W07 Final Exam
Started:
Quiz Instructions
Overview
Task: Take the final exam.
Purpose: Assess your knowledge of the course material.
Conditions
1. Review the course material about three times throughout the week in preparation for this exam.
Work individually, with groups, and/or use the discussion board for questions about the final
exam.
2. Complete the exam using open-book and open to resources.
Do not consult classmates for the final exam.
Question 1 4 pts
GM announces it has invented a car that not only drives you places, but also has an interesting side
effect...if you sit in the car for 20 minutes a day, it cures all diseases you may have (including horrible
diseases such as cancer and heart disease). GM stock the next day soars to $5,000 per share. What
is the most accurate explanation of how and why GM stock went up?
The stock exchanges estimated the new stock price based on other past historical incidents similar to GM.
High demand for the stock (and low supply...since no one was selling) caused the price to increase until a point of
equilibrium was reached (meaning there were now enough suppliers or sellers of the stock).
Computers estimate what the new price will be based on a set of known variables and several reliable valuation
models.
Technicians at the stock markets used the growth stock model as well as the capital asset pricing model to calculate
the new price.
Question 2 4 pts
The price of a preferred share of stock that pays a 3.00 dividend, has an expected return of 12%, and
a tax rate= 30% is .
$25.00
, $20.00
$16.67
$17.50
Question 3 4 pts
Ten years ago, you invested $8,000 in IBM stock, which grew at an annual rate of 10% during that
time. You wish to withdraw the money today and invest in Google stock, which is expected to earn
14% per year for the next ten years. How much money will you have 10 years from now?
$29,657.77
$76,924.62
$51,244.35
$126,351.22
Question 4 4 pts
Assume a company is evaluating three different investments. Investment A has an NPV of $0.00.
Investment B has a positive NPV of $2,000. Investment C has a negative NPV of ($1,000). Which of
the following statements is most true?
Only B is worthy of the company's investment money, since the others fail to earn the minimum cost of capital.
Only A should be invested in, because it’s IRR = the cost of capital.
A and B are worth investing in (though they should be carefully compared to each other and evaluated further),, but
C should be avoided by the company, since it does not earn the minimum cost of capital.
All three investments are worth investing in by the company (though they should be carefully compared to each
other and evaluated further), since all three at least made the minimum cost of capital.
Question 5 4 pts
What is the price of a bond which has a face value of $10,000, a maturity of 15 years, a coupon rate
of 7% (paid semiannually), and a current yield in the market of 5%?
Started:
Quiz Instructions
Overview
Task: Take the final exam.
Purpose: Assess your knowledge of the course material.
Conditions
1. Review the course material about three times throughout the week in preparation for this exam.
Work individually, with groups, and/or use the discussion board for questions about the final
exam.
2. Complete the exam using open-book and open to resources.
Do not consult classmates for the final exam.
Question 1 4 pts
GM announces it has invented a car that not only drives you places, but also has an interesting side
effect...if you sit in the car for 20 minutes a day, it cures all diseases you may have (including horrible
diseases such as cancer and heart disease). GM stock the next day soars to $5,000 per share. What
is the most accurate explanation of how and why GM stock went up?
The stock exchanges estimated the new stock price based on other past historical incidents similar to GM.
High demand for the stock (and low supply...since no one was selling) caused the price to increase until a point of
equilibrium was reached (meaning there were now enough suppliers or sellers of the stock).
Computers estimate what the new price will be based on a set of known variables and several reliable valuation
models.
Technicians at the stock markets used the growth stock model as well as the capital asset pricing model to calculate
the new price.
Question 2 4 pts
The price of a preferred share of stock that pays a 3.00 dividend, has an expected return of 12%, and
a tax rate= 30% is .
$25.00
, $20.00
$16.67
$17.50
Question 3 4 pts
Ten years ago, you invested $8,000 in IBM stock, which grew at an annual rate of 10% during that
time. You wish to withdraw the money today and invest in Google stock, which is expected to earn
14% per year for the next ten years. How much money will you have 10 years from now?
$29,657.77
$76,924.62
$51,244.35
$126,351.22
Question 4 4 pts
Assume a company is evaluating three different investments. Investment A has an NPV of $0.00.
Investment B has a positive NPV of $2,000. Investment C has a negative NPV of ($1,000). Which of
the following statements is most true?
Only B is worthy of the company's investment money, since the others fail to earn the minimum cost of capital.
Only A should be invested in, because it’s IRR = the cost of capital.
A and B are worth investing in (though they should be carefully compared to each other and evaluated further),, but
C should be avoided by the company, since it does not earn the minimum cost of capital.
All three investments are worth investing in by the company (though they should be carefully compared to each
other and evaluated further), since all three at least made the minimum cost of capital.
Question 5 4 pts
What is the price of a bond which has a face value of $10,000, a maturity of 15 years, a coupon rate
of 7% (paid semiannually), and a current yield in the market of 5%?
