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Answered: - Dear tutor, I am in upper level Finance course. These ques


Dear tutor,

I am in upper level Finance course.? These questions are due. Can you lease help me with these questions?


1. Suppose the current one-year Treasury Bill rate is 6%, the current three-year Treasury Bond rate is

 

6.1%, and the current five-year Treasury Bond rate is 6.2%. According to the expectations theory of

 

interest rates, what would you expect the four-year Treasury rate to be one year from now?

 


 

a)

 


 

5.8%

 


 

b) 6.1%

 


 

c) 6.25%

 


 

d) 6.4%

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

2. _________ bonds require that the company put aside money each year in order to pay off the bond

 

at maturity.

 


 

a)

 


 

Convertible

 


 

b)

 


 

Callable

 


 

c)

 


 

Putable

 


 

d)

 


 

Sinking Fund

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

3. A bond has a current yield of 8%, a coupon rate of 7%, a face value of $1,000 and

 

1

 


 

matures in 10 years. What is its Yield to Maturity? (You have to find the price first)

 


 

a) 7.4%

 


 

b) 8.2%

 


 

c) 8.9%

 


 

d) 9.3%

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

4. A bond has a Yield to Call of 9% and a coupon rate of 11%. The bond has a face value

 

1

 


 

of $1,000 and matures in 12 years. However, it can be called in 4 years for $1,050. How much is the bond

 

worth?

 


 

a) $952

 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

b) $1,100

 


 

c) $1,178

 


 

d) $1,233

 


 

5. If a bond is selling at a premium, then its current yield will be _______ than its yield

 

1

 


 

to maturity and ________ than it?s coupon rate.

 


 

a)

 


 

Higher; Higher

 


 

b)

 


 

Higher; Lower

 


 

c)

 


 

Lower; Higher

 


 

d)

 


 

Lower; Lower

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

6. _______________ is the risk that investors will not be able to sell their bond before it

 

1

 


 

matures.

 


 

a)

 


 

Default Risk

 


 

b)

 


 

Liquidity Risk

 


 

c)

 


 

Maturity Risk

 

d) Seniority Risk

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

Question 7

 

Approximately what percentage of Portfolio E?s returns will be greater than 25%?

 


 

5%

 


 

b) 15%

 


 

c) 35%

 


 

d) 50%

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

8. What is Portfolio D?s Beta?

 

1

 


 

.58

 


 

b) .85

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

c) 1.05

 


 

d) 1.17

 


 

d. d

 

1

 


 

9. What is portfolio A?s Sharpe Ratio?

 


 

a) .14

 


 

b) .26

 


 

c) .34

 


 

d) .52

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

10. What is the geometric average return on a stock if it?s returns over the past five

 

1

 


 

years have been 23%, -8%, 42%, 16%, and -15%?

 


 

a) 8.3%

 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

b) 9.6%

 


 

c) 10.9%

 


 

d) 15.8%

 


 

11. A stock currently pays no dividends, however, it expects to pay a dividend of $1 four

 

1

 


 

years from now. From that point onward, dividends are expected to grow by 10% per year forever. How

 

much is the stock worth today if it has a required return of 14%?

 


 

a)

 


 

$16.87

 


 

b) $20.38

 


 

c) $24.51

 


 

d) $27.5

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

1

 


 

12. The Capital Asset Pricing Model makes all of these assumptions except ____________.

 


 

a)

 


 

Investors hold a widely diversified portfolio like the market portfolio

 


 

b)

 


 

That there are no taxes or transaction costs

 


 

c)

 


 

Investors can borrow and lend at the risk-free rate

 


 

d)

 


 

All of these are assumptions of the CAPM

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

13. If a firm plans on increasing the level of equity in their capital structure, then this

 

1

 


 

should cause the cost of debt to ___________ and the cost of equity to ___________.

 


 

a)

 


 

Fall; Fall

 


 

b)

 


 

Fall; Rise

 


 

c)

 


 

Rise; Rise

 


 

d)

 


 

Rise; Fall

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

14. The _________ is used as the ________ return for average risk investments made by

 

1

 


 

a corporation (such as investing in a new plant or machinery).

 


 

a)

 


 

Cost of Equity; Required Return

 


 

b)

 


 

Cost of Equity; Expected Return

 


 

c)

 


 

WACC; Expected Return

 


 

d)

 


 

WACC; Required Return

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

15. What is the cost of equity on a new issue of stock if the firm pays a $3 dividend with

 

1

 


 

and expected growth rate of 8%. The current stock price is $50, but flotation costs on new issues are

 

10%.

 


 

a) 12.4%

 


 

b) 13.9%

 


 

c) 14.5%

 


 

d) 15.2%

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

16. A firm had Net Income of $1,000,000, Equity of $10,000,000, and paid dividends of $100,000. What

 

is their Sustainable growth rate?

 

a) 1%

 

Select one:

 

a. a

 


 

b. b

 


 

b) 5%

 


 

c) 8%

 


 

d) 10%

 


 

c. c

 


 

d. d

 


 

17. Who gets paid last in case of bankruptcy?

 


 

a)

 


 

Common Shareholders

 


 

b)

 


 

Employees

 


 

c)

 


 

Preferred Shareholders

 


 

d)

 


 

Secured Creditors

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

Use the following information for questions 18-24. A corporation has 6,000,000 shares

 

1

 


 

of stock outstanding at a price of $40 per share. They just paid a dividend of $2 and the dividend is

 

expected to grow by 8% per year forever. The stock has a beta of 1.4, the current risk free rate is 4%, and

 

the market risk premium is 7%. The corporation also has 800,000 bonds outstanding with a price of

 

$1,100 per bond. The bond has a coupon rate of 11% with semiannual interest payments, a face value of

 

$1,000, and 13 years to go until maturity. However, the bond can be called in 4 years for $1,050. The

 

company plans on paying off their debt until they reach their target debt ratio of 60%. They expect their

 

cost of debt to be 8% and their cost of equity to be 11% under this new capital structure. The tax rate is

 

40%

 


 

18. What is the required return on the corporation?s stock?

 


 

a) 12.2%

 


 

b) 12.6%

 


 

c) 13.4%

 


 

d) 13.8%

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

19. What is the expected return on the corporation?s stock?

 

1

 


 

a) 12.2%

 


 

b) 12.6%

 


 

c) 13.4%

 


 

d) 13.8%

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

20. What is the yield to maturity on the company?s debt?

 


 

a) 9%

 

Select one:

 

a. a

 


 

b) 9.2%

 


 

c) 9.4%

 


 

d) 9.6%

 


 

b. b

 


 

c. c

 


 

d. d

 


 

21. What percent of their current market value capital structure is made up of debt?

 

1

 


 

a) 24%

 


 

b) 42%

 


 

c) 79%

 


 

d) 88%

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

22. What is their WACC using their target capital structure and expected costs of debt

 

1

 


 

and equity?

 


 

a) 7.3%

 

Select one:

 

a. a

 


 

b. b

 


 

b) 7.8%

 


 

c) 8.4%

 


 

d) 9.2%

 


 

c. c

 


 

d. d

 


 

23. Given the new cost of debt, what should be the new price of the bond?

 


 

a) $920

 


 

b) $1,060

 


 

c) $1,137

 


 

d) $1,239

 


 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

24. Given the new cost of equity, what should be the new price of the stock?

 

a) $48

 

Select one:

 

a. a

 


 

b. b

 


 

c. c

 


 

d. d

 


 

b) $57

 


 

c) 64

 


 

d) $72

 


 

 


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