Question

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



e. perpetuity
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