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capital structure and stock

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QUESTION 1;1.;JimAngelholdsa$200,000portfolioconsistingofthefollowingstocks:Whatisthe;portfolio'sbeta?;Stock;A;B;C;D;Total;Investment;$50,000;$50,000;$50,000;$50,000;$200,000;Beta;0.75;0.80;1.00;1.20;0.956;1.022;0.853;1.144;0.938;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's 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's;debt?;Longtermdebt;(bonds,atpar);Preferredstock;Commonstock($10;par);Retainedearnings;Totaldebtandequity;$23,500,000;2,000,000;10,000,000;4,000,000;$39,500,000;$17,734,265;$23,394,137;$18,866,239;$16,602,290;$19,054,902;QUESTION 3;1.;CrockettCorporation's5yearbondsyield6.35%,and5yearTbondsyield4.75%.The;realriskfreerateisr*=2.20%,thedefaultriskpremiumforCrockett'sbondsisDRP=1.00%;versuszeroforTbonds,theliquiditypremiumonCrockett'sbondsisLP=0.90%versuszero;forTbonds,andthematurityriskpremiumforallbondsisfoundwiththeformulaMRP=(t1);0.1%,wheret=numberofyearstomaturity.Whatinflationpremium(IP)isbuiltinto5year;bondyields?;2.02%;2.49%;2.43%;2.11%;2.15%;Koy Corporation's 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's 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 - 1) 0.1%, where t = number of years to maturity.;What is the default risk premium (DRP) on Koy's bonds?;2.36%;3.10%;2.64;%;2.70%;3.69%;QUESTION 5;1.;KristinaRaattamaholdsa$200,000portfolioconsistingofthefollowingstocks.The;portfolio'sbetais0.875.IfKristinareplacesStockAwithanotherstock,E,whichhasabetaof;1.50,whatwilltheportfolio'snewbetabe?;Stock;A;B;C;D;Total;Investment;$50,000;50,000;50,000;50,000;$200,000;Beta;0.50;0.80;1.00;1.20;1.07;1.13;1.18;1.24;1.30;QUESTION 6;1.;NagelEquipmenthasabetaof0.88andanexpecteddividendgrowthrateof4.00%per;year.TheTbillrateis4.00%,andtheTbondrateis5.25%.Theannualreturnonthestock;marketduringthepast4yearswas10.25%.Investorsexpecttheaverageannualfuturereturnon;themarkettobe14.50%.UsingtheSML,whatisthefirm'srequiredrateofreturn?;10.85%;15.53%;13.39%;10.31%;14.86%;QUESTION 7;1.;Mulherin'sstockhasabetaof1.23,itsrequiredreturnis11.75%,andtheriskfreerateis;4.30%.Whatistherequiredrateofreturnonthemarket?(Hint:Firstfindthemarketrisk;premium.);10.36%;10.62%;10.88%;11.15%;11.43%;QUESTION8;1.;KayCorporation's5yearbondsyield6.20%and5yearTbondsyield4.40%.Thereal;riskfreerateisr*=2.5%,theinflationpremiumfor5yearbondsisIP=1.50%,thedefaultrisk;premiumforKay'sbondsisDRP=1.30%versuszeroforTbonds,andthematurityrisk;premiumforallbondsisfoundwiththeformulaMRP=(t1)0.1%,wheret=numberofyears;tomaturity.Whatistheliquiditypremium(LP)onKay'sbonds?;0.52%;0.61%;0.38%;0.50%;0.56%;5points;QUESTION9;1.;JimAngelholdsa$200,000portfolioconsistingofthefollowingstocks:Whatisthe;portfolio'sbeta?;Stock;A;B;C;D;Total;Investment;$50,000;$50,000;$50,000;$50,000;$200,000;Beta;0.95;0.80;1.00;1.20;0.988;1.215;1.155;1.234;1.225;5points;Q U E S T I O N 10;1.;GrossnickleCorporationissued20year,noncallable,8.1%annualcouponbondsattheir;parvalueof$1,000oneyearago.Today,themarketinterestrateonthesebondsis5.5%.Whatis;thecurrentpriceofthebonds,giventhattheynowhave19yearstomaturity?;$1,132.57;$1,223.69;$1,301.80;$1,353.87;$1,314.82;Q U E S T I O N 11;1.;NagelEquipmenthasabetaof0.88andanexpecteddividendgrowthrateof4.00%per;year.TheTbillrateis4.00%,andtheTbondrateis5.25%.Theannualreturnonthestock;marketduringthepast4yearswas10.25%.Investorsexpecttheaverageannualfuturereturnon;themarkettobe13.25%.UsingtheSML,whatisthefirm'srequiredrateofreturn?;10.20%;13.03%;14.50%;12.29%;11.18%;5points;QUESTION12;A25year,$1,000parvaluebondhasan8.5%annualpaymentcoupon.Thebond;currentlysellsfor$900.Iftheyieldtomaturityremainsatitscurrentrate,whatwillthepricebe;5yearsfromnow?;1.;$1,069.75;$698.06;$1,096.95;$906.57;$688.99;5points;QUESTION13;1.;KolloEnterpriseshasabetaof0.82,therealriskfreerateis2.00%,investorsexpecta;3.00%futureinflationrate,andthemarketriskpremiumis4.70%.WhatisKollo'srequiredrate;ofreturn?;6.73%;6.64;%;9.30%;9.56%;8.85%;Q U E S T I O N 14;1.;Considerthefollowinginformationandthencalculatetherequiredrateofreturnforthe;GlobalInvestmentFund,whichholds4stocks.Themarket'srequiredrateofreturnis9.50%,the;riskfreerateis7.00%,andtheFund'sassetsareasfollows;Stock;A;B;C;D;Investment;$200,000;$300,000;$500,000;$1,000,000;Beta;1.50;0.50;1.25;0.75;8.91%;10.06%;6.77%;8.64%;10.42%;5points;QUESTION15;1.;SchnusenbergCorporationjustpaidadividendofD=$0.75pershare,andthatdividend;isexpectedtogrowataconstantrateof6.50%peryearinthefuture.Thecompany'sbetais0.85;therequiredreturnonthemarketis10.50%,andtheriskfreerateis4.50%.Whatisthe;company'scurrentstockprice?;$22.16;$26.54;$25.77;$29.37;$27.83;5points;Q U E S T I O N 16;1.;KellyInc's5yearbondsyield7.50%and5yearTbondsyield4.50%.Therealriskfree;rateisr*=2.5%,thedefaultriskpremiumforKelly'sbondsisDRP=0.40%,theliquidity;premiumonKelly'sbondsisLP=2.6%versuszeroonTbonds,andtheinflationpremium(IP);is1.5%.Whatisthematurityriskpremium(MRP)onall5yearbonds?;0.38%;0.50%;0.40%;0.59%;0.56%;5points;Q U E S T I O N 17;1.;Youholdadiversified$100,000portfolioconsistingof20stockswith$5,000investedin;each.Theportfolio'sbetais1.12.Youplantosellastockwithb=0.90andusetheproceedsto;buyanewstockwithb=1.80.Whatwilltheportfolio'snewbetabe?;1.286;1.255;1.224;1.194;1.165;Q U E S T I O N 18;1.;Youholdadiversified$100,000portfolioconsistingof20stockswith$5,000investedineach.The;portfolio'sbetais1.12.Youplantosellastockwithb=0.90andusetheproceedstobuyanewstockwithb=2.50.;Whatwilltheportfolio'snewbetabe?;1.20;1.152;1.308;0.912;1.008;5points;QUESTION19;1.;TheFrancisCompanyisexpectedtopayadividendofD=$1.25pershareattheendof;theyear,andthatdividendisexpectedtogrowataconstantrateof6.00%peryearinthefuture.;Thecompany'sbetais1.45,themarketriskpremiumis5.50%,andtheriskfreerateis4.00%.;Whatisthecompany'scurrentstockprice?;$20.9;2;$22.18;$19.87;$18.20;$21.34;5points;QUESTION20;1.;GrossnickleCorporationissued20year,noncallable,6.3%annualcouponbondsattheir;parvalueof$1,000oneyearago.Today,themarketinterestrateonthesebondsis5.5%.Whatis;thecurrentpriceofthebonds,giventhattheynowhave19yearstomaturity?;$1,136.58;$950.79;$1,289.58;$1,049.15;$1,092.86;View Full Attachment;Additional Requirements;Min Pages: 5;Level of Detail: Only answer needed

 

Paper#17927 | Written in 18-Jul-2015

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