Fin 534 final exam 2 2016

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FIN 534 Final Exam 2 2016 1.

Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

2. Which of the following statements is CORRECT? 3. You are considering two equally risky annuities, each of which pays $25,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT? 4. You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows.

Which of the following would increase the calculated value of the investment?

5. A $250,000 loan is to be amortized over 8 years, with annual end-of-year payments. Which of these statements is CORRECT? 6. Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 8% is CORRECT? 7. Which of the following statements is CORRECT? 8. Which of the following statements is CORRECT? 9. Which of the following statements is CORRECT? 10. Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?

11. Bonds A and B are 15-year, $1,000 face value bonds. Bond A has a 7% annual coupon, while Bond B has a 9% annual coupon.

Both bonds have a yield to maturity of 8%, which is expected to remain constant for the next 15 years. Which of the following statements is CORRECT? 12. If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value?

13. Which of the following statements is CORRECT? 14. Assume that the risk-free rate is 6% and the market risk premium is 5%. Given this information, which of the following statements is CORRECT? 15. Which of the following statements is CORRECT? 16. Which of the following statements is CORRECT? 17. Which of the following statements is CORRECT? 18. How would the Security Market Line be affected, other things held constant, if the expected inflation rate decreases and investors also become more risk averse?

19. If markets are in equilibrium, which of the following conditions will exist?

20. Merrell Enterprises' stock has an expected return of 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT? 21. The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT? 22. 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?

23. Stocks A and B have the same price and are in equilibrium, but Stock A has the higher required rate of return. Which of the following statements is CORRECT? 24. Which of the following statements is CORRECT, assuming stocks are in equilibrium?

25. You, in analyzing a stock, find that its expected return exceeds its required return. This suggests that you think