FNAN 300 Exam 3 Practice Questions and Answers PDF

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FNAN 300 Exam 3 Practice Questions and Answers covering Chapters 6-7...

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FNAN 300 BUSINESS FINANCE

FALL 2020

PRACTICE QUESTIONS FOR EXAM 3 (covers chapters 6 and 7)

What is the principal amount of a bond that is repaid at the end of the loan term called? Coupon Market price Accrued price Dirty price Face value (par value) When a bond's yield to maturity is less than the bond's coupon rate, the bond: is selling at a premium. has reached its maturity date. is priced at par. is selling at a discount. The lowest rating a bond can receive from Standard and Poor's (S&P) and still be classified as an investment-quality bond is: BB. B. Ba. BBB.

When valuing a stock using the constant-growth model, D1 represents the: expected difference in the stock price over the next year. expected stock price in one year. last annual dividend paid. the next expected annual dividend. discount rate. Newly issued securities are sold to investors in which one of the following markets? Proxy Stated value Inside Secondary Primary An agent who buys and sells securities from inventory is called a: floor trader. dealer. broker. floor broker. Lake Industries bonds have a face value of $1,000, a coupon rate of 7.2 percent, semiannual interest payments, and mature in 15 years. What is the current price of these bonds if the yield to maturity is 6.98 percent? $988.39 $1,000.00 $1,020.26 $1,012.78 $1,010.68 15*2 =30 6.98/2=3.49 N I/Y

PV -1,020.26

(1000*0.072)/2 = 36 PMT

1,000.00 FV

The 7 percent semiannual coupon bonds of Over The Counter, Inc., are selling for $1,102.25. The bonds have a face value of $1,000 and mature in 18 years. What is the yield to maturity? 5.54 percent 6.06 percent 12.55 percent 6.27 percent 12.1 percent 18*2 = 36 N

I/Y 3.030

−1,102.25 PV

(1000*0.07)/2= 35 PMT

1,000.00 FV

3.030% × 2 = 6.06%

If Treasury bills are currently paying 3.05 percent and the inflation rate is 1.89 percent, what is the approximate real rate of interest? The exact real rate? 1.16 percent; 1.14 percent 1.21 percent; 1.14 percent 1.20 percent; 1.21 percent 1.19 percent; 1.16 percent 1.19 percent; 1.21 percent

Approximate rate = 3.05 percent − 1.89 percent = 1.16 percent Exact rate = [(1 + .0305) / (1 + .0189)] − 1 = .0114, or 1.14 percent Polar Mechanical Systems will pay an annual dividend of $1.88 per share next year. The company just announced that future dividends will be increasing by 1.2 percent annually. How much are you willing to pay for one share of this stock if you require a rate of return of 9.68 percent? $18.30 $22.17 $22.94 $19.28 $22.48

D1 =$ 1.88 g = 1.2% R = 9.68% Po? P0 = $1.88 / (.0968 − .012) = $22.17

This morning, you purchased a stock that will pay an annual dividend of $1.90 per share next year. You require a 12 percent rate of return and the dividend increases at 3.5 percent annually. What is the expected value of this stock three years from now? $22.51 $25.63 $24.78 $21.92 D1 = $1.90 R = 12% g = 3.5% P0 = $1.90 / (.12 − .035) = $22.35 Prices and dividends grow at the same rate g: P3 = Po (1+g)3 = $22.35 (1+0.035)3 = $24.78

Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15 years. Yesterday, the firm announced the dividend will increase next year by 10 percent and will stay at that level through Year 3, after which time the dividends will increase by 2 percent annually. The required return on this stock is 12 percent. What is the current value per share?

$25.51 $26.08 $24.57 $26.02 $26.84 g = 10%, next year until year 3 another g = 2% , constant R = 12% Po? P3 = ($2.40 × 1.10 × 1.02) / (.12 − .02) = $26.928 P0 = [($2.40 × 1.10) / 1.12] + [($2.40 × 1.10) / 1.122] + {[($2.40 × 1.10) + $26.928] / 1.123} P0 = $25.51...