Risk and Return
"What is the arithmetic average return for a stock with annual returns of 20%, 18%, -12%, 46%, and 7%?"
15.80%
"Suppose you deposit $2,000 in an account paying 10% annual interest. How much money will be in your account in 5 years?"
$3,221.02
"A company just paid a dividend of $2.50 per share. Dividends are expected to grow by 6% each year. What is the expected dividend for this company?"
$2.65 per share
"Given a NPV of $2,000 for an investment project, and there are no initial invetment retriction, should the company reject or accept the project?"
Accept
"What does Beta measure in the CAPM model?"
Risk
"If you own 300 shares of Alaska Air at $46.38, 350 shares of Best Buy at $57.76, and 400 shares of Ford Motor at $7.21, what is the portfolio weight of Best Buy stock?"
0.55%
"If you start TODAY depositing $150 per month, and continue to do so each month for the next 20 years, in an account that pays 10% interest compounded monthly, how much will you have in 20 years?"
$113,905.33
An investor is considering purchasing a 15-year bond that pays annual coupon payments. The bond offers a 6% coupon rate, and the market interest rate (required rate of return) is 8% per year. What is the value of the bond?
$828.81
"Given the following cash flows (years 0 - 4), what is the payback period?"
-5,000; 2,000; 2,000; 2,000; 2,000
2.50
"The risk-free rate is 4%, and the market risk premium is 5%. What is the expected return of a stock with β = 1.2?"
10.00%
"What is the standard deviation for a stock with annual returns of 20%, 18%, -12%, 46%, and 7%?"
0.21
"Your client obtained financing in the form of a $100,000 amortizing loan with payments of $955.65 at the end of each month for 15 years. What is the APR being paid?"
8.00%
"An investor is considering purchasing a 20-year bond with a face value of $1,500 that pays annual coupon payments. The bond offers a 5% coupon rate, and the market interest rate (required rate of return) is 10% per year. What is the value of the bond?"
$1,058.18
"Given the following cash flows (years 0 - 4) and a rate of 6%, what is the net present value?"
-5,000; 2,000; 2,000; 2,000; 2,000
$1,930.21
"The risk-free rate is 2.5%, and the market risk premium is 7%. A stock has an expected return of 8.8%. What is the stock’s beta (β)?"
0.90
"What is the geometric average return for a stock with annual returns of 20%, 18%, -12%, 46%, and 7%?"
1.14%
"You graduate and owe $20,000 on your credit card, which charges 1.5% monthly interest. You plan on paying $150 until it is paid off. How many months will it take you to get out from under this debt?"
73.79 months
"Perry Products’s just paid a dividend of $1.20 per share. The dividends are expected to grow at a 6% rate indefinitely. The price of the stock is $15.60. What is required return?"
14.15%
"Given the following cash flows (years 0 - 4), what is the internal rate of return?"
-5,000; 2,000; 2,000; 2,000; 2,000
21.86%
"Cedar Corp. had EBIT of $400,000, interest expense of $50,000, and a tax rate of 21%. What is net income?"
$276,500.00
"You recently purchased a stock that is expected to earn 12% in a booming economy, 8% in a normal economy and lose 5% in a recessionary economy. There is a 15% probability of a boom, a 75% chance of a normal economy, and a 10% chance of a recession. What is your expected rate of return on this stock?"
7.30%
"You need to borrow some money today from your father, and because you’re going to rapidly advance in your job, you can make payments like this:
1st year: $1,000, 2nd year: $2,000, 3rd year: $3000, 4th year: $4000, 5th year: $5000.
Your dad says that he’s getting 4% on his CDs, compounded annually, and you’ll need to pay him the same rate. How much can you borrow?"
$13,006.49
"Perry Product's stock price is currently $17.85 per share. The dividends are expected to grow at a 4% rate. The required return is 12%. What is the value per share of the most recent dividend paid by Perry Products?"
$1.37 per share
"Given the following cash flows (years 0 - 4)and a rate of 10%, what is the profitability index?"
-5,000; 2,000; 2,000; 2,000; 2,000
1.27
"Given EBIT = $280,000, Depreciation = $40,000, Taxes = $60,000, Increase in Investment in Fixed Assets = $90,000, and Increase in NWC = $30,000, find FCF."
$160,000.00