29 Jun 13. Dyl Inc.’s bonds currently se
Question
13. Dyl Inc.’s bonds currently sell for $1,180 and have a par value of $1,000. They pay a $65 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to maturity (YTM)?
a. 4.79%
b. 3.69%
c. 4.65%
d. 5.08%
e. 4.36%
14. Sadik Inc.’s bonds currently sell for $1,270 and have a par value of $1,000. They pay a $105 annual coupon and have a 15-year maturity, but they can be called in 5 years at $1,100. What is their yield to call (YTC)?
a. 6.89%
b. 5.89%
c. 5.18%
d. 6.54%
e. 6.30%
15. Bonds sell at a discount from par value when market rates for similar bonds are
a. Less than the bond’s coupon rate.
b. Greater than the bond’s coupon rate.
c. Equal to the bond’s coupon rate.
d. Both lower than and equal to the bond’s coupon rate.
e. Market rates are irrelevant in determining a bond’s price.
16. Which of the following bonds would have the greatest percentage increase in value if all interest rates in the economy fall by 1%?
a. 10-year, zero coupon bond.
b. 20-year, 10% coupon bond.
c. 20-year, 5% coupon bond.
d. 1-year, 10% coupon bond.
e. 20-year, zero coupon bond.
17. O’Brien Ltd.’s outstanding bonds have a $1,000 par value, and they mature in 25 years. Their nominal yield to maturity is 9.25%, they pay interest semiannually, and they sell at a price of $975. What is the bond’s nominal coupon interest rate?
a. 7.32%
b. 7.71%
c. 8.12%
d. 8.54%
e. 8.99%
18. Cooley Company’s stock has a beta of 1.32, the risk-free rate is4.25%, and the market risk premium is5.50%. What is the firm’s required rate of return?
a. 10.93%
b. 11.51%
c. 10.13%
d. 8.75%
e. 10.01%
19. Porter Inc’s stock has an expected return of 10.75%, a beta of 1.25, and is in equilibrium. If the risk-free rate is 5.00%, what is the market risk premium?
a. 5.15%
b. 4.28%
c. 4.32%
d. 4.60%
e. 4.55%
20. Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market’s required rate of return is 9.50%, the risk-free rate is 7.00%, and the Fund’s assets are as follows:
Stock Investment Beta
A $200,000 1.50
B $300,000 -0.50
C $500,000 1.25
D $1,000,000 0.75
a. 8.91%
b. 10.06%
c. 6.77%
d. 8.64%
e. 10.42%
21. Which of the following statements best describes what you should expect if you randomly select stocks and add them to your portfolio?
a. Adding more such stocks will reduce the portfolio’s unsystematic, or diversifiable, risk.
b. Adding more such stocks will increase the portfolio’s expected rate of return.
c. Adding more such stocks will reduce the portfolio’s beta coefficient and thus its systematic risk.
d. Adding more such stocks will have no effect on the portfolio’s risk.
e. Adding more such stocks will reduce the portfolio’s market risk but not its unsystematic risk.
22. Stock A has a beta of 0.7, whereas Stock B has a beta of 1.3. Portfolio P has 50% invested in both A and B. Which of the following would occur if the market risk premium increased by 1% but the risk-free rate remained constant?
a. The required return on Portfolio P would increase by 1%.
b. The required return on both stocks would increase by 1%.
c. The required return on Portfolio P would remain unchanged.
d. The required return on Stock A would increase by more than 1%, while the return on Stock B would increase by less than 1%.
e. The required return for Stock A would fall, but the required return for Stock B would increase.
23. Assume that you manage a $10 million mutual fund that has a beta of 1.05 and a 9.50% required return. The risk-free rate is 4.20%. You now receive another $5 million, which you invest in stocks with an average beta of 0.65. What is the required rate of return on the new portfolio? (Hint: You must first find the market risk premium, then find the new portfolio beta.)
a. 8.83%
b. 9.05%
c. 9.27%
d. 9.51%
e. 9.74%
24. If the current one year CD rate is 3% and the best estimate of one year CD which will be available one year from today is 5%, what is the current two year CD rate with 1% liquidity premium?
a. 4.00%
b. 4.50%
c. 5.00%
d. 5.50%
e. 5.75%
(
25. How long approximately does it take to triple your investment at 6% per year?
a. 18.9 years
b. 19.5 years
c. 19.7 years
d. 20.0 years
e. 22.7 years
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