**Question 31**
A stock has the following probability distribution:
- If the economy is good (probability 20%), its expected stock return is 20%.
- If the economy is average (probability 60%), its expected stock return is 10%.
- If the economy is bad (probability 20%), its expected return is -10%.
Find the expected rate of return for the stock.
A. 8.0%
B. 6.0%
C. 10.0%
D. 14.0%
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**Question 32**
Using the data from Question 31, find the standard deviation for the stock.
A. 9.80%
B. 10.29%
C. 11.35%
D. 12.98%
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**Question 33**
Find the yield to maturity (YTM) for a 15-year, 8% annual coupon rate, and $1,000 par value bond if the bond sells for $1,208 currently. Assume that interest is paid on this bond semiannually.
A. 5.89%
B. 6.84%
C. 7.55%
D. 8.72%
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**Question 34**
Using the information from Question 33, calculate the bond’s current yield.
A. 6.35%
B. 6.62%
C. 7.22%
D. 7.08%
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**Question 35**
Using the information from Questions 33 and 34, calculate the bond’s capital gain yield.
A. -0.39%
B. -0.56%
C. -0.73%
D. 1.18%
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**Question 36**
An investor is forming a portfolio by investing $50,000 in stock A, which has a beta of 2.1, and $50,000 in stock B, which has a beta of 0.6. The market risk premium is 5%, and treasury bonds have a yield of 3% (rRF). What’s the portfolio beta?
A. 1.60
B. 1.85
C. 1.50
D. 1.35
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**Question 37**
Using the information in Question 36, calculate the required rate of return on the investor’s portfolio.
A. 8.25%
B. 10.55%
C. 9.75%
D. 9.15%
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**Question 38**
A store is offering a diamond ring for sale for 60 months at $100 per month. The retail price of the ring is $6,000. What is the annualized interest rate on this offer?
A. 10.51%
B. 9.28%
C. 7.42%
D. 0%
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**Question 39**
You want to receive $5,000 per month in retirement. If you can earn a 6% annual return and expect to need the income for 30 years, how much do you need to have in your account at retirement (monthly compounding)?
A. $644,156
B. $589,511
C. $722,166
D. $833,958
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**Question 40**
A firm has issued a bond with a 6% coupon rate, paid semiannually, a current maturity of 20 years, and sells for $1,000. The firm’s marginal tax rate is 21%. What’s the firm’s after-tax component cost of debt?
A. 7.9%
B. 5.5%
C. 6.0%
D. 21%
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**Question 41**
A firm’s preferred stock currently sells for $100 per share and pays a dividend of $11 per share. However, the firm will only receive $95 per share from the sale of new preferred stock due to flotation costs. What’s the firm’s component cost of preferred stock?
A. 10.5%
B. 10.9%
C. 11.6%
D. 12.3%
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**Question 42**
A firm’s common stock currently sells for $40 per share. The firm’s most recent dividend paid (D0) is $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10% per year. What’s the firm’s cost of common stock using the DCF approach?
A. 9.5%
B. 15.0%
C. 15.5%
D. 16.5%
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**Question 43**
A stock is selling for $50 in the market. The company’s beta is 1.2, the market risk premium (rM - rF) is 5%, and the risk-free rate is 6%. The most recent dividend paid is D0 = $2.00, and dividends are expected to grow at a constant rate g. What’s the required rate of return by common shareholders?
A. 5.0%
B. 6.0%
C. 11.0%
D. 12.0%
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**Question 44**
Based on the information from Question 43, what’s the dividend growth rate g?
A. 6.22%
B. 7.31%
C. 7.69%
D. 8.15%
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**Question 45**
Based on the information from Questions 43 and 44, calculate the stock’s expected dividend yield.
A. 4.31%
B. 5.00%
C. 6.22%
D. 7.70%
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**Question 46**
A company’s free cash flow FCF0 = $1.2 million. The weighted average cost of capital is WACC = 10.1%, and the constant growth rate is g = 5%. What is the current value of operations?
A. $19.5 million
B. $21.8 million
C. $24.7 million
D. $25.6 million
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**Question 47**
A firm’s free cash flow in Year 1 is $2.5 million. If the expected long-run free cash flow growth rate for this company is 5%, the weighted average cost of capital is 11%. The company has $5 million in short-term investments and $3 million in debt, and 2 million shares outstanding. What is the estimated intrinsic stock price?
A. $16.83
B. $18.57
C. $25.33
D. $28.59
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**Question 48**
Construct an amortization schedule for a $1,500, 6% annual rate loan with 3 equal payments. The first payment will be made at the end of the 1st year. Find the required annual payment.
A. $355.2
B. $467.3
C. $388.0
D. $561.2
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**Question 49**
Based on the information from Question 48, what’s the ending balance of the amortized loan at the end of the 2nd year?
A. $0
B. $529.4
C. $388.3
D. $561.0
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**Question 50**
Based on the information from Questions 48 and 49, calculate the total amount of interest you should pay for the amortized loan in three years.
A. $168.3
B. $175.8
C. $183.5
D. $164.1
