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Finance Problems Set with Solution




Question;s"Question 1. 1. (TCOs 1, 8, 9) Using the security;MARKET line formula rather than the dividend discount formula, determine the;expected return on a firm's common STOCK when:(a) beta = 1.2(b) the risk-free;rate is 4%, and(c) marketplace interest rates have hovered around 9%. (Points;20);Question 2. 2. (TCOs 1, 5, 6) Calculate the appropriate;selling price of a 30-year 5% COUPON, $10,000 TREASURY BOND that was purchased;five years ago. Marketplace interest rates are averaging 8%. (Points: 20);Question 3. 3. (TCO 6) Calculate the five ratios for;the following company info.;Income Statement Balance Sheet;Revenue 10,000 Assets Liab. + OE;EBIT $2,000 cash $10,000 a/p $2,000;Interest $500 A/R $1,000 Bonds payable $50,000;Earnings B4 Tax $1,500 Equip $25,000 equity $84,000;EAT (at 40%) $900 Bldg $100,000;Total $136,000 $136,000" "Question 4. 4. (TCO 2) Given the data below;calculate the expected return, variance, and standard deviation of the;following company.In a recessionary economy, which is expected to occur with a;30% probability, the expected returns would be -5%.In an expanding economy with;an expected probability of occurrence of 20%, the expected return would be;20%.In a normal economy expected to occur 50% of the time, the expected return;would be 5%.;Question 5. 5. (TCO 9) As percentage of equity on the balance;sheet increases, FINANCIAL leverage decreases, which makes EPS decrease. If;this is the case, why don't all firms try to end up with 99.9% debt? (Points;20);Question 6. 6. (TCO 7) What would be the expected change to;a 30-year bond's market price or value if its YTM increases to 9.4%? Its YTM is;now 8.5%, it has an 8% annual COUPON, $1,000 face value, it is currently priced;at $897.26, and its duration is eight years. (Points: 20) Question 8. 8. (TCO 6) A $1,000 face;value bond was issued at par 20 years ago with a 6% coupon paid semiannually.;The bond now has seven years remaining to maturity and similar debt obligations;are yielding 12%. ?Compute;the current price of the bond.;Question 9. 9. (TCO 6) What is the interest rate needed on a;$1,000 face value, 6% coupon corporate bond to make it equivalent in terms of;return to one whose interest rate is tax free? Assume the corporate tax rate is;30%. (Points: 10)


Paper#48933 | Written in 18-Jul-2015

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