WEB CHAPTER 29—BASIC FINANCIAL TOOLS
a.
$1,781.53
b.
$1,870.61
c.
$1,964.14
d.
$2,062.34
e.
$2,165.46
a
133. Cyberhost Corporation’s sales were $225 million last year. If sales grow at 6% per year, how large (in millions) will
they be 5 years later?
a.
b.
c.
d.
e.
c
134. How much would $1, growing at 3.5% per year, be worth after 75 years?
WEB CHAPTER 29—BASIC FINANCIAL TOOLS
a.
$12.54
b.
$13.20
c.
$13.86
d.
$14.55
e.
$15.28
135. Your bank offers a savings account that pays 3.5% interest, compounded annually. If you invest $1,000 in the
account, then how much will it be worth at the end of 25 years?
a.
$2,245.08
b.
$2,363.24
c.
$2,481.41
d.
$2,605.48
e.
$2,735.75
136. Suppose a State of New Mexico bond will pay $1,000 eight years from now. If the going interest rate on these 8-year
WEB CHAPTER 29—BASIC FINANCIAL TOOLS
bonds is 5.5%, how much is the bond worth today?
a.
b.
c.
d.
e.
a
137. You expect to receive $5,000 in 25 years. How much is it worth today if the discount rate is 5.5%?
a.
$1,067.95
b.
$1,124.16
c.
$1,183.33
d.
$1,245.61
e.
$1,311.17
e
138. Suppose a Google.com bond will pay $4,500 ten years from now. If the going interest rate on safe 10-year bonds is
WEB CHAPTER 29—BASIC FINANCIAL TOOLS
4.25%, how much is the bond worth today?
a.
$2,819.52
b.
$2,967.92
c.
$3,116.31
d.
$3,272.13
e.
$3,435.74
139. You have purchased a U.S. Treasury bond for $3,000. No payments will be made until the bond matures 10 years
from now, at which time it will be redeemed for $5,000. What interest rate will you earn on this bond?
a.
3.82%
b.
4.25%
c.
4.72%
d.
5.24%
e.
5.77%
WEB CHAPTER 29—BASIC FINANCIAL TOOLS
140. Wildwoods, Inc. earned $1.50 per share five years ago. Its earnings this year were $3.20. What was the growth rate
in earnings per share (EPS) over the 5-year period?
a.
15.54%
b.
16.36%
c.
17.18%
d.
18.04%
e.
18.94%
141. You are hoping to buy a new boat 3 years from now, and you plan to save $4,200 per year, beginning one year from
today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just after you make
the 3rd deposit, 3 years from now?
a.
b.
c.
d.
e.
c
WEB CHAPTER 29—BASIC FINANCIAL TOOLS
142. You would like to travel in South America 5 years from now, and you can save $3,100 per year, beginning one year
from today. You plan to deposit the funds in a mutual fund that you think will return 8.5% per year. Under these
conditions, how much would you have just after you make the 5th deposit, 5 years from now?
a.
b.
c.
d.
e.
a
143. You want to open a sushi bar 3 years from now, and you plan to save $7,000 per year, beginning immediately. You
will make 3 deposits in an account that pays 5.2% interest. Under these assumptions, how much will you have 3 years
from today?
a.
b.
c.
d.
e.
c
WEB CHAPTER 29—BASIC FINANCIAL TOOLS
144. What is the PV of an ordinary annuity with 5 payments of $4,700 if the appropriate interest rate is 4.5%?
a.
b.
c.
d.
e.
e
145. After receiving a reward for information leading to the arrest of a notorious criminal, you are considering investing it
in an annuity that pays $5,000 at the end of each year for 20 years. You could earn 5% on your money in other
investments with equal risk. What is the most you should pay for the annuity?
a.
b.
c.
d.
e.
e
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146. What is the PV of an annuity due with 5 payments of $2,500 at an interest rate of 5.5%?
a.
$11,262.88
b.
$11,826.02
c.
$12,417.32
d.
$13,038.19
e.
$13,690.10
a
147. What’s the present value of a perpetuity that pays $250 per year if the appropriate interest rate is 5%?
a.
$4,750
b.
$5,000
c.
$5,250
d.
$5,513
e.
$5,788
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148. A perpetuity pays $85 per year and costs $950. What is the rate of return?
a.
8.95%
b.
9.39%
c.
9.86%
d.
10.36%
e.
10.88%
a
149. Kessen Inc.’s bonds mature in 7 years, have a par value of $1,000, and make an annual coupon payment of $70. The
market interest rate for the bonds is 8.5%. What is the bond‘s price?
a.
$923.22
b.
$946.30
c.
$969.96
d.
$994.21
e.
$1,019.06
a
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150. Noncallable bonds that mature in 10 years were recently issued by Sternglass Inc. They have a par value of $1,000
and an annual coupon of 5.5%. If the current market interest rate is 7.0%, at what price should the bonds sell?
a.
b.
c.
d.
e.
151. Curtis Corporation’s noncallable bonds currently sell for $1,165. They have a 15-year maturity, an annual coupon of
$95, and a par value of $1,000. What is their yield to maturity?
a.
6.20%
b.
6.53%
c.
6.87%
d.
7.24%
e.
7.62%
e
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152. Sommers Co.’s bonds currently sell for $1,080 and have a par value of $1,000. They pay a $100 annual coupon and
have a 15-year maturity, but they can be called in 5 years at $1,125. What is their yield to maturity (YTM)?
a.
8.56%
b.
9.01%
c.
9.46%
d.
9.93%
e.
10.43%
153. Sentry Corp. bonds have an annual coupon payment of 7.25%. The bonds have a par value of $1,000, a current price
of $1,125, and they will mature in 13 years. What is the yield to maturity on these bonds?
a.
5.56%
b.
5.85%
c.
6.14%
d.
6.45%
e.
6.77%
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154. Rogoff Co.’s 15-year bonds have an annual coupon rate of 9.5%. Each bond has face value of $1,000 and makes
semiannual interest payments. If you require an 11.0% nominal yield to maturity on this investment, what is the maximum
price you should be willing to pay for the bond?
a.
b.
c.
d.
e.
a
155. Freedman Flowers’ stock has a 50% chance of producing a 25% return, a 30% chance of producing a 10% return, and
a 20% chance of producing a −28% return. What is the firm’s expected rate of return?
a.
9.41%
b.
9.65%
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c.
9.90%
d.
10.15%
e.
10.40%
c
156. Erickson Inc. is considering a capital budgeting project that has an expected return of 25% and a standard deviation
of 30%. What is the project’s coefficient of variation?
a.
1.20
b.
1.26
c.
1.32
d.
1.39
e.
1.46
a
157. Donald Gilmore has $100,000 invested in a 2-stock portfolio. $35,000 is invested in Stock X and the remainder is
invested in Stock Y. X’s beta is 1.50 and Y’s beta is 0.70. What is the portfolio’s beta?
a.
0.65
b.
0.72
WEB CHAPTER 29—BASIC FINANCIAL TOOLS
c.
0.80
d.
0.89
e.
0.98
e
158. Zacher Co.’s stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the
firm’s required rate of return?
a.
11.36%
b.
11.65%
c.
11.95%
d.
12.25%
e.
12.55%
c
159. Nystrand Corporation’s stock has an expected return of 12.25%, a beta of 1.25, and is in equilibrium. If the risk-free
rate is 5.00%, what is the market risk premium?
a.
5.80%
b.
5.95%
WEB CHAPTER 29—BASIC FINANCIAL TOOLS
c.
6.09%
d.
6.25%
e.
6.40%
a
Difficulty: Easy
INTE.GENE.16.206 – LO: 29-3
United States – BUSPROG: Analytic
United States – TN – DISC: Risk and return
United States – OH – Default City – TBA
Market risk premium
Bloom’s: Knowledge
TYPE: Multiple Choice: Problem
160. A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and
the expected constant growth rate is g = 6.4%. What is the stock’s current price?
a.
$17.39
b.
$17.84
c.
$18.29
d.
$18.75
e.
$19.22
c
Difficulty: Easy
INTE.GENE.16.207 – LO: 29-4
United States – BUSPROG: Analytic
United States – TN – DISC: Stocks and bonds
United States – OH – Default City – TBA
Constant growth valuation
Bloom’s: Knowledge
TYPE: Multiple Choice: Problem
161. A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g
= 4.0%. What is the current stock price?
WEB CHAPTER 29—BASIC FINANCIAL TOOLS
a.
$23.11
b.
$23.70
c.
$24.31
d.
$24.93
e.
$25.57
e
162. A share of Lash Inc.’s common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock
is 5.4%, and if investors’ required rate of return is 11.4%, what is the stock price?
a.
$16.28
b.
$16.70
c.
$17.13
d.
$17.57
e.
$18.01
WEB CHAPTER 29—BASIC FINANCIAL TOOLS
163. Franklin Corporation is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock
sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate,
g, forever. What is the equilibrium expected growth rate?
a.
6.01%
b.
6.17%
c.
6.33%
d.
6.49%
e.
6.65%
e
164. $35.50 per share is the current price for Foster Farms’ stock. The dividend is projected to increase at a constant rate
of 5.50% per year. The required rate of return on the stock, rs, is 9.00%. What is the stock’s expected price 3 years from
today?
a.
$37.86
b.
$38.83
c.
$39.83
d.
$40.85
e.
$41.69
e
WEB CHAPTER 29—BASIC FINANCIAL TOOLS
165. Kelly Enterprises’ stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of
4.75% per year. The required rate of return on the stock, rs, is 11.50%. What is the stock’s expected price 5 years from
now?
a.
$40.17
b.
$41.20
c.
$42.26
d.
$43.34
e.
$44.46
e
166. If D1 = $1.25, g (which is constant) = 4.7%, and P0 = $26.00, what is the stock‘s expected dividend yield for the
coming year?
a.
4.12%
b.
4.34%
c.
4.57%
d.
4.81%
e.
5.05%
WEB CHAPTER 29—BASIC FINANCIAL TOOLS
167. If D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stock’s expected dividend yield for the coming
year?
a.
4.42%
b.
4.66%
c.
4.89%
d.
5.13%
e.
5.39%
168. If D1 = $1.50, g (which is constant) = 6.5%, and P0 = $56, what is the stock’s expected capital gains yield for the
coming year?
a.
6.50%
b.
6.83%
c.
7.17%
d.
7.52%
e.
7.90%
a
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e
169. If D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock’s expected total return for the coming
year?
a.
7.54%
b.
7.73%
c.
7.93%
d.
8.13%
e.
8.34%
e
170. If D0 = $1.75, g (which is constant) = 3.6%, and P0 = $32.00, what is the stock‘s expected total return for the coming
year?
a.
8.37%
b.
8.59%
c.
8.81%
d.
9.03%
e.
9.27%