The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.35, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company's current stock price, P ?
$15.83
$14.02
$11.61
$18.84
$15.07
QUESTION 2
A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $925. If the yield to maturity remains at its current rate, what will the price be 5 years from now?
$911.51
$930.11
$1,004.52
$809.20
$1,153.34
QUESTION 3
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 4
Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market's required rate of return is 11.50%, the risk-free rate is 7.00%, and the Fund's assets are as follows:
Stock Investment Beta
A $200,000 1.50
B $300,000 -0.50
C $500,000 1.25
D $1,000,000 0.75
10.22%
12.20%
10.64%
7.93%
10.43%
QUESTION 5
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 6
Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market's required rate of return is 16.25%, the risk-free rate is 7.00%, and the Fund's assets are as follows:
Stock Investment Beta
A $200,000 1.50
B $300,000 -0.50
C $500,000 1.25
D $1,000,000 0.75
15.88%
15.18%
10.68%
14.05%
16.44%
QUESTION 7
You hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each. The portfolio's beta is 1.12. You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.80. What will the portfolio's new beta be?
1.286
1.255
1.224
1.194
1.165
QUESTION 8
Jim Angel holds a $200,000 portfolio consisting of the following stocks: What is the portfolio's beta?
Stock Investment Beta
A $50,000 0.95
B $50,000 0.80
C $50,000 1.00
D $50,000 1.20
Total $200,000
0.988
1.215
1.155
1.234
1.225
QUESTION 9
Carter's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $72.50, what is its nominal (not effective) annual rate of return?
4.74%
5.19%
4.14%
6.68%
5.52%
QUESTION 10
Suppose you hold a portfolio consisting of a $10,000 investment in each of 8 different common stocks. The portfolio's beta is 1.25. Now suppose you decided to sell one of your stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.35. What would the portfolio's new beta be?
1.17
1.23
1.29
1.36
1.43
QUESTION 11
Wachowicz Corporation issued 15-year, noncallable, 7.5% annual coupon bonds at their par value of $1,000 one year ago. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 14 years to maturity?
$1,077.01
$1,104.62
$1,132.95
$1,162.00
$1,191.79
QUESTION 12
Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market's required rate of return is 9.50%, the risk-free rate is 7.00%, and the Fund's assets are as follows:
Stock Investment Beta
A $200,000 1.50
B $300,000 -0.50
C $500,000 1.25
D $1,000,000 0.75
8.91%
10.06%
6.77%
8.64%
10.42%
QUESTION 13
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 14
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 15.00%. Using the SML, what is the firm's required rate of return?
13.83%
13.55%
11.62%
11.76%
14.94%
QUESTION 15
5-year Treasury bonds yield 5.5%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year bonds is 0.4%. What is the real risk-free rate, r*?
2.59%
2.88%
3.20%
3.52%
3.87%
QUESTION 16
In order to accurately assess the capital structure of a firm, it is necessary to convert its balance sheet figures from historical book values to market values. KJM Corporation's balance sheet (book values) as of today is as follows: The bonds have a 7.7% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 11%, so the bonds now sell below par. What is the current market value of the firm's debt?
Long-term debt (bonds, at par) $23,500,000
Preferred stock 2,000,000
Common stock ($10 par) 10,000,000
Retained earnings 4,000,000
Total debt and equity $39,500,000
$17,734,265
$23,394,137
$18,866,239
$16,602,290
$19,054,902
QUESTION 17
Koy Corporation's 5-year bonds yield 9.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity premium for Koy's bonds is LP = 0.75% 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 default risk premium (DRP) on Koy's bonds?
2.36%
3.10%
2.64%
2.70%
3.69%
QUESTION 18
Kristina Raattama holds a $200,000 portfolio consisting of the following stocks. The portfolio's beta is 0.875. If Kristina replaces Stock A with another stock, E, which has a beta of 1.50, what will the portfolio's new beta be?
Stock Investment Beta
A $50,000 0.50
B 50,000 0.80
C 50,000 1.00
D 50,000 1.20
Total $200,000
1.07
1.13
1.18
1.24
1.30
QUESTION 19
Company A has a beta of 0.70, while Company B's beta is 0.80. The required return on the stock market is 11.00%, and the risk-free rate is 4.25%. What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium, then find the required returns on the stocks.)
0.57%
0.77%
0.68%
0.67%
0.80%
QUESTION 20
Jill Angel holds a $200,000 portfolio consisting of the following stocks. The portfolio's beta is 0.875. If Jill replaces Stock A with another stock, E, which has a beta of 1.85, what will the portfolio's new beta be?
Stock Investment Beta
A $50,000 0.50
B $50,000 0.80
C $50,000 1.00
D $50,000 1.20
Total $200,000
0.92
1.21
1.30
1.14
1.35
