05 Jun Question ABC Inc. issued twelve-year, 6 percent semi-an
Question
ABC Inc. issued twelve-year, 6 percent semi-annual coupon bonds at par. Today, the
bonds are priced at $1112. What is the firms after-tax cost of debt if the tax rate is 30%?
Question 2
If the coupon rate is less than the yield to maturity, the bond will:
sell at a premium
sell at a discount
sell at par
Question 3
An investor puts $10,000 in a risk-free asset and $20,000 in the market
portfolio. Compute the beta of his portfolio.
2
0.67
1
0.50
0.33
Question 4
1. ABC companys market value of common stock is $200 million, preferred stock is $300
million, and debt is $500 million. Suppose that the cost of equity is 7%, the before-tax
cost of debt is 3.9%, cost of preferred stock is 5.6%, and the tax rate is 25%.
Compute the WACC.
Question 5
1. You have observed the following returns on ABC’s stocks over the last six years:
11.1%, 4.9%, 4.2%, -13.5%, 6.6%, -4%
What is the geometric average returns on the stock over this six-year period.
Question 6
One year ago, you puchased 64 shares of ABC stock for $28.5 per share. During the year, you
received a dividend of $3.2 per share. Today, you sold all your shares for $29.5. What are the
percentage return on your investment?
Question 7
The nominal rate is 19.3% compounded monthly. Compute the effective rate.
Question 8
ABCs last dividend paid was $3.34, its required return is 24%, its growth rate is 4%. What is
ABC’s expected stock price in 3 years?
Question 9
You take a loan of $36,532 to buy a car. As per the terms of the loan, you need to make monthly
payments for 5 years at a 3.2% rate of interest. What is the amount of each monthly payment?
Question 10
You want to create a portfolio as risky as the market. Suppose you invest your money in
Stocks A, B, C, and the risk-free asset. Compute your investment in Stock C (i.e.
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