## A 25-year, \$1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for \$900. If the yield to maturity remains at its current rate, what will the price be 5 years from now?

1. A 25-year, \$1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for \$900. If the yield to maturity remains at its current rate, what will the price be 5 years from now?
 \$1,069.75 \$698.06 \$1,096.95 \$906.57 \$688.99

5 points

QUESTION 2

1. 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 1.25, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company’s current stock price, P ?
 \$15.49 \$16.66 \$14.66 \$19.32 \$19.49

5 points

QUESTION 3

1. Mulherin’s stock has a beta of 1.23, its required return is 8.75%, 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.)
 5.94% 8.63% 7.92% 7.21% 6.26%

5 points

QUESTION 4

1. Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 8.90%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?
 4.12% 3.35% 3.12% 3.08% 2.95%

5 points

QUESTION 5

1. 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 6

1. Mikkelson Corporation’s stock had a required return of 11.75% 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.)
 14.38% 14.74% 15.11% 15.49% 15.87%

5 points

QUESTION 7

1. 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 8

1. 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 9

1. Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 8.90%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?
 4.12% 3.35% 3.12% 3.08% 2.95%

5 points

QUESTION 10

1. Kern Corporation’s 5-year bonds yield 6.80% and 5-year T-bonds yield 3.60%. The real risk-free rate is r* = 2.5%, the default risk premium for Kern’s bonds is DRP = 1.90% versus zero for T-bonds, the liquidity premium on Kern’s bonds is LP = 1.3%, 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 inflation premium (IP) on all 5-year bonds?
 0.70% 0.60% 0.81% 0.86% 0.85%

5 points

QUESTION 11

1. 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 12

1. Kelly Inc’s 5-year bonds yield 7.50% and 5-year T-bonds yield 4.50%. The real risk-free rate is r* = 2.5%, the default risk premium for Kelly’s bonds is DRP = 0.40%, the liquidity premium on Kelly’s bonds is LP = 2.6% versus zero on T-bonds, and the inflation premium (IP) is 1.5%. What is the maturity risk premium (MRP) on all 5-year bonds?
 0.38% 0.50% 0.40% 0.59% 0.56%

5 points

QUESTION 13

1. Crockett Corporation’s 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.80%, the default risk premium for Crockett’s bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Crockett’s bonds is LP = 1.25%, 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 inflation premium (IP) on 5-year bonds?
 1.40% 1.55% 1.71% 1.88% 2.06%

5 points

QUESTION 14

1. 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 15

1. 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 16

1. Schnusenberg Corporation just paid a dividend of D = \$0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company’s beta is 0.85, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company’s current stock price?
 \$22.16 \$26.54 \$25.77 \$29.37 \$27.83

5 points

QUESTION 17

1. The Francis Company is expected to pay a dividend of D = \$1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company’s beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company’s current stock price?
 \$22.83 \$27.99 \$27.17 \$22.01 \$24.18

5 points

QUESTION 18

1. 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 14.00%. Using the SML, what is the firm’s required rate of return?
 13.08% 13.34% 12.95% 10.88% 11.40%

5 points

QUESTION 19

1. 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 1.65. What would the portfolio’s new beta be?
 1.48 1.33 1.53 1.32 1.03

5 points

QUESTION 20

1. Kay Corporation’s 5-year bonds yield 6.20% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the default risk premium for Kay’s bonds is DRP = 1.30% 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 liquidity premium (LP) on Kay’s bonds?
 0.52% 0.61% 0.38% 0.50% 0.56%

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