1. Union Local School District has bonds outstanding with a coupon rate of 4.6 percent paid semiannually and 21 years to maturity. The yield to maturity on these bonds is 3.9 percent and the bonds have a par value of $5,000.
What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Bond price $______
2. Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 25 years to maturity, and a coupon rate of 7.5 percent paid annually.
If the yield to maturity is 8.6 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Bond price €__________
3. Assuming semiannual compounding, what is the price of a zero coupon bond with 18 years to maturity paying $1,000 at maturity if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):
Price of the Bond
a. 3 percent $
b. 6 percent $
c. 9 percent $
4. The next dividend payment by ECY, Inc., will be $1.72 per share. The dividends are anticipated to maintain a growth rate of 4 percent, forever. The stock currently sells for $33 per share.
What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Dividend yield
%
What is the expected capital gains yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Capital gains yield
%
5. The Starr Co. just paid a dividend of $1.20 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year, indefinitely. Investors require a return of 10 percent on the stock.
What is the current price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Current price $
What will the price be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Stock price $
What will the price be in 10 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Stock price $
6. The next dividend payment by ECY, Inc., will be $1.96 per share. The dividends are anticipated to maintain a growth rate of 4 percent, forever. The stock currently sells for $39 per share.
What is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Required return _________ %
7. Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07 percent and the market rate of return is 11.81 percent. What is the amount of the risk premium on Zoom stock?
12.76% _____
10.25% _____
17.24% ______
9.59% _______
8.09% _______
8. The risk premium for an individual security is computed by:
- multiplying the security's beta by the risk-free rate of return.
- multiplying the security's beta by the market risk premium.
- dividing the market risk premium by the quantity (1 + Beta).
- dividing the market risk premium by the beta of the security.
- adding the risk-free rate to the security's expected return.
9. The risk-free rate of return is 3.68 percent and the market risk premium is 7.84 percent. What is the expected rate of return on a stock with a beta of 1.32?
- 13.12%
- 9.24%
- 14.03%
- 9.17%
- 14.36%
10. Miller Manufacturing has a target debt-equity ratio of .45. Its cost of equity is 13 percent, and its cost of debt is 7 percent. If the tax rate is 34 percent, what is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC _________ %
11. Mullineaux Corporation has a target capital structure of 65 percent common stock and 35 percent debt. Its cost of equity is 14 percent, and the cost of debt is 8 percent. The relevant tax rate is 30 percent.
What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC _________%
12. Filer Manufacturing has 9 million shares of common stock outstanding. The current share price is $81, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value $80 million, a coupon of 10 percent, and sells for 96 percent of par. The second issue has a face value of $50 million, a coupon of 11 percent, and sells for 104 percent of par. The first issue matures in 25 years, the second in 8 years.
a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
Equity / Value _______
Debt / Value _________
b. What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
Equity / Value _______
Debt / Value _________
c. Which are more relevant?
- Market value weights
- Book value weights
13. Titan Mining Corporation has 9.7 million shares of common stock outstanding and 410,000 4 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $45 per share and has a beta of 1.35, and the bonds have 10 years to maturity and sell for 116 percent of par. The market risk premium is 8.5 percent, T-bills are yielding 5 percent, and the company's tax rate is 35 percent.
A. What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
Weight
- Debt ________
- Equity ______
B. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Discount rate ________%