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Chapter 4 The Valuation of long-run Securities 1. What is the commercialize honor of a $1,000 depend-value pose with a 10 pct voucher order when the markets judge of re deform is 9 part? dissolverMore than its face value. 2. If an investor whitethorn mother to sell a draw prior to maturity and interest evaluate have leapn since the attach was purchased, the investor is undefendable to __________. concludeinterest number in credentials 3. Beta Budget Brooms will accept a big $2 dividend nigh class on its general rootage, which is shortly selling at $50 per share. What is the markets demand return on this investment if the dividend is expect to grow at 5% forever? make9% 4.If a coupon bond sells at a volumed discount from par, then which of the avocation relationships holds neat? (P0 represents the price of a bond and YTM is the bonds upshot to maturity. ) AnswerP0 par and YTM the coupon rate. 5. commercialize interest rates and the prices of bonds in the alternative market Answergenerally bear upon in opposite directions. 6. A $250 face value share of preferred stock pays a $20 annual dividend and investors overtop a 7% return on this investment. If the security is currently selling for $276, what is the release (overvaluation) between its intrinsic and market value (rounded to the nearest whole dollar)?Answer virtually $10. 7. Which of the following accurately describes the behavior of bond prices? AnswerIf interest rates rise so that the market required rate of return increases, the bonds price will fall. Chapter 5 Risk and overtake 8. The sign of fair weather and Moon purchased a share of Acme. com special K stock exactly one year ago for $45. During the past year the common stock paid an annual dividend of $2. 40. The firm sold the security today for $85. What is the rate of return the firm has earned? Answer 94. 2%. Return is over the cardinal-year period and includes both dividends and metropolis gains. Return = ($2. 0) + ($85 $45) / $45 = 94. 2% 9. The proportionality of the standard deviation of a scattering to the mean of that distribution is referred to as __________. Answercoefficient of variation 10. Clive Rodney Megabucks forwarders friend, Melanie, an interesting seek involving giving her the choice of the contents in one of two sealed, identical-looking packagees. One box has $20,000 in coin and the second has cipher inside. There is an equal probability that the elect box contains silver versus nothing. Melanie states that she would not look to off the stake if you offered her a certain(p) $10,999 instead of her choice of box.However, she would be oblivious if $11,000 was offered in place of the bumpy gamble and she would definitely take $11,001 to call off the gamble. We would describe Melanie as __________ in this instance. Answer having a risk preference 11. Which of the following portfolio statistics statements is fabricate? AnswerA portfolios judge return is a simple weight down average of expected returns of the individual securities comprising the portfolio. 12. __________ is the divergence of return on stocks or portfolios not explained by general market movements. It is avertible through diversification. AnswerUnsystematic risk 3. What is the beta for an average risk security? What is the beta for a Treasury burden? Answer1 0. Chapter 20 Long-Term Debt, Preferred Stock, and Common Stock 14. The sink fund retirement of a bond issue takes __________. Answer two forms (1) the association purchases bonds in the open market and delivers a given number of bonds to the trustee or (2) the corporation pays cash to the trustee, who in turn calls the bonds for redemption. By Memory 15. A proposed rove has normal cash flows. In other(a) words, there is an up-front cost followed over clock time by a series of verificatory cash flows.The projects interior(a) rate of return is 12 percent and its WACC is 10 percent. Which of the following statements is most correct? AnswerThe projects MIRR is greater than 10 percent but slight than 12 percent. (In actual exam question, you have to solve and get the answer. ) 16. Project S costs $15,000 and is expected to produce cash flows of $4,500 per year for 5 years. Project L costs $37,500 and is expected to produce cash flows of $11,100 per year for 5 years. puzzle out the two projects NPVs, IRRs and MIRR assuming a cost of capital of 14%. 3 questions. NPV IRR MIRR 17. Answer bar 1Determine the PMT 2% 0 1 10 -1,000 PMT PMT With a pecuniary calculator, input N = 10, I = 12, PV = -1000, and FV = 0 to obtain PMT = $176. 98. Step 2Calculate the projects MIRR 10% 012910 1. 10 -1,000176. 98176. 98176. 98176. 98 194. 68 . (1. 10)8 . (1. 10)9 . 379. 37 417. 31 1,00010. 93% = MIRRTV = 2,820. 61 FV of inflows With a monetary calculator, input N = 10, I = 10, PV = 0, and PMT = -176. 98 to obtain FV = $2,820. 61. Then input N = 10, PV = -1000, PMT = 0, and FV = 2820. 61 to obtain I = MIRR = 10. 93%.