{"id":179249,"date":"2018-02-20T23:50:30","date_gmt":"2018-02-20T23:50:30","guid":{"rendered":"https:\/\/writemyessayfree.com\/finance-20-mcqs-assignment-2"},"modified":"2018-10-24T09:07:06","modified_gmt":"2018-10-24T09:07:06","slug":"finance-20-mcqs-assignment-2","status":"publish","type":"post","link":"https:\/\/www.benedictsol.com\/blogs\/finance-20-mcqs-assignment-2\/","title":{"rendered":"Finance 20 MCQs Assignment"},"content":{"rendered":"

<\/a> <\/p>\n

QUESTION 1<\/strong><\/p>\n

1. Jim Angel holds a $200,000 portfolio consisting of the following stocks: What is the portfolio\u2019s beta?<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Stock<\/span><\/td>\nInvestment<\/span><\/td>\nBeta<\/span><\/td>\n<\/tr>\n
A<\/td>\n$50,000<\/td>\n0.75<\/td>\n<\/tr>\n
B<\/td>\n$50,000<\/td>\n0.80<\/td>\n<\/tr>\n
C<\/td>\n$50,000<\/td>\n1.00<\/td>\n<\/tr>\n
D<\/td>\n$50,000<\/td>\n1.20<\/td>\n<\/tr>\n
Total<\/td>\n$200,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.956<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.022<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.853<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.144<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.938<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

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\u2019s 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\u2019s debt?<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Long-term debt (bonds, at par)<\/td>\n$23,500,000<\/td>\n<\/tr>\n
Preferred stock<\/td>\n2,000,000<\/td>\n<\/tr>\n
Common stock ($10 par)<\/td>\n10,000,000<\/td>\n<\/tr>\n
Retained earnings<\/td>\n4,000,000<\/td>\n<\/tr>\n
Total debt and equity<\/td>\n$39,500,000<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$17,734,265<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$23,394,137<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$18,866,239<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$16,602,290<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$19,054,902<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

QUESTION 3<\/strong><\/p>\n

1. Crockett Corporation\u2019s 5-year bonds yield 6.35%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.20%, the default risk premium for Crockett\u2019s bonds is DRP = 1.00% versus zero for T-bonds, the liquidity premium on Crockett\u2019s bonds is LP = 0.90% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t \u2013 1) 0.1%, where t = number of years to maturity. What inflation premium (IP) is built into 5-year bond yields?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n2.02%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n2.49%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n2.43%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n2.11%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n2.15%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Koy Corporation\u2019s 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\u2019s 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 \u2013 1) 0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Koy\u2019s bonds?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n2.36%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n3.10%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n2.64%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n2.70%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n3.69%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

QUESTION 5<\/strong><\/p>\n

1. Kristina Raattama holds a $200,000 portfolio consisting of the following stocks. The portfolio\u2019s beta is 0.875. If Kristina replaces Stock A with another stock, E, which has a beta of 1.50, what will the portfolio\u2019s new beta be?<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Stock<\/span><\/td>\nInvestment<\/span><\/td>\nBeta<\/span><\/td>\n<\/tr>\n
A<\/td>\n$50,000<\/td>\n0.50<\/td>\n<\/tr>\n
B<\/td>\n50,000<\/td>\n0.80<\/td>\n<\/tr>\n
C<\/td>\n50,000<\/td>\n1.00<\/td>\n<\/tr>\n
D<\/td>\n50,000<\/td>\n1.20<\/td>\n<\/tr>\n
Total<\/td>\n$200,000<\/span><\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.07<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.13<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.18<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.24<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.30<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

QUESTION 6<\/strong><\/p>\n

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 14.50%. Using the SML, what is the firm\u2019s required rate of return?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n10.85%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n15.53%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n13.39%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n10.31%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n14.86%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

QUESTION 7<\/strong><\/p>\n

1. Mulherin\u2019s 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.)<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n10.36%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n10.62%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n10.88%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n11.15%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n11.43%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

QUESTION 8<\/strong><\/p>\n

1. Kay Corporation\u2019s 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\u2019s 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 \u2013 1) 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Kay\u2019s bonds?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n0.52%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.61%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.38%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.50%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.56%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

5 points<\/strong><\/p>\n

QUESTION 9<\/strong><\/p>\n

1. Jim Angel holds a $200,000 portfolio consisting of the following stocks: What is the portfolio\u2019s beta?<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Stock<\/span><\/td>\nInvestmen<\/span>t<\/td>\nBeta<\/span><\/td>\n<\/tr>\n
A<\/td>\n$50,000<\/td>\n0.95<\/td>\n<\/tr>\n
B<\/td>\n$50,000<\/td>\n0.80<\/td>\n<\/tr>\n
C<\/td>\n$50,000<\/td>\n1.00<\/td>\n<\/tr>\n
D<\/td>\n$50,000<\/td>\n1.20<\/td>\n<\/tr>\n
Total<\/td>\n$200,000<\/td>\n<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.988<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.215<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.155<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.234<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.225<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

5 points<\/strong><\/p>\n

QUESTION 10<\/strong><\/p>\n

1. Grossnickle Corporation issued 20-year, noncallable, 8.1% 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 19 years to maturity?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n$1,132.57<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$1,223.69<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$1,301.80<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$1,353.87<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$1,314.82<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

QUESTION 11<\/strong><\/p>\n

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 13.25%. Using the SML, what is the firm\u2019s required rate of return?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n10.20%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n13.03%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n14.50%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n12.29%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n11.18%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

5 points<\/strong><\/p>\n

QUESTION 12<\/strong><\/p>\n

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?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n$1,069.75<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$698.06<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$1,096.95<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$906.57<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$688.99<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

5 points<\/strong><\/p>\n

QUESTION 13<\/strong><\/p>\n

1. Kollo Enterprises has a beta of 0.82, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Kollo\u2019s required rate of return?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n6.73%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n6.64%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n9.30%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n9.56%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n8.85%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

QUESTION 14<\/strong><\/p>\n

1. Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market\u2019s required rate of return is 9.50%, the risk-free rate is 7.00%, and the Fund\u2019s assets are as follows:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Stock<\/td>\nInvestment<\/td>\nBeta<\/td>\n<\/tr>\n
A<\/td>\n$200,000<\/td>\n1.50<\/td>\n<\/tr>\n
B<\/td>\n$300,000<\/td>\n-0.50<\/td>\n<\/tr>\n
C<\/td>\n$500,000<\/td>\n1.25<\/td>\n<\/tr>\n
D<\/td>\n$1,000,000<\/td>\n0.75<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n8.91%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n10.06%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n6.77%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n8.64%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n10.42%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

5 points<\/strong><\/p>\n

QUESTION 15<\/strong><\/p>\n

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\u2019s 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\u2019s current stock price?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n$22.16<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$26.54<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$25.77<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$29.37<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$27.83<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

5 points<\/strong><\/p>\n

QUESTION 16<\/strong><\/p>\n

1. Kelly Inc\u2019s 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\u2019s bonds is DRP = 0.40%, the liquidity premium on Kelly\u2019s 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?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n0.38%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.50%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.40%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.59%<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.56%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

5 points<\/strong><\/p>\n

QUESTION 17<\/strong><\/p>\n

1. You hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each. The portfolio\u2019s 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\u2019s new beta be?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n1.286<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.255<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.224<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.194<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.165<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

QUESTION 18<\/strong><\/p>\n

1. You hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each. The portfolio\u2019s 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 = 2.50. What will the portfolio\u2019s new beta be?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n1.20<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.152<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.308<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n0.912<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n1.008<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

5 points<\/strong><\/p>\n

QUESTION 19<\/strong><\/p>\n

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\u2019s beta is 1.45, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company\u2019s current stock price?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n$20.92<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$22.18<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$19.87<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$18.20<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$21.34<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

5 points<\/strong><\/p>\n

QUESTION 20<\/strong><\/p>\n

1. Grossnickle Corporation issued 20-year, noncallable, 6.3% 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 19 years to maturity?<\/p>\n\n\n\n\n\n\n\n
<\/td>\n<\/td>\n$1,136.58<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$950.79<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$1,289.58<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$1,049.15<\/td>\n<\/tr>\n
<\/td>\n<\/td>\n$1,092.86Click here to have a similar paper done for you by one of our writers within the set deadline at a discounted<\/a><\/i><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

QUESTION 1 1. Jim Angel holds a $200,000 portfolio consisting of the following stocks: What is the portfolio\u2019s 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 Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-179249","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/179249","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=179249"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/179249\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=179249"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=179249"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=179249"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}