BusFin 620 Exam2Review.doc

BusFin 620 Exam2Review Today, Isabella Investor has purchased a 20 year bond paying a yearly coupon of 8%. Purchasers are demanding an annual return of 7.35% on bonds of similar risk. If the required return does not change, and Isabella sells the bond in twelve years, what will be the difference in price from her purchase price to the price twelve years later? Gain of 2.69% Loss of 2.69% No change Gain of 7.35% Carr?s 4L Ranch, Inc., will pay a dividend of $2.80 in exactly one year. Carr pays dividends at 45% of EPS, and its ROE is 14%. Carr?s investors require a 13% return, and Carr invests all of the money it does not give out in dividends, and earns the company ROE on those monies. Dividends will grow at the sustainable growth rate. What is the value of a share of Carr stock? $21.54 $47.86 $52.83 $63.14 Static profits, Inc., will earn $72,000 after tax each year forever. Investors require a return of 12%. What is the company worth? $72,000 $432,000 $600,000 $864,000 Spartan Sofas, Inc., has a beta of 1.28. Short term T-Bills are paying annual interest of 2.23%, and the market return is 12.07%. What is Spartan?s required rate of return? 9.84% 12.07% 14.30% 14.83% Aaron Brave purchases a $1000 par zero coupon bond that matures in 15 years. His required rate of return is 7.13%. In three years, he will need a return of 7.55% annually. What will the price change be in the bond between today and three years from today? Increase $61.62 Decrease $61.62 Increase $13.49 Decrease $13.49 Concepts to review: Cannot get portfolio standard deviation without knowing correlation. Review efficient markets Yield to maturity, relationship with current yield and coupon rate Dividend Yield plus Capital Gains yield is total return Security market line Weighted portfolio return