Question1.Please determine the approximate current value of Apex's bond. The annual coupon payment is $100, the required return is 12%, the par value is $1,000 and the time to maturity is 5 years.

 
$928
$985
$1,000

$1,076

 Question 2.If a security's beta is greater than one, then a 10% increase in the S&P 500 market returns will produce a greater than 10% decrease in that individual security's returns.

 True
False

 Question 3.Montgomery Corporation's advisors indicate that the risk-free rate equals 2%; the firm's beta equals 1.5; and the market return equals 8%. What is Montgomery Corp.'s required return on common stock?

 
13%
12%

11%
10%

 

Question 4.During the next 12 months, Joe Electronics expects to pay dividends (D1) of $0.75 per share and the current price of its common stock is $25 per share. The expected growth rate is 6%. Compute the cost of common equity in the form of retained earnings (Ke).

 
   
11%

10%

 9%

 12%

 

Question 5.Lars estimates that the dividend of Caledonian Industries is expected to remain constant at $3.20 a share indefinitely. If his required return on its stock is 8%, the stock's value is

 
   

$45

$35

 $40

 $30

 Question 6.Krugman Industries' bonds are considered speculative and the nominal interest rate (the required rate of return) to purchase their bonds is 12.5%. The nominal rate for U.S. Treasury bonds (the risk free rate) is 3.3%. What is the risk premium for Krugman's bonds?

 
 3.3%
9.2%
12.5%
15.8%

Question 7.The price-earnings (P/E) ratio for a company that has earnings per share of $4.50 and a market value of $90 is 30 times.
True

False

 Question 8.What is the after tax cost of debt on a 10 year bond with a 10% coupon rate, $1,000 par value, and annual coupon payments? The net proceeds of the initial bond issue were $1000, and the firm's tax rate is 40%.

 7.2%

6.0%

10.0%

8.0%

 
Question 9.Systematic risk is the variability of cash flows that are unique to an individual security.

False

True

 Question 10.A $1,000 par value bond issued by Conseco Eletronics has 12 years to maturity. The bond pays $80 a year in interest and is selling for $1,080. What is the approximiate yield to maturity?

7.8%
7.0%
9.5%
8.9%

 Question 11.Stewart wishes to find the Yield to Maturity (YTM) on Williams Bros. Company's bond. The bond currently sells for $1250, has a 10% coupon interest rate and $1,000 par value, pays interest annually, and has 10 years to maturity.

 8.95%

 13.81%

 6.52%

 11.23%

 Question 12.Please find Bluthe Industries weighted average cost of capital given the following information:

Cost of debt = 4.4%, cost of preferred stock = 10.0%, cost of common stock equity = 12.0%

Weight of debt = 50%, weight of preferred stock = 10%, weight of common stock equity = 40%

 8%

  10%

  9%

  7%

 Question 13.Alloa Corporation is contemplating issuance of a 6% preferred stock that they expect to sell for $35 per share. The cost of issuing and selling the stock will be $5 per share. What is the cost of Alloa's preferred stock?
8%

7%
6%
9%

Question 14.Arlington Investments growth rate each year for the past few years has been around 10% and they are expected to continue growing at this rate. Their required return is 15%. The company estimates their dividend next year to be $3.30 which is 10% higher than last year's dividend of $3.00. What is the approximate price of Arlington's stock?

 $41.25
$60.00

 $66.00

 $52.75

 Question 15.It is generally accepted that the risk-free rate of interest and the risk premium determine the required rate of return for the investor

True

 False

 Question 16.When the required return is different from the coupon interest rate and is constant until maturity, the value of the bond will approach its par value as the passage of time moves the bond's value closer to maturity.

 False

True