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1) great lakes christmas tree co. expects to pay an annual dividend of $2 per share in
perpetuity on its preferred shares starting one year from now. the firm is committed
solely to its steady north american christmas tree business (as opposed to, say,
diversifying into landscape shrubbery). this profile warrants a required return of 6%.
what is the present value of this dividend stream for investors?
a.$12.00
b.$1.89
c.$33.33
d.$2.12
2) smith construction, inc. just paid a $2.78 dividend. the dividend is expected to grow
by 4% each year for the next three years. after that the company will never pay another
dividend ever again. if your required return on the stock investment is 10%, what
should the stock sell for today?
a.$7.46
b.$28.91
c.$46.33
d.$15.63
3) you currently own a put option on stock x with a strike price of $25. if the current
price of stock x is $30, then what is the in-the-money amount of the option?
a.-$5
b.$0
c.$5
d.none of the above
4) your cost of capital is 16% and you are offered credit terms of 1/10 net 60. do you
take the discount or not and why?
a.you take the discount because 7.37% is less than 16%
b.you do not take the discount because 7.37% is less than 16%
c.you take the discount because 23.37% is greater than 16%
d.you do not take the discount because 7.37% is less than 16%
5) an entrepreneur is offered a service contract that will cost him $600,000 initially. the
contract has a 5 years of life and will generate an after tax cash inflow of $160,000 per
year. the cost of capital of this project is 12%. whats the npv of the project? should the
entrepreneur accept the contract?
a.-$23,236; reject
b.$23,236; accept
c.-$20,746; reject
d.$576,764; reject
e.$41,050; accept
6) narrbegin: exhibit 6-3
exhibit 6-3
consider the following information concerning stock returns and bond returns over the
last 75 years:
narrend
refer to exhibit 6-3. currently, treasury bills yield 2.50% on the secondary market. what
is a good estimate for the return on the stock market in the next year given this
information?
a.6.60%
b.7.60%
c.10.10%
d.11.70%
7) in order to receive a dividend payment, an investor must own the stock
a.on the announcement date
b.on the date of record
c.on the ex-dividend date
d.on the payment date
8) the yield curve:
a.is a graph showing the term structure of interest rates
b.generally shows that longer-term bonds offer lower yields than shorter-term bonds
c.generally slopes down
d.both (a) and (b)
e.both (b) and (c)
9) career opportunities in commercial banking do not include:
a.corporate loan officer
b.credit analyst
c.investment banker
d.mortgage banker
e.all of the above are career opportunities in commercial banking
10) narrbegin: exhibit 17-2
exhibit 23-2
coffee; 37,500 lbs per contract, $ per lb. may 2004
narrend
refer to exhibit 23-2. suppose that yesterday you sold one september coffee futures
contract at the settle price. at the end of todays trading day what is the change in the
value of your contract?
a.$3,000
b.-$3,000
c.$3,750
d.-$3,750
11) you recently earned a 13% return on an investment during the preceding year. if the
rate of inflation during that period is 8% what was your real return during that period?
a.5%
b.4.63%
c.4.42%
d.none of the above
