ABC Inc. issued twelve-year, 6 percent semi-annual coupon bonds at par. Today, the bonds are priced at $1112. What is the firm’s after-tax cost of debt if the tax rate is 30%?

Question 2

If the coupon rate is less than the yield to maturity, the bond will:

Question 3

An investor puts $10,000 in a risk-free asset and $20,000 in the market portfolio. Compute the beta of his portfolio.

Question 4

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 3.9%, cost of preferred stock is 5.6%, and the tax rate is 25%.

Compute the WACC.

Question 5

1. You have observed the following returns on ABC's stocks over the last six years:

11.1%, 4.9%, 4.2%, -13.5%, 6.6%, -4%

What is the geometric average returns on the stock over this six-year period.

Question 6

One year ago, you puchased 64 shares of ABC stock for $28.5 per share. During the year, you received a dividend of $3.2 per share. Today, you sold all your shares for $29.5. What are the percentage return on your investment?

Question 7

The nominal rate is 19.3% compounded monthly. Compute the effective rate.

Question 8

ABC’s last dividend paid was $3.34, its required return is 24%, its growth rate is 4%. What is ABC's expected stock price in 3 years?

Question 9

You take a loan of $36,532 to buy a car. As per the terms of the loan, you need to make monthly payments for 5 years at a 3.2% rate of interest. What is the amount of each monthly payment?

Question 10

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. Compute your investment in Stock C (i.e. solve for weight of Stock C)?

Stock     Weights     Beta

A               17                1.3

B               29                0.5

C               ?                  1.8

Rf              ?                   ? 

Question 11

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:

Question 12

ABC Company's last dividend was $1.3.  The dividend growth rate is expected to be constant at 7% for 3 years, after which dividends are expected to grow at a rate of 4% forever.  The firm's required return (r_s) is 15%.  What is its current stock price (i.e. solve for Po)?

Question 13

A stock just paid a dividend of D₀ = $2.9.  The required rate of return is r_s = 20.9%, and the constant growth rate is g = 5%.  What is the current stock price?

Question 14

The ABC Company has a cost of equity of 15.8 percent, a pre-tax cost of debt of 6.9 percent, and a tax rate of 37 percent. What is the firm’s weighted average cost of capital if the weight of debt is 79 percent?

Question 15

If the market value of debt is $57,840, market value of preferred stock is $29,255, and market value of common equity is 65,573, what is the weight of preferred stock?

Question 16

How many years will it take for your money to grow from $336 to $1,414 at 9% compounded semi-annually?

Enter your answer rounded off to two decimal points.

 Question 17

A bond that sells for less than face value is called as:

Question 18

Suppose that today's stock price is $33.9. If the required rate on equity is 19.8% and the growth rate is 3.2%, compute the expected dividend (i.e. compute D1)

Question 19

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 1.61. What does the beta of the second stock have to be if you want the portfolio to have a beta of 1.19?

Question 20

The square-root of the variance is:

 Question 21

If you receive $1,074 at the end of each year for the first three years and $9,871 at the end of each year for the next three years. What is the net present value of this cash flow stream? Assume interest rate is 7.8%.

 Qustion 22

The ABC Co. has $1,000 face value stock outstanding with a market price of $840.9. The stock pays interest annually, matures in 16 years, and has a yield to maturity of 7.1 percent. What is the annual coupon amount?

Question 23

Suppose the nominal rate is 19.2% and the inflation rate is 6.6%. Solve for the real rate.

Question 24

The common stock of ABC Industries is valued at $45.5 a share. The company increases their dividend by 7.1 percent annually and expects their next dividend to be $2.79. What is the required rate of return on this stock?

Question 25

The beta of the risk-free asset is:

Question 26

The risk-free rate is 4.5%, the market risk premium is 11.4%, and the stock’s beta is 1.29.  What is the cost of common stock (Ke)?

Question 27

You have observed the following returns on ABC's stocks over the last five years:

22.9%, 14.7%, -4.9%, 13.8%, 8.3%

What is the arithmetic average returns on the stock over this five-year period.

 Question 28

The principal amount of a bond that is repaid at the end of term is called the par value or the: