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Question;16. Suppose the U.S. Treasury announces plans to issue $50 billion of new;bonds. Assuming the announcement was not expected, what effect, other things;held constant, would that have on bond prices and interest rates?;a.;Prices;and interest rates would both rise.;b.;Prices;would rise and interest rates would decline.;c.;Prices;and interest rates would both decline.;d.;There;would be no changes in either prices or interest rates.;e.;Prices;would decline and interest rates would rise.;17. Last year Toto Corporation's sales were $225 million. If sales grow at 6%;per year, how large (in millions) will they be 5 years later?;a.;$271.74;b.;$286.05;c.;$301.10;d.;$316.16;e.;$331.96;18. You want to go to Europe;5 years from now, and you can save $3,100 per year, beginning immediately.;You plan to deposit the funds in a mutual fund which you expect to return 8.5%;per year. Under these conditions, how much will you have just after you make;the 5th deposit, 5 years from now?;a.;$17,986.82;b.;$18,933.49;c.;$19,929.99;d.;$20,926.49;e.;$21,972.82;19. Below is;the common equity section (in millions) of Teweles Technology's last two;year-end balance sheets;2006;2005;Common;stock;$2,000;$1,000;Retained;earnings;2,000;2,340;Total;common equity;$4,000;$3,340;Teweles has never paid;a dividend to its common stockholders. Which of the following statements is;CORRECT?;a.;The;company's net income in 2006 was higher than in 2005.;b.;Teweles;issued common stock in 2006.;c.;The;market price of Teweles' stock doubled in 2006.;d.;Teweles;had positive net income in both 2005 and 2006, but the company's net income in;2006 was lower than it was in 2005.;e.;The;company has more equity than debt on its balance sheet.;20. Companies generate income from their;regular" operations and from other sources like interest earned on;the securities they hold, which is called non-operating income. Lindley;Textiles recently reported $12,500 of sales, $7,250 of operating costs other than;depreciation, and $1,000 of depreciation. The company had no amortization;charges and no non-operating income. It had $8,000 of bonds outstanding that;carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%.;How much was Lindley's operating income, or EBIT?;a.;$3,462;b.;$3,644;c.;$3,836;d.;$4,038;e.;$4,250;21. An investor is considering starting a new business. The company would;require $475,000 of assets, and it would be financed entirely with common;stock. The investor will go forward only if she thinks the firm can provide a;13.5% return on the invested capital, which means that the firm must have an;ROE of 13.5%. How much net income must be expected to warrant starting the;business?;a.;$52,230;b.;$54,979;c.;$57,873;d.;$60,919;e.;$64,125;22. D. J. Masson Inc. recently issued;noncallable bonds that mature in 10 years. They have a par value of $1,000 and;an annual coupon of 5.5%. If the current market interest rate is 7.0%, at what;price should the bonds sell?;a.;$829.21;b.;$850.47;c.;$872.28;d.;$894.65;e.;$917.01;23. McCue Inc.'s bonds currently sell for $1,250. They pay a $120 annual;coupon, have a 15-year maturity, and a $1,000 par value, but they can be called;in 5 years at $1,050. Assume that no costs other than the call premium would be;incurred to call and refund the bonds, and also assume that the yield curve is;horizontal, with rates expected to remain at current levels on into the future.;What is the difference between this bond's YTM and its YTC? (Subtract the YTC;from the YTM.);a.;2.11%;b.;2.32%;c.;2.55%;d.;2.80%;e.;3.09%;24. Moerdyk Corporation's bonds;have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000.;The going interest rate (rd);is 4.75%, based on semiannual compounding. What is the bond's price?;a.;1,063.09;b.;1,090.35;c.;1,118.31;d.;1,146.27;e.;1,174.93;25. Rick Kish has a $100,000 stock portfolio. $32,000 is invested in a stock;with a beta of 0.75 and the remainder is invested in a stock with a beta of;1.38. These are the only two investments in his portfolio. What is his;portfolio's beta?;a.;1.18;b.;1.24;c.;1.30;d.;1.36;e.;1.43;26. Yonan Corporation's stock had a required return of 11.50% last year, when;the risk-free rate was 5.50% and the market risk premium was 4.75%. Now suppose;there is a shift in investor risk aversion, and the market risk premium;increases by 2%. The risk-free rate and Yonan's beta remain unchanged. What is;Yonan's new required return? (Hint: First calculate the beta, then find the;required return.);a.;14.03%;b.;14.38%;c.;14.74%;d.;15.10%;e.;15.48%


Paper#44941 | Written in 18-Jul-2015

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