Quiz 2

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School

George Mason University *

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Course

303

Subject

Finance

Date

Feb 20, 2024

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docx

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Uploaded by ConstableInternetMole18

Question 1 Red Lizard Construction just borrowed $53,700.00. The terms of the loan require the company to make equal monthly payments forever. The first monthly payment is due in 1 month. If the regular monthly loan payment is $570.00, then what is the EAR of the loan? Selected Answer: A rate equal to or greater than 13.12% but less than 13.89% Answers: A rate equal to or greater than 12.04% but less than 13.12% A rate equal to or greater than 10.13% but less than 11.00% A rate equal to or greater than 13.12% but less than 13.89% A rate less than 10.13% or a rate greater than 13.89% A rate equal to or greater than 11.00% but less than 12.04% Question 2 Daryl has one share of stock and one bond. The total value of the two securities is $1,051.00. The bond has a YTM of 12.61 percent, a coupon rate of 8.30 percent, and a face value of $1,000.00; pays semi-annual coupons with the next one expected in 6 months, and matures in 3 years. The stock pays annual dividends that are expected to grow by 4.52 percent per year forever. The next dividend is expected to be $12.34 and paid in one year. What is the expected return for the stock? Selected Answer: 12.43% (plus or minus 0.03 percentage points) Answers: 12.43% (plus or minus 0.03 percentage points) 28.72% (plus or minus 0.03 percentage points) 7.91% (plus or minus 0.03 percentage points) 5.31% (plus or minus 0.03 percentage points) Question 3

Bond A has a coupon rate of 10.41 percent, a yield-to-maturity of 14.00 percent, and a face value of $1,000.00; matures in 8 years; and pays coupons annually with the next coupon expected in 1 year. What is (X + Y + Z) if X is the present value of any coupon payments expected to be made in 3 years from today, Y is the present value of any coupon payments expected to be made in 6 years from today, and Z is the present value of any coupon payments expected to be made in 9 years from today? Selected Answer: An amount equal to or greater than $88.27 but less than $133.70 Answers: An amount equal to or greater than $151.94 but less than $181.17 An amount equal to or greater than $88.27 but less than $133.70 An amount equal to or greater than $181.17 but less than $235.15 An amount equal to or greater than $133.70 but less than $151.94 An amount less than $88.27 or a rate greater than $235.15 Question 4 Today, a bond has a coupon rate of 12.3%, par value of $1000, YTM of 9.30%, and semi-annual coupons with the next coupon due in 6 months. One year ago, the bond's price was $1,281.05 and the bond had 7 years until maturity. What is the current yield of the bond today? Selected Answer: A rate equal to or greater than 10.75% but less than 11.05% Answers: A rate equal to or greater than 10.63% but less than 10.75% A rate less than 10.50% or a rate greater than 11.49% A rate equal to or greater than 10.75% but less than 11.05% A rate equal to or greater than 10.50% but less than 10.63% A rate equal to or greater than 11.05% but less than 11.49% Question 5

Two years ago, the price of a bond was $924.00, and one year ago, the price of the bond was $980.00. Over the past year, the bond paid a total of $71.00 in coupon payments, which were just paid. If the bond is currently priced at $956.00, then what was the rate of return for the bond over the past year (from 1 year ago to today)? The par value of the bond is $1,000. Selected Answer: 4.80 (plus or minus .02 percentage points) Answers: 4.80 (plus or minus .02 percentage points) 4.92 (plus or minus .02 percentage points) 12.03 (plus or minus .02 percentage points) 13.74 (plus or minus .02 percentage points) Question 6 John has nothing in his retirement account. However, he plans to save $8,600.00 per year in his retirement account for each of the next 12 years. His first contribution to his retirement account is expected in 1 year. John expects to earn 7.40 percent per year in his retirement account. John plans to retire in 12 years, immediately after making his last $8,600.00 contribution to his retirement account. In retirement, John plans to withdraw $48,000.00 per year for as long as he can. How many payments of $48,000.00 can John expect to receive in retirement if he receives annual payments of $48,000.00 in retirement and his first retirement payment is received exactly 1 year after he retires? Selected Answer: 3.90 (plus or minus 0.2 payments) Answers: 4.90 (plus or minus 0.2 payments) 3.59 (plus or minus 0.2 payments) 3.90 (plus or minus 0.2 payments) John can make an infinite number of annual withdrawals of $48,000.00 in retirement Question 7 Golden Fleece Management stock is expected to pay a dividend of $6.38 in 1 year. The stock is currently priced at $67.78, is expected to be priced at $71.05 in 1 year, and is expected to be priced at $73.89 in 2 years. What is the dividend in 2 years

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expected to be for Golden Fleece Management stock? The stock's dividend is paid annually and the next dividend is expected in 1 year. Selected Answer: An amount equal to or greater than $7.12 but less than $7.45 Answers: An amount equal to or greater than $7.12 but less than $7.45 An amount equal to or greater than $6.67 but less than $6.83 An amount equal to or greater than $6.83 but less than $7.12 An amount less than $5.10 or an amount greater than $7.45 An amount equal to or greater than $5.10 but less than $6.67 Question 8 If 1) the expected return for Belmont Bagels stock is 8.04 percent; 2) the dividend is expected to be $0.00 in one year, $6.31 in two years, $0.00 in three years, $4.38 in four years, and $2.15 in five years; and 3) after the dividend is paid in five years, the dividend is expected to begin growing by 4.82 percent a year forever, then what is the current price of one share of the stock? Selected Answer: An amount equal to or greater than $56.02 but less than $58.36 Answers: An amount equal to or greater than $54.20 but less than $56.02 An amount equal to or greater than $58.36 but less than $62.93 An amount equal to or greater than $56.02 but less than $58.36 An amount less than $54.20 or a rate greater than $70.61 An amount equal to or greater than $62.93 but less than $70.61 Question 9 Eugene plans to save $20,000.00 per year until he retires. His first savings contribution to his retirement account is expected in 1 year from today. Eugene plans to retire in 5 years from today, immediately after making his last $20,000.00

contribution to his retirement account. He then plans to be retired for 5 years. Eugene expects to earn 6.00 percent per year in his retirement account, both before and during his retirement. If Eugene receives equal annual payments from his retirement account during his retirement with the first of these annual retirement payments received in 1 year after he retires and the last of these annual retirement payments received in 5 years after he retires, then how much can Eugene expect each of his annual retirement payments to be? Selected Answer: $26,764.51 (plus or minus $10) Answers: $25,249.54 (plus or minus $10) $26,764.51 (plus or minus $10) $20,196.01 (plus or minus $10) $22,955.86 (plus or minus $10) Question 10 Cartier Jewelers has issued bonds, common stock, and preferred stock. The YTM on the bonds is 13% and the expected annual return on the common stock is 24%. Which of the following assertions about the expected annual return on the preferred stock issued by Cartier Jewelers is most likely to be true? Selected Answer: The expected annual return on the preferred stock is 18% Answers: The expected annual return on the preferred stock is 27% The expected annual return on the preferred stock is 10% The expected annual return on the preferred stock is 18% The expected annual return on the preferred stock is 24% The expected annual return on the preferred stock is 13%