FIN 3403 UCF - Final Exam Practice
Questions All Solved Correct.
What is the required monthly payment on a $530,000.00 mortgage. Assume a standard
mortgage (360 months) with monthly payments. Use a nominal rate (monthly compounding) of
6.00%. - Answer $3,177
You currently have $3,000.00 in an account and plan on depositing $2,500.00 into the account
each year, starting in 1 year. If the account earns an annual effective interest rate of 6.70%, how
much will be in the account (what is the future value) in 5 years, just after making your final
deposit? - Answer $18,440
What is the present value of a perpetuity that pays you annual, end-of-year payments of
$950.00? Use a nominal rate (monthly compounding) of 7.50%. - Answer $12,237
Consider a standard mortgage (360 months) with monthly payments and a nominal rate
(monthly compounding) of 6.70%. What portion of the payments during the first 29 months
goes toward principal? - Answer 14.58%
A perpetual bond with a par value of $1,000.00 and a coupon rate of 7.75% has a current
market value of $900.00. What is its yield to maturity? - Answer 8.61%
What is the price of a perpetual bond with a par value of $1,000.00 and a coupon rate of 7.25%
(semiannual coupon)? The bond has a nominal yield to maturity of 6.90%. - Answer $1,050
Stock in Simons Industries is currently selling for $79.00. It just paid its annual dividend of $2.00,
which have consistently grown at a rate of 2.90%. What is the expected return of this stock? -
Answer 5.51%
Your broker has recommended that you purchase stock in National Bank & Trust, Inc. National
Bank & Trust recently paid its annual dividend ($19.00). Dividends have consistently grown at a
rate of 2.30%. Analysts estimate that the stock has a beta of 1.22. The current risk-free rate is
2.10% and the market return (RM) is 10.60%. Assuming that CAPM holds, what is the intrinsic
value of this stock? - Answer $191.12
, By purchasing training software for $5,500.00, you can eliminate other training costs of
$3,425.00 each year for the next 10 years. What is the profitability index of the software? Use a
discount rate of 10.60%. - Answer 3.73
You have purchased a canning machine for $6,500.00. You expect the machine to save your
company $1,425.00 each year for the next 10 years. What is the IRR of the machine? - Answer
17.58%
A firm has a required return of 14.2% and a beta of 1.36. If the risk-free rate is currently 5.4%,
what is the expected return to the market? Assume that CAPM is correct. - Answer 11.87%
Currently in the market, the risk-free rate is 6% and the market risk premium [E(RM) - RF] is 5%.
Based on this information, which of the following statements is most correct? Assume that
CAPM is correct. - Answer A portfolio with a beta=1.0 has a required return of 11%.
Your firm recently paid a dividend of $4 to common stockholders. Dividends are expected to
grow at 8% per year for the foreseeable future. The current stock price is $54. New shares could
be sold for the same price, but flotation costs would amount to $6 per share.
Preferred stock would pay a 12% dividend on a $50 par value. The stocks would sell for par
value less flotation costs of $2 per share. Wellington has a marginal tax rate of 34 percent.
What is the firm's cost of capital if their capital structure consists of 60% equity and 40%
preferred stock? - Answer 15.20%
Last year, Cayman Corporation had sales of $7,000,000, total variable costs of $3,000,000, and
total fixed costs of $1,500,000. In addition, they paid $480,000 in interest to bondholders.
Cayman has a 35% marginal tax rate. If Cayman's sales increase 7%, what should be the increase
in earnings per share? - Answer 13.9%
Last year, Cayman Corporation had sales of $30,000,000, total variable costs of $13,500,000,
and total fixed costs of $5,000,000. In addition, they paid $3,000,000 in interest to bondholders.
Cayman has a marginal tax rate of 35 percent. If Cayman's sales increase by 15%, what should
be the increase in earnings per share? - Answer 29.1%
This information will be used for two questions!
Sand Key Development Company has a capital structure consisting of $20 million of 10% debt
Questions All Solved Correct.
What is the required monthly payment on a $530,000.00 mortgage. Assume a standard
mortgage (360 months) with monthly payments. Use a nominal rate (monthly compounding) of
6.00%. - Answer $3,177
You currently have $3,000.00 in an account and plan on depositing $2,500.00 into the account
each year, starting in 1 year. If the account earns an annual effective interest rate of 6.70%, how
much will be in the account (what is the future value) in 5 years, just after making your final
deposit? - Answer $18,440
What is the present value of a perpetuity that pays you annual, end-of-year payments of
$950.00? Use a nominal rate (monthly compounding) of 7.50%. - Answer $12,237
Consider a standard mortgage (360 months) with monthly payments and a nominal rate
(monthly compounding) of 6.70%. What portion of the payments during the first 29 months
goes toward principal? - Answer 14.58%
A perpetual bond with a par value of $1,000.00 and a coupon rate of 7.75% has a current
market value of $900.00. What is its yield to maturity? - Answer 8.61%
What is the price of a perpetual bond with a par value of $1,000.00 and a coupon rate of 7.25%
(semiannual coupon)? The bond has a nominal yield to maturity of 6.90%. - Answer $1,050
Stock in Simons Industries is currently selling for $79.00. It just paid its annual dividend of $2.00,
which have consistently grown at a rate of 2.90%. What is the expected return of this stock? -
Answer 5.51%
Your broker has recommended that you purchase stock in National Bank & Trust, Inc. National
Bank & Trust recently paid its annual dividend ($19.00). Dividends have consistently grown at a
rate of 2.30%. Analysts estimate that the stock has a beta of 1.22. The current risk-free rate is
2.10% and the market return (RM) is 10.60%. Assuming that CAPM holds, what is the intrinsic
value of this stock? - Answer $191.12
, By purchasing training software for $5,500.00, you can eliminate other training costs of
$3,425.00 each year for the next 10 years. What is the profitability index of the software? Use a
discount rate of 10.60%. - Answer 3.73
You have purchased a canning machine for $6,500.00. You expect the machine to save your
company $1,425.00 each year for the next 10 years. What is the IRR of the machine? - Answer
17.58%
A firm has a required return of 14.2% and a beta of 1.36. If the risk-free rate is currently 5.4%,
what is the expected return to the market? Assume that CAPM is correct. - Answer 11.87%
Currently in the market, the risk-free rate is 6% and the market risk premium [E(RM) - RF] is 5%.
Based on this information, which of the following statements is most correct? Assume that
CAPM is correct. - Answer A portfolio with a beta=1.0 has a required return of 11%.
Your firm recently paid a dividend of $4 to common stockholders. Dividends are expected to
grow at 8% per year for the foreseeable future. The current stock price is $54. New shares could
be sold for the same price, but flotation costs would amount to $6 per share.
Preferred stock would pay a 12% dividend on a $50 par value. The stocks would sell for par
value less flotation costs of $2 per share. Wellington has a marginal tax rate of 34 percent.
What is the firm's cost of capital if their capital structure consists of 60% equity and 40%
preferred stock? - Answer 15.20%
Last year, Cayman Corporation had sales of $7,000,000, total variable costs of $3,000,000, and
total fixed costs of $1,500,000. In addition, they paid $480,000 in interest to bondholders.
Cayman has a 35% marginal tax rate. If Cayman's sales increase 7%, what should be the increase
in earnings per share? - Answer 13.9%
Last year, Cayman Corporation had sales of $30,000,000, total variable costs of $13,500,000,
and total fixed costs of $5,000,000. In addition, they paid $3,000,000 in interest to bondholders.
Cayman has a marginal tax rate of 35 percent. If Cayman's sales increase by 15%, what should
be the increase in earnings per share? - Answer 29.1%
This information will be used for two questions!
Sand Key Development Company has a capital structure consisting of $20 million of 10% debt
