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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

5 points

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

5 points

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

5 points

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%

5 points

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%

5 points

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%

5 points

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

5 points

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

5 points

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%

5 points

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

5 points

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

5 points

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%

5 points

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%

5 points

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%

5 points

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%

5 points

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

5 points

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%

5 points

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

5 points

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%

5 points

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

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

5 points

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

5 points

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

5 points

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%

5 points

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%

5 points

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%

5 points

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

5 points

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

5 points

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%

5 points

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

5 points

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

5 points

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%

5 points

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%

5 points

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%

5 points

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%

5 points

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

5 points

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%

5 points

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

5 points

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%

5 points

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

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