000 = $227,598
4. What will be the monthly payment on a home mortgage of $75,000 at 12% interest, to be amortized over 30 years?
A) $771.46
B) $775.90
C) $1,028.61
D) $1,034.53
5. Your retirement account has a current balance of $50,000. What interest rate
would need to be earned in order to accumulate a total of $1,000,000 in 30
years, by adding $6,000 annually?
A) 5.02%
B) 7.24%
C) 9.80%
D) 10.07%
6. With $1.5 million in an account expected to earn 8% annually over the retiree’s 30 years of life expectancy, what annual annuity can be withdrawn, beginning today?
A) $112,150
B) $120,000
C) $123,371
D) $133,241
7. How much can be accumulated for retirement if $2,000 is deposited annually, beginning one year from today, and the account earns 9% interest compounded annually for 40 years?
A) $ 87,200.00
B) $675,764.89
C) $736,583.73
D) $802,876.27
PV = 2000
= 2000 x 337.8824
=$675,764.89
Bonds:
8. How much should you pay for a $1,000 bond with 10% coupon, annual payments, and five years to maturity if the interest rate is 12%?
A) $ 927.90
B) $ 981.40
C) $1,000.00
D) $1,075.82
9. What is the coupon rate for a bond with three years until maturity, a price of $1,053.46, and a yield to maturity of 6%?
A) 6%
B) 8%
C) 10%
D) 11%
10. What is the yield to maturity of a bond with the following characteristics? Coupon rate is 8% with semi-annual payments, current price is $960, three years until maturity.
A) 4.78%
B) 5.48%
C) 9.57%
D) 12.17%
11. Two years ago bonds were issued with 10 years until maturity, selling at par, and a 7% coupon. If interest rates for that grade of bond are currently 8.25%, what will be the market price of these bonds?
A) $917.06
B) $928.84
C) $987.50
D) $1,000.00
12. How much should you be prepared to pay for a 10-year bond with a 6% coupon and a yield to maturity to maturity of 7.5%?
A) $411.84
B) $897.04
C) $985.00
D) $1,000.00
13. How much should you be prepared to pay for a 10-year bond with a 6% coupon, semi-annual payments, and a semi-annually compounded yield of 7.5%?
A) $895.78
B) $897.04
C) $938.40
D) $1,312.66
14. A bond with 10 years until maturity, an 8% coupon, and an 8% yield to maturity increased in price to $1,107.83 yesterday. What apparently happened to interest rates?
A) Rates increased by 2.0%.
B) Rates decreased by 2.0%
C) Rates increased by .72%.
D) Rates decreased by 1.5%
15. When market interest rates exceed a bond’s coupon rate, the bond will:
A) sell for less than par value.
B) sell for more than par value.
C) decrease its coupon rate.
D) increase its coupon rate.
Stocks:
16. If a stock’s P/E ratio is 13.5 at a time when earnings are $3 per year, what is the stock’s current price?
A) $4.50
B) $18.00
C) $22.22
D) $40.50
17. What is the expected dividend to be paid in three years if yesterday’s dividend was $6.00, dividends are expected to grow at a constant 6% annual rate, and the firm has a 10% expected return?
A) $6.75
B) $7.15
C) $7.80
D) $9.37
18. What should be the price for a common stock paying $3.50 annually in dividends if the growth rate is zero and the discount rate is 8%?
A) $22.86
B) $28.00
C) $42.00
D) $43.75
19. What price would you expect to pay for a stock with 13% required rate of return, 4% rate of dividend growth, and an annual dividend of $2.50 which will be paid tomorrow?
A) $27.78
B) $30.28
C) $31.10
D) $31.39
20. What constant growth rate in dividends is expected for a stock valued at $32.00 if next year’s dividend is forecast at $2.00 and the appropriate discount rate is 13%?
A) 5.00%
B) 6.25%
C) 6.75%
D) 15.38%
21. What is the return on equity for a firm that has a constant dividend growth rate of 7% and a dividend payout ratio of 60%?
A) 2.80%
B) 4.20%
C) 11.67%
D) 17.50%
22. Which of the following is true for a firm having a stock price of $42, and expected dividend of $3, and a sustainable growth rate of 8%?
A) It has a required return of 22%.
B) It has a dividend payout ratio of 37.5%.
C) It has an ROE of 7.14%.
D) It has a plowback rate of 7.14%.
23. What is the value of the expected dividend per share for a stock that has a required return of 16%, a price of $45, and a constant growth rate of 12%?
A) $1.80
B) $3.60
C) $4.50
D) $7.20
Risk and Return:
24. What is the expected return on a portfolio that will decline in value by 13% in a recession, will increase by 16% in normal times, and will increase by 23% during boom times if each scenario has equal likelihood?
A) 8.67%
B) 13.00%
C) 13.43%
D) 17.33%
25. What is the standard deviation of return of a four-stock portfolio (each stock being equally weighted) that produced returns of 20%, 20%, 25% and 30%?
A) 2.15%
B) 3.15%
C) 4.15%
D) 5.15%