FIN 3403 exam 3 ucf questions with correct
answers
Define par value - CORRECT ANSWER✔✔-Par value is the face value, Par value is
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important for a bond or fixed-income instrument because it determines its
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maturity value as well as the dollar value of coupon payments (eg of $50 par
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value w 6% dividend payment= $53)
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Characteristics of preferred stocks and compare to common stocks
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eg)If you had 6% dividend and a $50 par value what would be your return at the
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end of the year - CORRECT ANSWER✔✔--higher priority for firms, meaning they
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always pay preferred stock dividends before common stock.
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-unlike common stockholders preferred stock holders do not own part of the
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company.
-unlike common stocks(can largely inc/dec) , preferred stocks value never strays
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very far from the par value
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-even though it is called a stock and goes under equity on the balance sheet, it
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acts similarly to debt
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-commonly has a fixed dividend % payment based on the par value(25,50,75,100)
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,eg) make $3 in profit (53)
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-possibly convertible to common stocks which is very enticing to shareholders.
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(similar to a bond) | | |
Can the dividend for a preferred stock inc/dec? - CORRECT ANSWER✔✔-No, it is
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fixed
(similar to a bond, payments/profits are given/taken at a fixed rate)
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Define intrinsic value and:
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In general, the intrinsic value of an asset= the ___________ of the stream of
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expected cash flows discounted at an appropriate ________________. - CORRECT
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|ANSWER✔✔-The intrinsic value of something is said to be the theoretical value
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that an asset would have
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(eg. stocks/bonds/project)
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Present value/ required rate of return
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For expected return, firms projected return is based on the assets ___________
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and _________
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,For required return, the firm will go based on on the assets _______ and ___
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______ ___ ___ - CORRECT ANSWER✔✔-expected= Price* and growth potential
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Required= risk of asset and the current market interest rates
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eg) you req. 12% but looking at price/ growth potential u expect to earn 10%, this
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means it is probably over priced.
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Preferred stock formula, variable meanings - CORRECT ANSWER✔✔-Vps= D/Kps
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value of preferred stock= fixed Dividend/ req. rate of return on the stock
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Xerox preferred pays an 8.25% dividend on a $50 par value.
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Suppose our required rate of return on xerox preferred is 9.5%, what is the value
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of the preferred stock? - CORRECT ANSWER✔✔-Vps= D/Kps
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value of preferred stock= fixed Dividend/ req. rate of return on the stock
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so... Vps= 4.125/.095 = $43.42
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Vps= $43.42 (also called market price or Po)
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Expected rate of return on preferred formula - CORRECT ANSWER✔✔-^Kps= D/Po
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, Expected return= Fixed dividend/ market price
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good to remember that whenever ur looking for expected, you will need the
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market price (if the Vps/true value of preferred stock is given use that)
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If we know the preferred stock price is $40, and the preferred dividend is $4.125
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the expected return is? - CORRECT ANSWER✔✔-^Kps= D/Po
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Expected return= Fixed dividend/ market price
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Kps= 4.125/40 = .1031
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Expected rate of return= .1031/ 10.31%***
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The actual price of a preferred stock is usually close to its _________ - CORRECT
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ANSWER✔✔-Par value (usually 25,50,75, or 100) | | | | |
Common stock valuation eg: | | |
you expect XYZ company stock to pay a $5.50 dividend at the end of the year. The
| | | | | | | | | | | | | | | |
stock price is expected to be $120 at that time.
| | | | | | | | | |
If you require a 15% rate of return, what would u pay for the stock now? -
| | | | | | | | | | | | | | | | |
CORRECT ANSWER✔✔-To solve these buy and sell situations use this method,
| | | | | | | | | | |
here you are solving for present value
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answers
Define par value - CORRECT ANSWER✔✔-Par value is the face value, Par value is
| | | | | | | | | | | | | |
important for a bond or fixed-income instrument because it determines its
| | | | | | | | | | |
maturity value as well as the dollar value of coupon payments (eg of $50 par
| | | | | | | | | | | | | | |
value w 6% dividend payment= $53)
| | | | |
Characteristics of preferred stocks and compare to common stocks
| | | | | | | |
eg)If you had 6% dividend and a $50 par value what would be your return at the
| | | | | | | | | | | | | | | | |
end of the year - CORRECT ANSWER✔✔--higher priority for firms, meaning they
| | | | | | | | | | | |
always pay preferred stock dividends before common stock.
| | | | | | |
-unlike common stockholders preferred stock holders do not own part of the
| | | | | | | | | | | |
company.
-unlike common stocks(can largely inc/dec) , preferred stocks value never strays
| | | | | | | | | | |
very far from the par value
| | | | |
-even though it is called a stock and goes under equity on the balance sheet, it
| | | | | | | | | | | | | | | |
acts similarly to debt
| | |
-commonly has a fixed dividend % payment based on the par value(25,50,75,100)
| | | | | | | | | | |
,eg) make $3 in profit (53)
| | | | |
-possibly convertible to common stocks which is very enticing to shareholders.
| | | | | | | | | |
(similar to a bond) | | |
Can the dividend for a preferred stock inc/dec? - CORRECT ANSWER✔✔-No, it is
| | | | | | | | | | | | |
fixed
(similar to a bond, payments/profits are given/taken at a fixed rate)
| | | | | | | | | |
Define intrinsic value and:
| | |
In general, the intrinsic value of an asset= the ___________ of the stream of
| | | | | | | | | | | | | |
expected cash flows discounted at an appropriate ________________. - CORRECT
| | | | | | | | |
|ANSWER✔✔-The intrinsic value of something is said to be the theoretical value
| | | | | | | | | | | |
that an asset would have
| | | |
(eg. stocks/bonds/project)
|
Present value/ required rate of return
| | | | |
For expected return, firms projected return is based on the assets ___________
| | | | | | | | | | | |
and _________
|
,For required return, the firm will go based on on the assets _______ and ___
| | | | | | | | | | | | | | |
______ ___ ___ - CORRECT ANSWER✔✔-expected= Price* and growth potential
| | | | | | | | |
Required= risk of asset and the current market interest rates
| | | | | | | | |
eg) you req. 12% but looking at price/ growth potential u expect to earn 10%, this
| | | | | | | | | | | | | | |
means it is probably over priced.
| | | | | |
Preferred stock formula, variable meanings - CORRECT ANSWER✔✔-Vps= D/Kps
| | | | | | | |
value of preferred stock= fixed Dividend/ req. rate of return on the stock
| | | | | | | | | | | |
Xerox preferred pays an 8.25% dividend on a $50 par value.
| | | | | | | | | |
Suppose our required rate of return on xerox preferred is 9.5%, what is the value
| | | | | | | | | | | | | | |
of the preferred stock? - CORRECT ANSWER✔✔-Vps= D/Kps
| | | | | | |
value of preferred stock= fixed Dividend/ req. rate of return on the stock
| | | | | | | | | | | |
so... Vps= 4.125/.095 = $43.42
| | | |
Vps= $43.42 (also called market price or Po)
| | | | | | |
Expected rate of return on preferred formula - CORRECT ANSWER✔✔-^Kps= D/Po
| | | | | | | | | |
, Expected return= Fixed dividend/ market price
| | | | |
good to remember that whenever ur looking for expected, you will need the
| | | | | | | | | | | | |
market price (if the Vps/true value of preferred stock is given use that)
| | | | | | | | | | | |
If we know the preferred stock price is $40, and the preferred dividend is $4.125
| | | | | | | | | | | | | | |
the expected return is? - CORRECT ANSWER✔✔-^Kps= D/Po
| | | | | | |
Expected return= Fixed dividend/ market price
| | | | |
Kps= 4.125/40 = .1031
| | |
Expected rate of return= .1031/ 10.31%***
| | | | |
The actual price of a preferred stock is usually close to its _________ - CORRECT
| | | | | | | | | | | | | | |
ANSWER✔✔-Par value (usually 25,50,75, or 100) | | | | |
Common stock valuation eg: | | |
you expect XYZ company stock to pay a $5.50 dividend at the end of the year. The
| | | | | | | | | | | | | | | |
stock price is expected to be $120 at that time.
| | | | | | | | | |
If you require a 15% rate of return, what would u pay for the stock now? -
| | | | | | | | | | | | | | | | |
CORRECT ANSWER✔✔-To solve these buy and sell situations use this method,
| | | | | | | | | | |
here you are solving for present value
| | | | | |
