BFIN 300 Quiz2 solutions

1966 Words Mar 4th, 2015 8 Pages
BFIN 300 Financial Management FA14 Quiz 2 Solutions
Conceptual/qualitative questions:
1. The capital gains yield plus the dividend yield on a security is called the total return.
2. Unsystematic risk can be effectively eliminated through portfolio diversification.
3. The excess return required from a risky asset over that required from a risk-free asset is called the risk premium.
4. The market risk premium is computed by subtracting the risk-free rate of return from the market rate of return. MRP = Return of the market – Risk-free rate.
5. The Zolo Co. just declared that it is increasing its annual dividend from $1.00 per share to $1.25 per share. If the stock price remains constant, then the dividend yield will increase. This is
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The dividend amount was $.70 a share which equated to a dividend yield of 1.5%. What was the rate of price appreciation on the stock? 11.25% - 1.50% = 9.75%
22. Your firm offers a 10-year, zero coupon bond. The yield to maturity is 8.8%. What is the current market price of a $1,000 face value bond?
PV
430.24
FV
1,000
PMT
0
RATE or i/y
8.8%
NPER or n
10
*note: this bond used annual compounded as was given during the exam.
23. Angelina's made two announcements concerning its common stock today. First, the company announced that its next annual dividend has been set at $2.16 a share. Secondly, the company announced that all future dividends will increase by 4% annually. What is the maximum amount you should pay to purchase a share of Angelina's stock if your goal is to earn a 10% rate of return? This is a constant growth or Gordon growth model problem. 24. The bonds issued by Manson & Son bear a 6% coupon, payable semiannually. The bond matures in 8 years and has a $1,000 face value. Currently, the bond sells at par. What is the yield to maturity?
PV
1,000
FV
1,000
PMT
6%/2
RATE or i/y
3%x2 = 6%
NPER or n
8x2
*Note: a bond selling at par value will have a yield to maturity equal to its coupon rate.
25. Eight months ago, you purchased 400 shares of Winston, Inc. stock at a price of $54.90 a share. The company pays quarterly dividends of $.50 a share. Today, you sold all of your shares for $49.30 a share. What is your total percentage

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