1) Exhibit 13.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Home Appliance Industry had free cash flow to equity (FCFE) of $87 for the most
recent year ending reported yesterday. The industry anticipates a growth rate of 8% for
the next three years due to favorable economic conditions. However, the growth rate is
expected to decline to 4% after three years and remain at that level indefinitely. The
required rate of return is 12% for this industry.
Calculate the FCFE at the end of the 8% growth period three years from now.
a. $78.00
b. $107.88
c. $109.59
d. $111.64
e. $113.52
2) Exhibit 11.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Davenport Corporation’s last dividend was $2.70 and the directors expect to maintain
the historic 3 percent annual rate of growth. You plan to purchase the stock today
because you feel that the growth rate will increase to 5 percent for the next three years
and the stock will then reach $25 per share.
How much should you be willing to pay for the stock if you require a 17 percent return?
a. $16.97
b. $22.16
c. $21.32
d. $32.63
e. $23.63
3) Technicians believe that an industry or stock that is outperforming the market will
tend to
a. Continue to outperform the market.
b. Return to normal.
c. Reverse trend.
d. Meet a resistance level.
e. Form head and shoulder patterns.
4) Exhibit 18.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A $1000 par value bond with 5 years to maturity and a 6% coupon has a yield to
maturity of 8%. Interest is paid semiannually.
Calculate the current price of the bond.
a. $1579.46
b. $918.89
c. $789.29
d. $1000
e. $743.29
5) If, for the S&P Industrials Index, the profit margin was 0.35 and the equity turnover
ratio was 10, the ROE would be:
a. 0.035%
b. 2.857%
c. 3.500%
d. 28.57%
e. 35.00%
6) Which measure of portfolio performance allows analysts to determine the statistical
significance of abnormal returns?
a. Sharpe measure
b. Jensen measure
c. Fama measure
d. Alternative components model (MCV)
e. Treynor measure
7) Exhibit 11.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A large grocery chain is reevaluating its bonds since it is planning to issue a new bond
in the current market. The firm’s outstanding bond issue has 6 years remaining until
maturity. The bonds were issued with a 6 percent coupon rate (paid semiannually) and a
par value of $1,000. Because of increased risk the required rate has risen to 10 percent.
What will be the value of these securities in one year if the required return declines to 8
percent?
a. $899.43
b. $862.50
c. $869.88
d. $918.93
e. $946.98
8) Exchange traded funds
a. Are exactly the same as index mutual funds.
b. Can be bought and sold like common stocks.
c. Can be sold short.
d. a and b.
e. b and c.
9) A number of economic variables affect both the economy and industries. Which of
the following statements is false?
a. Industries with high levels of operating and financial leverage should benefit from
lower inflation rates.
b. Banks generally benefit from volatile interest rates, while stable interest rates reduce
margins.
c. Consumers who are optimistic about the economy will spend money on high-priced
items, such as autos and houses.
d. The abundance or scarcity of input components can affect the perceived
attractiveness of an industry.
e. None of the above (that is, all are true statements)
10) All of the following are advantages of ETFs over mutual funds except
a. Ability for continuous trading while markets are open
b. Ability to time capital gain tax realizations
c. Smaller management fee
d. Can be bought and sold like common stock
e. Smaller brokerage commission
11) Exhibit 5.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 5.6. Compute the geometric mean of the price change of Stocks Q, R,
and S from days T to T + 1.
a.9.32%
b.10.14%
c.15.57%
d.30.63%
e.54.37%
12) Using the constant growth model, a decrease in the required rate of return from 15
to 13 percent combined with an increase in the growth rate from 5 to 6 percent would
cause the price to
a. Rise more than 50%.
b. Rise less than 50%.
c. Remain constant.
d. Fall more than 50%.
e. Fall less than 50%.
13) What would the after-tax yield be on an investment that offers a 6 percent fully
taxable yield? Assume a marginal tax rate of 31%.
a.2.79%
b.6.48%
c.4.14%
d.7.20%
e.12.50%
14) A set of performance measures called ____ are directly related to the capital
budgeting techniques used in corporate finance.
a. Dividend discount model
b. Aggressive growth indexes
c. Growth indexes
d. Value added
e. Profit sensitization
15) Exhibit 6.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Rit= return for stock i during period t
Rmt= return for the aggregate market during period t
Refer to Exhibit 6.4. What is the abnormal rate of return for Stock B when you consider
its systematic risk measure (beta)?
a.0.1%
b.-1.4%
c.0.5%
d.1.5%
e.2.0%
16) A one year call option has a strike price of 70, expires in 3 months, and has a price
of $7.34. If the risk free rate is 6%, and the current stock price is $62, what should the
corresponding put be worth?
a. $5.34
b. $8.00
c. $10.68
d. $14.33
e. $13.33