# Corporate Finance Essay

1910 Words Jul 14th, 2013 8 Pages
Sample Test_MT2_FINA 3101_summer_2013 ____ 1. Travis Corp.'s bonds currently sell for \$1,050. They have an 8% annual coupon rate and a 20-year maturity, but they can be called in 5 years at \$1,120. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds? a. | 7.51% | b. | 7.71% | c. | 8.74% | d. | 8.47% | e. | 8.04% |

____ 2. Skylab Technologies issued 10-year bonds yesterday at their par value of \$1,000. These bonds pay \$60 in interest every six
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They have a 9-year maturity, an annual coupon of \$80, and a par value of \$1,000. What is their yield to maturity? a. | 7.03% | b. | 7.21% | c. | 7.45% | d. | 7.61% | e. | 6.87% |

____ 16. A stock just paid a dividend of \$1. The required rate of return is rs  11%, and the constant growth rate is 5%. What is the current stock price? a. | \$25.00 | b. | \$15.00 | c. | \$17.50 | d. | \$22.50 | e. | \$20.00 |

____ 17. Moussawi Ltd's outstanding bonds have a \$1,000 par value, and they mature in 5 years. Their yield to maturity is 9%, based on semiannual compounding, and the current market price is \$853.61. What is the bond's annual coupon interest rate? a. | 5.20% | b. | 5.50% | c. | 5.40% | d. | 5.30% | e. | 5.10% |

____ 18. A share of common stock has just paid a dividend of \$2.00. If the expected long-run growth rate for this stock is 7%, and if investors require a(n) 11% rate of return, what is the price of the stock? a. | \$52.00 | b. | \$50.50 | c. | \$53.50 | d. | \$47.50 | e. | \$49.00 |

____ 19. The Ehrhardt Company's last dividend was \$2.00. The dividend growth rate is expected to be constant at 3% for 2 years, after which dividends are expected to grow at a rate of 8% forever. Erhardt's required return (rs) is 12%. What is Erhardt's current stock price? a. | \$53.80 | b. | \$49.20 | c. | \$57.30 | d. | \$55.10 | e. | \$51.40 |

____ 20. Bauer Inc's bonds currently sell for \$1,275 and have a par

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