Quiz_5_-_Ch._10
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University of Fredericton *
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5015
Subject
Finance
Date
Jan 9, 2024
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docx
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6
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Started on
Saturday, 28 January 2023, 12:55 PM
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Time taken
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Grade
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Question text
Valuation of financial assets requires knowledge of
Select one:
a. Future cash flows.
b. Appropriate discount rate.
c. Past asset performance.
d. Future cash flows and appropriate discount rate.
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The correct answer is: Future cash flows and appropriate discount rate.
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2
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Question text
The market allocates capital to companies based on
Select one:
a. Risk.
b. Efficiency.
c. Expected returns.
d. All of the other answers are correct
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The correct answer is: All of the other answers are correct
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3
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Question text
A 4 year bond pays 4% annual interest (paid semi annually). It currently sells for $872.25. What is the bond's yield to maturity?
Select one:
a. 4.00%
b. 4.59%
c. 6.06%
d. 7.78%
Feedback
The correct answer is: 7.78%
Nper= 4*2
P/Y=2 (seimannual)
PV=-872.25
PMT = (0.04*1000)/2)=20
FV= 1000
Rate(NPer,Pmt,PV,FV,type,guess) = Rate(8,-20,872.25,-1000,0) = 7.78%
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Question text
The cost of capital for common stock is K
e
= (D
1
/P
o
) + g. What are the assumptions of the model?
Select one:
a. Growth (g) is constant to infinity
b. The price earnings ratio stays the same
c. The firm must pay a dividend of at least a dollar for this formula to work.
d. All of the answers are assumptions of the model
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The correct answer is: Growth (g) is constant to infinity
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5
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Question text
A bond which has a yield to maturity greater than its coupon interest rate will sell for a price
Select one:
a. Below par.
b. At par.
c. Above par.
d. That is equal to the face value of the bond plus the value of all interest payments.
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The correct answer is: Below par.
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A 10-year bond pays 8% annual interest (paid semiannually). If similar bonds are currently yielding 5% annually, what is the market value of the bond?
Select one:
a. $1,000.00
b. $1,857.40
c. $1,233.84
d. $1,080.00
Feedback
The correct answer is: $1,233.84
FV= assume $1000
Nper = 10
Rate = 5%
Pmt = 8%*FV = 0.08*1000=$80
=PV(Rate/2,Nper*2,Pmt/2,PV,type) = PV(0.05/2,10*2,80/2,1000,0) =
$1,233.84
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Question text
A 15-year zero-coupon bond was issued with a $1,000 par value and a yield to maturity of 8%. If similar bonds are currently yielding 8%, what is the market value of the bond?
Select one:
a. $239.39
b. $315.24
c. $800.00
d. $1,000.00
Feedback
The correct answer is: $315.24
FV= $1000
Nper = 15
Rate = 8%
Pmt = 0 (because it’s a zero-coupon)
=PV(Rate,Nper,Pmt,PV,type) = PV(0.08,15,0,1000,0) =
$315.24
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8
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Question text
An issue of common stock has just paid a dividend of $3.75. Its growth rate is 8%. What is its price if the markets rate of return is 16%?
Select one:
a. $25.01
b. $46.88
c. $50.63
d. $54.38
Feedback
The correct answer is: $50.63
Price of share = Dividend*(1+g)/ke-g
Price of share = $3.75*(1+8%) /(0.16-0.08)
Price of share = $50.63
Question
9
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Question text
Which of the following financial assets is likely to have the highest required rate of return based on risk?
Select one:
a. Corporate bond
b. Treasury bill
c. Preferred share
d. Common share
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The correct answer is: Common share
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An issue of preferred stock is paying an annual dividend of $5. The growth rate for the firm's common stock is 14%. What is the preferred stock price if the required rate of return is 11%?
Select one:
a. $45.45
b. $41.67
c. $35.71
d. None of the other answers are correct
Feedback
The correct answer is: $45.45
Pp= Dp/Ke = $5/0.11 = $45.45
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Year 1
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Year 3
Year 4
Year 5
Complete this question by entering your answers in the tabs below.
Year 1
Year 2
Year 3
Year 4
Year 5
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82,400
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Saved
Help
Save & Exit
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Property Class
Year
3-Year
5-Year
7-Year
Check my work
1
33.33%
20.00%
14.29%
2
44.45
32.00
24.49
3
14.81
19.20
17.49
4
7.41
11.52
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Note: Do not round intermediate calculations and round your answer
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7
5
11.52
8.93
6
5.76
8.92
8.93
8
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2020 $
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2020 $
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Discount Rate
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Cost of asset
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2022
Cash
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Inventory
Current Assets
Accum.Depreciation
Net Fixed Assets
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Less
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Total Assets
O 11.58%
O 44.90%
O 8.37%
$5,268,485 $10,268,485
O 4.35%
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O 6.02%
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