1. Define and compare the following terms:
- Corporation
- Proprietorship
2. Define and compare the following terms:
- Futures market
- Spot market
3. Define and compare the following terms:
- Yield to maturity
- Current yield
4. The nominal interest rate is made up of the "real" rate plus certain risk premiums. Please explain this concept. Please list and define two of these risk premiums.
5. Assume that a stock will pay dividends of $2.70 in year 1, $2.43 in year 2, $3.08 in year 3? Calculate the price if you require 22% rate of return and that you expect the stock will sell for $30.06 at the end of year 3.
6. Calculate the yield to maturity of a bond which sells at a price of $1150 and has a par value of $1000, a coupon rate of 6%, and 12 years left to maturity. The bond may be called at par 5 years from today.
7. Estimate the price of a stock that paid $5 dividend last year with dividends expected to grow constantly at 6%. The market required rate for return for this stock is 11%.
8. Calculate the price of a semi-annual payment bond that is priced to yield 8%. The bond has a coupon rate of 10%, 12 years to maturity, and a face value of $1000.
9. Calculate the yield to call of a bond which sells at a price of $1150 and has a par value of $1000, a coupon rate of 6%, and 12 years left to maturity. The bond may be called at par 5 years from today.
10. Ford Motor Company should pay no dividends for the next two years. The third year is should pay $4 with the dividends to grow at 6% thereafter. Estimate the price of the Ford stock if investors require 14% annual rate of return.
11. Calculate the yield to maturity of a $1000 par, zero coupon bond that currently sells for $420 in the secondary market. The bond has 9 years remaining to maturity.
12. Estimate the price of a perpetual preferred stock with $100 par value and 5% dividend rate assuming the market's required rate of return for this stock is 9%.
13. What should you pay for an investment that will pay to you the following cash flows over the next four years if your required rate of return is 15%?
|
Year
|
CF
|
|
1
|
10500
|
|
2
|
14800
|
|
3
|
16000
|
|
4
|
17100
|
14. Assume that you borrow a sum of money from a bank to be repaid over a period of 5 years. The bank charges 10% nominal interest with semi-annual payments. How much did you borrow if you are required to make a total of 10 payments of $6000 each to pay off the loan?
15. Earning 8% per year compounded quarterly, how much will be in your bank account at the end of 9 years if you deposit $5,600 in the account today?
16. How much would you pay for an investment that will provide cash inflows of $6000 per year at the beginning of each of the next 8 years if you require a minimum of 12% rate of return on all your investments?
17. Calculate the effective annual rate of return for a bank account that will pay 8% compounded monthly.
18. If you have $100,000 to invest and if you face a 35% tax rate, should you invest in a corporate bond that offers 9% annual interest or should you invest in a municipal bond that pays 5.9% annual interest?
19. You read somewhere that the world will end exactly 5 years from today. So you decide to quit work and adjust your monthly spending so that your funds will last exactly the 5 years. If you can earn 12% interest compounded monthly how much can you spend each month before your $900,000 savings are depleted?