1-Given the following cash flows, calculate the payback period: 2- A stock just
ID: 2636117 • Letter: 1
Question
1-Given the following cash flows, calculate the payback period:
2- A stock just paid a dividend of D0 = $3.4. The required rate of return is rs = 15.8%, and the constant growth rate is g = 3%. What is the current stock price?
a. $35.76
b. $24.469
c. $3.45
d. $27.359
3- What is the effective rate of 18% compounded monthly?
a. 26.97%
b. 13.56%
c. 17.46%
d. 19.56%
4- ABC is reviewing a project that will cost $1,431.The project will produce cash flows $210 at the end of each year for the first two years and $772 at the end of each year for the next two years. What is the profitability index? Assume interest rate is 4%.
a. 1.56
b. 0.95
c. 1.22
d. 2.56
5- Suppose an investment offers to double your money in 39 years. What annual rate of return are you being offered if interest is compounded semi-annually?
a. 1.79%
b. 1.56%
c. 0.98%
d. 0.89%
6- How many years will it take to quadruple (i.e. 4 times) your money at 9% compounded quarterly?
a. 7.2424
b. 15.5759
c. 5.6478
d. 3.3168
7- The principal amount of a bond that is repaid at the end of term is called the par value or the:
a. call premium
b. perpetuity value
c. face value
d. back-end value
e. coupon value
8- A bond that sells for less than face value is called as:
a. discount bond
b. premium bond
c. par value bond
d. debenture
e. perpetuity
9- ABC Corp. just paid a dividend of $2.4 per share at the end of the year. The stock has a required rate of return is 18%. The dividend is expected to grow at 6.9%. What is dividend at time = 8? (solve for D8?)
a. $7.667
b. $3.175
c. $6.451
d. $4.093
10- An investment is acceptable if the profitability index (PI) of the investment is:
a. less than the net present value (NPV).
b. less than one.
c. greater than one.
d. greater than the internal rate of return (IRR).
e. greater than a pre-specified rate of return.
Year CF 0 -921 1 368 2 253 3 291 4 784Explanation / Answer
Payback period = 3+(9/784)
=3.01 years
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2. Stock Price = 3.4*(1+3%)/((15.8%-3%)
=$27.359
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3. Effective rate = 1*(1+18%/12)^(12)-1
=19.56%
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4. Present values of cash flows = 210/(1+4%)^1+210/(1+4%)^2+772/(1+4%)^3+772/(1+4%)^4
=$1742.29
Profitability index= 1742.29/1431
=1.22
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5. 2000 = 1000*(1+r/2)*(39*2)
=>r= 1.79%
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6. 4000 = 1000*(1+9%/4)^(t*4)
=> t = 15.5759 years
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7. Face Value
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8. Discount bond
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9. Dividend at time 8 = 2.4*(1+6.9%)^8
=$4.093
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10. Greater than 1
Year CF Cumulative Cashflow 0 -921 -921 1 368 -553 2 253 -300 3 291 -9 4 784 775Related Questions
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