A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $900. If the yield to maturity remains at its current rate, what will the price be 5 years from now?

1. A 25-year, $1,000 par value bond has an 8.5% annual payment coupon. The bond currently sells for $900. If the yield to maturity remains at its current rate, what will the price be 5 years from now?
   

   $1,069.75

   $698.06

   $1,096.95

   $906.57

   $688.99

5 points

QUESTION 2

1. The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company’s beta is 1.25, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company’s current stock price, P ?
   

   $15.49

   $16.66

   $14.66

   $19.32

   $19.49

5 points

QUESTION 3

1. Mulherin’s stock has a beta of 1.23, its required return is 8.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)
   

   5.94%

   8.63%

   7.92%

   7.21%

   6.26%

5 points

QUESTION 4

1. Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 8.90%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?
   

   4.12%

   3.35%

   3.12%

   3.08%

   2.95%

5 points

QUESTION 5

1. 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 16.25%, 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

   15.88%

   15.18%

   10.68%

   14.05%

   16.44%

5 points

QUESTION 6

1. Mikkelson Corporation’s stock had a required return of 11.75% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm’s beta remain unchanged. What is the company’s new required rate of return? (Hint: First calculate the beta, then find the required return.)
   

   14.38%

   14.74%

   15.11%

   15.49%

   15.87%

5 points

QUESTION 7

1. 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 11.50%, 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

   10.22%

   12.20%

   10.64%

   7.93%

   10.43%

5 points

QUESTION 8

1. The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company’s beta is 1.35, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company’s current stock price, P ?
   

   $15.83

   $14.02

   $11.61

   $18.84

   $15.07

5 points

QUESTION 9

1. Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 8.90%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?
   

   4.12%

   3.35%

   3.12%

   3.08%

   2.95%

5 points

QUESTION 10

1. Kern Corporation’s 5-year bonds yield 6.80% and 5-year T-bonds yield 3.60%. The real risk-free rate is r* = 2.5%, the default risk premium for Kern’s bonds is DRP = 1.90% versus zero for T-bonds, the liquidity premium on Kern’s bonds is LP = 1.3%, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) 0.1%, where t = number of years to maturity. What is the inflation premium (IP) on all 5-year bonds?
   

   0.70%

   0.60%

   0.81%

   0.86%

   0.85%

5 points

QUESTION 11

1. Mulherin’s stock has a beta of 1.23, its required return is 11.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.)
   

   10.36%

   10.62%

   10.88%

   11.15%

   11.43%

5 points

QUESTION 12

1. Kelly Inc’s 5-year bonds yield 7.50% and 5-year T-bonds yield 4.50%. The real risk-free rate is r* = 2.5%, the default risk premium for Kelly’s bonds is DRP = 0.40%, the liquidity premium on Kelly’s bonds is LP = 2.6% versus zero on T-bonds, and the inflation premium (IP) is 1.5%. What is the maturity risk premium (MRP) on all 5-year bonds?
   

   0.38%

   0.50%

   0.40%

   0.59%

   0.56%

5 points

QUESTION 13

1. Crockett Corporation’s 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.80%, the default risk premium for Crockett’s bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Crockett’s bonds is LP = 1.25%, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) ? 0.1%, where t = number of years to maturity. What is the inflation premium (IP) on 5-year bonds?
   

   1.40%

   1.55%

   1.71%

   1.88%

   2.06%

5 points

QUESTION 14

1. 5-year Treasury bonds yield 5.5%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year bonds is 0.4%. What is the real risk-free rate, r*?
   

   2.59%

   2.88%

   3.20%

   3.52%

   3.87%

5 points

QUESTION 15

1. Company A has a beta of 0.70, while Company B’s beta is 0.80. The required return on the stock market is 11.00%, and the risk-free rate is 4.25%. What is the difference between A’s and B’s required rates of return? (Hint: First find the market risk premium, then find the required returns on the stocks.)
   

   0.57%

   0.77%

   0.68%

   0.67%

   0.80%

5 points

QUESTION 16

1. Schnusenberg Corporation just paid a dividend of D = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company’s beta is 0.85, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company’s current stock price?
   

   $22.16

   $26.54

   $25.77

   $29.37

   $27.83

5 points

QUESTION 17

1. The Francis Company is expected to pay a dividend of D = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company’s beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company’s current stock price?
   

   $22.83

   $27.99

   $27.17

   $22.01

   $24.18

5 points

QUESTION 18

1. Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 14.00%. Using the SML, what is the firm’s required rate of return?
   

   13.08%

   13.34%

   12.95%

   10.88%

   11.40%

5 points

QUESTION 19

1. Suppose you hold a portfolio consisting of a $10,000 investment in each of 8 different common stocks. The portfolio’s beta is 1.25. Now suppose you decided to sell one of your stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.65. What would the portfolio’s new beta be?
   

   1.48

   1.33

   1.53

   1.32

   1.03

5 points

QUESTION 20

1. Kay Corporation’s 5-year bonds yield 6.20% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the default risk premium for Kay’s bonds is DRP = 1.30% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Kay’s bonds?
   

   0.52%

   0.61%

   0.38%

   0.50%

   0.56%