Department of Finance & Banking, Jahangirnagar University

Course EFIN 515, Financial Managemant

Level BBA Program

Exam Mid Exam 2017
Time, Marks 01:30 Hours, Marks
Part: A 05
1. Assume that all other factors are held constant and that the interest rate is greater than zero.
Increasing the number of periods (i.e., n) will cause the present value of a lump sum to be received in the future
to _________ and the present value of an annuity to _______.
a. Increase; Increase
b. Increase; Decrease
c. Decrease; Decrease
d. Decrease; Increase
2. Congratulations! You have just won a small lottery. It will pay you either 5 annual payments of $15,000
each (with the first payment to be received two years from today), or a single lump sum to be received today. If
you can invest at a 6% annual rate of interest, what is the least you should accept as the lump sum payout
amount?
a. $75,000.00
b. $66,976.58
c. $63,185.46
d. $59,608.92
3. Which of the following accounts would pay you the highest effective annual rate?
a. Stated annual rate of 6.05%, compounded annually
b. Stated annual rate of 6.01%, compounded semi-annually
c. Stated annual rate of 5.95%, compounded quarterly
d. Stated annual rate of 5.90%, compounded monthly
4. You have financed the purchase of a used Mercedes with a $31,500 loan with a 5-year term, monthly
payments, and an 8% stated annual rate. What is the amount of your monthly loan payment?
a. $657.45
b. $583.33
c. $477.92
d. $638.71
5. A security that pays a constant dividend every year forever is known as:
a. A zero-coupon bond
b. Preferred stock
c. Class A Common stock
d. A Reverse Perpetual Mortgage obligation security
6. A 10-year annual coupon bond was issued four years ago at par. Since then the bond’s yield to maturity
(YTM) has decreased from 9% to 7%. Which of the following statements is true about the current market price of
the bond?
a. The bond is selling at a discount
b. The bond is selling at par
c. The bond is selling at a premium
d. The bond is selling at book value
7. What should be the price of a $1,000 par value, 10% annual coupon rate (coupon interest paid semi-
annually) bond with 30 years remaining to maturity, assuming a discount rate of 9%?
a. $1,101.88
b. $1,102.44
c. $1,103.19
d. $1,104.48
8. You have just discovered a $1,000 par value corporate bond with a maturity of 10 years. The bond’s yield
to maturity is 9% and the bond is currently selling for $743.29. What is the bond’s annual coupon rate (the bond
pays coupon payments annually)?
a. 5%
b. 6%
c. 7%
d. 8%
9. What is the yield to maturity of a $1,000 par value bond with a coupon rate of 10% (semi-annual coupon
payments) that matures in 30 years assuming the bond is currently selling for $838.13?
a. 6.0%
b. 6.2%
c. 10.0%
d. 12.0%
10. XYZ, Inc. just paid a dividend of $3 per share. The industry analysts predict that XYZ’s dividends will grow at
a constant rate of 4% forever. If the stock is currently trading at $25 per share, what is the required rate of return on
this stock?
a. 12.00%
b. 12.48%
c. 16.00%
d. 16.48%
Part –B (Answer any three of the followings) 15

1. What is Corporate Finance? Explain the goal of the corporation. suppose you want to value a five-year,
$10,000 Government of Canada bond with a 4% coupon, paid twice a year, given a YTM of 6%
2. Illustrate: Time Value of Money, Annuity, Perpetuity? Suppose you have decided to deposits Tk 30,000 per
year in your Public Provident Fund Account for 30 years . What will be the accumulated amount in your
Public provident Account at the end of 30 years if the interest rate is 11 percent?
3. What are factors affecting Bond prices? Common stock, preferred stock, Angel capitalists , Venture capital.
GII Enterprises will pay a dividend of $1.50 next year, and your required rate of return is 12%. If you expect
the dividend to grow forever (at a constant rate), and you are now willing to pay $30.00 to purchase GII
stock. What must the implied growth rate?
4.
a. What is the yield to maturity and the yield to call of the following semi-annual bond?

face value: $1,000

maturity: 10 years
coupon rate: 10%
price: $1,000
call price: $1,150
years to call: 4

b. JKH Corporation is expected to pay the following dividends, d1 =$1.34; d2 = $1.78;

d3 = $2.01, for the next three years. The dividends will to grow constantly by 2.4%,
and the appropriate discount rate is 7%, what is the current price of JKH stock?
 1. D
2. D
3. B
4. D
5. B
6. C
7. C
8. A
9. D
10. D

2. The accumulated sum will be :

Rs.30,000 (FVIFA11%,30yrs)

= Rs.30,000 (1.11)30 - 1
 .11

= Rs.30,000 [ 199.02]

= Rs.5,970,600

3.

1.50
30.00 
0.12  g
1.50
0.12  g 
30.00
1.50
g   0.12
30.00
1.50
g  0.12
30.00
Implied Growth Rate  7.00%

4.a. YTM: P/Y = 2; N = 20; I/Y = 10%; PV = 1,000; PMT = -50; FV = -1,000

PMT = (1,000 x 0.10)/2 = 50

N = 10 x 2 = 20

YTC: P/Y = 2; N = 8; I/Y = 12.98%; PV = 1,000; PMT = -50; FV = -1,150

PMT = (1,000 x 0.10)/2 = 50

N=4x2=8

b.

d1 = $1.34; d2 = $1.78; d3 = $2.01; d4 = $2.06

2.06
 0.07  0.024
1.34 1.78 2.01
VCE   
  1.07  1.07 
1.07 2 3
1.07 
3

VCE  $40.97
5.
6. VS = $8,626,426 – $3,100,000 – $800,000 = $4,726,426
7. The value of Dewhurst’s common stock is therefore estimated to be $4,726,426. By dividing this total by the
300,000 shares of common stock that the firm has outstanding, we get a common stock value of $15.76
per share ($4,726,426 ÷ 300,000).