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Assume that the risk-free rate is 4.5% and that the expected




Question;1);Assume that the risk-free rate is 4.5% and that the expected return on the;market is 12%. What is the required rate of return on a stock that has a beta;of 0.4?;2);Needham Pharmaceuticals has a profit margin of 3% and an equity multiplier of;1.5. Its sales are $110 million and it has total assets of $58 million. What is;its ROE? Round your answer to two decimal places.;3)Assume;you are given the following relationships for the Clayton Corporation;Sales/total;assets;1.8;Return;on assets (ROA);2%;Return;on equity (ROE);5%;Calculate Clayton's profit margin.;Round your answer to two decimal places.;Calculate Clayton's debt ratio.;Round your answer to two decimal places.;4);Pearson Brothers recently reported an EBITDA of $6.5 million and net income of;$1.95 million. It had $2.275 million of interest expense, and its corporate tax;rate was 35%. What was its charge for depreciation and amortization?;5);Suppose you hold a diversified portfolio consisting of a $7,500 investment in;each of 20 different common stocks. The portfolio's beta is 2.15. Now, suppose;you sell one of the stocks with a beta of 1.0 for $7,500 and use the proceeds;to buy another stock whose beta is 1.95. Calculate your portfolio's new beta.;Round your answer to two decimal places.;6);What will be the nominal rate of return on a perpetual preferred stock with a;$100 par value, a stated dividend of 7% of par, and a current market price of;(a);$52, (b) $87, (c) $100, and (d) $136? Round the answers to two decimal places.;7);Thress Industries just paid a dividend of $4.00 a share (i.e., D0 =;4.00). The dividend is expected to grow 5% a year for the next 3 years and then;at 14% a year thereafter. What is the expected dividend per share for each of;the next 5 years? Round your answers to the nearest cent.;8);The Moore Corporation had operating income (EBIT) of $300,000. The company's;depreciation expense is $90,000. Moore is 100% equity financed, and it faces a;40% tax rate.;a);What is the company's net income?;b);What is its net cash flow?;9);You just purchased a bond that matures in 5 years. The bond has a face value of;$1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What;is the bond's yield to maturity? Round your answer to two decimal places.;10);While Mary Corens was a student at the University of Tennessee, she borrowed;$12,000 in student loans at an annual interest rate of 8.30%. If Mary repays;$1,500 per year, how long (to the nearest year) will it take her to repay the;loan?;11);Assume that the average firm in your company's industry is expected to grow at;a constant rate of 7% and that its dividend yield is 8%. Your company is about;as risky as the average firm in the industry, but it has just successfully;completed some R&D work that leads you to expect that its earnings and;dividends will grow at a rate of 50% [D1 = D0(1 + g) = D0(1.50)];this year and 30% the following year, after which growth should return to the;7% industry average. If the last dividend paid (D0) was $2.25, what;is the value per share of your firm's stock? Round your answer to the nearest;cent. Do not round your intermediate computations.;12);Wilson Wonders's bonds have 10 years remaining to maturity. Interest is paid;annually, the bonds have a $1,000 par value, and the coupon interest rate is;7%. The bonds sell at a price of $985. What is their yield to maturity? Round;your answer to two decimal places.;13);What is the present value of a security that will pay $20,000 in 20 years if;securities of equal risk pay 5.2% annually? Round your answer to the nearest;cent.;14);You have a $2 million portfolio consisting of a $100,000 investment in each of;20 different stocks. The portfolio has a beta of 1.15. You are considering;selling $100,000 worth of one stock with a beta of 1.10 and using the proceeds;to purchase another stock with a beta of 1.45. What will the portfolio's new;beta be after these transactions? Round your answer to two decimal places.;15);The current price of a stock is $34, and the annual risk-free rate is 4%. A;call option with a strike price of $32 and 1 year until expiration has a;current value of $5.80. What is the value of a put option written on the stock;with the same exercise price and expiration date as the call option? Round your;answer to the nearest cent.;16);Find the present value of $400 due in the future under each of the following;conditions. Round your answers to the nearest cent.;A);4% nominal rate, semiannual compounding, discounted back 5 years;B);4% nominal rate, quarterly compounding, discounted back 5 years;C);4% nominal rate, monthly compounding, discounted back 5 years;17) Washington-Pacific invests $2;million to buy a tract of land and plant some young pine trees. The trees can;be harvested in 13 years, at which time W-P plans to sell the forest at an;expected price of $4 million. What is W-P's expected rate of return? Round your;answer to two decimal places.;18);A Treasury bond that matures in 10 years has a yield of 4%. A 10-year corporate;bond has a yield of 10%. Assume that the liquidity premium on the corporate;bond is 0.3%. What is the default risk premium on the corporate bond? Round;your answer to two decimal places.


Paper#45308 | Written in 18-Jul-2015

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