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Economics Multiple Choice Exam




Question;Question 1 How much did you borrow for your house if your monthly mortgage payment for a 30 year mortgage at 6.65% APR is $1,700?A. $249,235B. $218,080C. $264,812D. $202,503E. $233,658F. $186,9266 points Question 2 Shady Rack Inc. has a bond outstanding with 10 percent coupon, paid semiannually, and 15 years to maturity. The market price of the bond is $1,039.55. Calculate the bond?s yield to maturity (YTM). Now, if due to changes in market conditions, the market required YTM suddenly increases by 2% from your calculated YTM, what will be the percent change in the market price of the bond?A. -17.76%B. -15.66%C. -14.01%D. -14.87%E. -16.39%F. -17.09%6 points Question 3 Sanaponic, Inc. will pay a dividend of $6 for each of the next 3 years, $8 for each of the years 4-7, and $10 for the years 8-10. Thereafter, starting in year 11, the company will pay a constant dividend of $8/year forever. If you require 18 percent rate of return on investments in this risk class, how much is this stock worth to you?A. $37.77B. $55.99C. $45.68D. $50.50E. $41.46F. $34.546 points Question 4 Your required rate of return is 12%. What is the net present value of a project with the following cash flows?Year 0 1 2 3 4 5Cash Flow -750 450 350 150 125 -100A. 15.56B. 48.68C. 26.33D. 60.27E. 72.15F. 37.376 points Question 5 Please use the following information for this and the following two questions.BB Lean has identified two mutually exclusive projects with the following cash flows.Year 0 1 2 3 4 5Cash Flow Project A -52,000.00 18,000.00 17,000.00 15,000.00 12,000.00 9,000.00Cash Flow Project B -52,000.00 17,800.00 10,000.00 12,000.00 17,000.00 22,000.00The company requires a 11.5% rate of return from projects of this risk.What is the NPV of project A?A. 972.57B. 5,972.87C. 417.37D. 1,395.64E. 1,624.90F. 5,180.356 points Question 6 What is the IRR of project B?A. 12.06%B. 14.68%C. 13.90%D. 13.05%E. 12.94%F. 20.80%6 points Question 7 At what discount rate would you be indifferent between these two projects?A. 13.5250%B. 14.7386%C. 34.1306%D. 15.8950%E. 3.1177%F. 26.0812%6 points Question 8 A bond with a face value of $1,000 has annual coupon payments of $100. It was issued 10 years ago and has 7 years remaining to maturity. The current market price for the bond is $1,000. Which of the following is true: I. Its YTM is 10%. II. Bond?s coupon rate is 10%. III. The bond?s current yield is 10%.A. III OnlyB. I, II, and IIIC. I, III OnlyD. II, III OnlyE. I OnlyF. I, II Only6 points Question 9 Riverhawk Corporation has a bond outstanding with a market price of $1,050.00. The bond has 10 years to maturity, pays interest semiannually, and has a yield to maturity of 9%. What is the bond?s coupon rate?A. 12.84%B. 9.77%C. 10.54%D. 12.08%E. 11.31%F. 13.61%6 points Question 10 You purchased a stock for $24 per share. The most recent dividend was $2.50 and dividends are expected to grow at a rate of 8% indefinitely. What is your required rate of return on the stock?A. 17.00%B. 17.64%C. 18.38%D. 21.50%E. 20.27%F. 19.25%6 points Question 11 Sales and profits of Growth Inc. are expected to grow at a rate of 25% per year for the next six years but the company will pay no dividends and reinvest all earnings. After that, the dividends will grow at a constant annual rate of 7%. At the end of year 7, the company plans to pay its first dividend of $4.00 per share. If the required return is 16%, how much is the stock worth today?A. $22.80B. $15.96C. $13.68D. $25.08E. $18.24F. $20.526 points Question 12 Apple Sink Inc. (ASI) just paid a dividend of $2.50 per share. Its dividends are expected to grow at 26% a year for the next two years, 24% a year for the years 3 and 4, 16% for year 5, and at a constant rate of 6% per year thereafter. What is the current market value of the ASI?s stock if companies in this risk class have a 16% required rate of return?A. $54.27B. $56.03C. $45.54D. $42.87E. $51.29F. $48.356 points Question 13 The Retarded Company?s dividends are declining at an annual rate of 4 percent. The company just paid a dividend of $4 per share. You require a 16 percent rate of return. How much will you pay for this stock?A. $13.85B. $19.20C. $15.33D. $17.09E. $21.78F. $12.576 points Question 14 The dividend yield of a stock is 10 percent. If the market price of the stock is $18 per share and its dividends have been growing at a constant rate of 6%, what was the most recent dividend paid by the company?A. $1.53B. $0.85C. $1.70D. $1.02E. $1.19F. $1.366 points Question 15 Last year, Jen and Berry Inc. had sales of $40,000, cost of goods sold (COGS) of 12,000, depreciation charge of $3,000 and selling, general and administrative (SG&A) cost of $10,000. The interest costs were $2,500. Thirty-five percent of SG&A costs are fixed costs. If its sales are expected to be $60,000 this year, what will be the estimated SG&A costs this year?A. $12,667B. $11,500C. $10,636D. $12,000E. $13,250F. $14,2506 points Question 16 You require a risk premium of 3.5 percent on an investment in a company. The pure rate of interest in the market is 2.5 percent and the inflation premium is 3 percent. US Treasury bills are risk free. What should be the yield of the US Treasury bills? Use multiplicative form.A. 6.35%B. 6.09%C. 5.58%D. 5.06%E. 5.32%F. 5.83%6 points Question 17 Bonds X and Y are identical, including the risk class. The only difference between A and B is in the coupon payment as shown below. Bond X Bond YFace value $1,000 $1,000Annual Coupon Payment $120 $130Payment Frequency Semiannual AnnualYears to maturity 15 15Price $950.39? What is the price of bond Y?A. $1,007.15B. $925.88C. $989.75D. $956.95E. $940.92F. $973.44


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