Question 1 ABC is reviewing a project that will cost $1,431.The project will produce cash flows $210 at the end of each year for the first two years and $772 at the end of each year for the next two years. What is the profitability index? Assume interest rate is 4%. a. 1.56 b. 0.95 c. 1.22 d. 2.56 Question 2 Suppose an investment offers to double your money in 39 years. What annual rate of return are you being offered if interest is compounded semi-annually? a. 1.79% b. 1.56% c. 0.98% d. 0.89% Question 3 How many years will it take to quadruple (i.e. 4 times) your money at 9% compounded quarterly? a. 7.2424 b. 15.5759 c. 5.6478 d. 3.3168 Question 4 A bond is currently selling for $1,087. If the yield to maturity is 10%, the coupon rate will be: a. less than 10%. b. equal than 10%. c. more than 10%. d. None above Question 5 Suppose the real rate is 9.83% and the inflation rate is 4.65%. Solve for the nominal rate. a. 11.32% b. 12.87% c. 14.93% d. 21.74% Question 6 An investment is acceptable if the profitability index (PI) of the investment is: a. less than the net present value (NPV). b. less than one. c. greater than one. d. greater than the internal rate of return (IRR). e. greater than a pre-specified rate of return. Question 7 A 8.9 percent $1,000 bond matures in 17 years, pays interest semiannually, and has a yield to maturity of 16.02 percent. What is the current market price of the bond? a. $587.92 b. $456.23 c. $143.24 d. $693.22 Question 8 Uptown Insurance offers an annuity due with semi-annual payments for 19 years at 4.9 percent interest. The annuity costs $176,239 today. What is the amount of each annuity payment? a. $7,008.06 b. $5,670.26 c. $8,300.23 d. $4,607.98 Question 9 ABC’s last dividend paid was $4.4, its required return is 13%, its growth rate is 6%, and its growth rate is expected to be constant in the future. What is ABC’s expected stock price in 19 years? a. $104.37 b. $201.59 c. $98.15 d. $120.31 Question 10 Given the following cash flows, calculate the payback period: Year CF 0 -921 1 368 2 253 3 291 4 784 a. 3.0115 b. 3 c. 2.0125 d. 4.5209 Question 11 A stock just paid a dividend of D0 = $3.4. The
required rate of return is rs = 15.8%, and the constant growth rate is g = 3%. What is the current stock price? a. $35.76 b. $24.469 c. $3.45 d. $27.359 Question 12 Suppose that today’s stock price is $49.8. If the required rate on equity is 18.6% and the growth rate is 7.9%, compute the expected dividend (i.e. compute D1) a. $7.2447 b. $10.6483 c. $5.3286 d. $2.5643 Question 13 The common stock of ABC Industries is valued at $49 a share. The company increases their dividend by 3.1 percent annually and expects their next dividend to be $1.84. What is the required rate of return on this stock? a. 2.82% b. 3.61% c. 4.87% d. 6.86% Question 14 The ABC Co. has $1,000 face value stock outstanding with a market price of $937.6. The stock pays interest annually, matures in 9 years, and has a yield to maturity of 10.7 percent. What is the current yield? a. 5.11% b. 10.22% c. 7.34% d. 14.94% Question 15 The principal amount of a bond that is repaid at the end of term is called the par value or the: a. call premium b. perpetuity value c. face value d. back-end value e. coupon value Question 16 What is the effective rate of 18% compounded monthly? a. 26.97% b. 13.56% c. 17.46% d. 19.56% Question 17 A project has the following cash flows. What is the internal rate of return? Year 0 1 2 3 Cash flow -$121,000 68,150 $42,200 $39,100 a. 12.71% b. 14.39% c. 13.47% d. 13.85% e. 14.82% Question 18 A cost that has already been incurred and cannot be recouped is called as a(n): a. sunk cost b. financial cost c. opportunity cost d. side cost e. relevant cost Question 19 ABC Corp. just paid a dividend of $2.4 per share at the end of the year. The stock has a required rate of return is 18%. The dividend is expected to grow at 6.9%. What is dividend at time = 8? (solve for D8?) a. $7.667 b. $3.175 c. $6.451 d. $4.093 Question 20 What is the net present value of the following cash flows? Assume an interest rate of 3.5% Year CF 0 -$11,895 1 $7,722 2 $5,687 3 $5,120 a. $5,492.69 b. $17,387.92 c. $6,247.34 d. $8,235.81 Question 21 A bond that sells for less than face value is called as: a. discount bond b. premium bond c. par value bond d. debenture