Review

Theory:
book value of firm’s equity
Simple interest and compound interest
Capital structure
Coupon interest
Real interest rate and nominial interest rate, inflation
Caculation
Present of an investment
Price of bond
Bond’s yield to maturity (bond)
Price of Stock
Expected rate of return (stock)
NPV

1. A corporate bond was quoted yesterday at 102.16 while today’s quote is 102.19. What is
the change in the value of a bond that has a face value of $6,000?
A. $0.30
B. $1.80 = (102.19% - 102.16%)x6,000
C. $18.00
D. $180.00

2. The yield to maturity on a bond is currently 8.46 percent. The real rate of return is 3.22
percent. What is the rate of inflation?
a. 5.08% 3.22% +1 = (1+8.46%)/(1+inflation)
b. 5.64
c. 6.24%
d. 6.53%
3. A U.S Treasury bond that is quoted at 100.12 is selling:
A. For 12% more than par value
B. At an 12% discount
 C. At par and pays an 12% coupon
D. For 100.12% of face value
4. . The bonds issued by Stainless Tubs bear a 6% coupon, payable annually. The bonds mature in
11 years and have a 1,000 face value. Currently, the bonds sell for $989. What is the yield to
maturity?

a. 5.87%
b. 5.92%
c. 6.08%
d. 6.14%

5. Oil Well Supply offers 7.5% coupon bonds with annually payment and a yield to maturity of
7.68%. The bonds mature in 6 years. What is market price per bond if the value falue is $1,000

a. $989.7
b. $ 991.59
c. $996.48
d. $1,002.6
 6. Miller Brothers Hardware paid an annyal dividend of $1.15 per share last month. Today, the
company announced that future dividends will be increasing by 2.6% annually. You require a
12% rate of return, how much are you willing to pay to purchase one of this stock today?

a. $12.23
b. $12.55
c. $12.67
d. $12.72
P = 1.15x(1+2.6)2/(12%-2.6%)

7. Your landscaping company can lease a truck for $8,000 a year (paid at year-end) for 6
years. The interest rate your company can earn on its funds is 7%. What is the present value
of the cost of leasing?
a. 38,132.3
b. 40,801.5
c. 12,846.2
d. 4,981.9

8. Suppose that an investor wants to have $10 million to retire 45 years from now. How
much would she have to invest with an annual rate of return equal to 15%
A. $18,561
B. 17,844
C. 20,003
D. 21,345
10,000,000 = PVx(1+15%)45