Question 1
Mulherin's stock has a beta of 1.23, its required return is 11.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)
10.36%
10.62%
10.88%
11.15%
11.43%
Question 2
Carter's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $57.50, what is its nominal (not effective) annual rate of return?
7.86%
8.14%
7.72%
7.37%
6.96%
Question 3
Niendorf Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) ? 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Niendorf's bonds?
0.49%
0.55%
0.61%
0.68%
0.75%
Question 4
Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 14.50%. Using the SML, what is the firm's required rate of return?
10.85%
15.53%
13.39%
10.31%
14.86%
Question 5
Jim Angel holds a $200,000 portfolio consisting of the following stocks: What is the portfolio's beta?
|
Stock
|
Investment
|
Beta
|
|
A
|
$50,000
|
0.75
|
|
B
|
$50,000
|
0.80
|
|
C
|
$50,000
|
1.00
|
|
D
|
$50,000
|
1.20
|
|
Total
|
$200,000
|
|
0.956
1.022
0.853
1.144
0.938
Question 6
Mikkelson Corporation's stock had a required return of 15.00% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rate of return? (Hint: First calculate the beta, then find the required return.)
23.37%
21.28%
19.00%
20.14%
16.15%
Question 7
In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures to a market value basis. KJM Corporation's balance sheet as of today is as follows: The bonds have a 4.0% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?
|
Long-term debt (bonds, at par)
|
$10,000,000
|
|
Preferred stock
|
2,000,000
|
|
Common stock ($10 par)
|
10,000,000
|
|
Retained earnings
|
4,000,000
|
|
Total debt and equity
|
$26,000,000
|
$5,276,731
$5,412,032
$5,547,332
$7,706,000
$7,898,650
Question 8
The Francis Company is expected to pay a dividend of D = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price?
$22.83
$27.99
$27.17
$22.01
$24.18
Question 9
Kollo Enterprises has a beta of 0.82, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Kollo's required rate of return?
6.73%
6.64%
9.30%
9.56%
8.85%
Question 10
Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 7.50%, based on semiannual compounding. What is the bond's price?
$977.71
$860.39
$899.50
$1,202.59
$821.28.