Reference no: EM132555890

Question 1: Home for less Corporation's bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 4.75%, based on semiannual compounding. What is the bond's price?

a) 1,063.25

b) 1,587.90

c) 1,118.31

d) 1,467.03

e) None of the above

Question 2: You hold a diversified portfolio consisting of a $10,000 investment in each of 20 different common stocks (that is, your total investment is $200,000). The portfolio beta is equal to 1.2. You have decided to sell one of your stocks that has a beta equal to 0.7 for $10,000. You plan to use the proceeds to purchase another stock that has a beta equal to 1.4. What will be the beta of the new portfolio?

a) 1.165

b) 1.235

c) 1.250

d) 1.284

e) None of the above

Question 3: An investor is forming a portfolio by investing $50,000 in stock A that has a beta of 1.50, and $25,000 in stock B that has a beta of 0.90. The return on the market is equal to 6 percent and Treasury bonds have a yield of 4 percent. What is the required rate of return on the investor's portfolio?

a) 6.6%

b) 6.8%

c) 5.8%

d) 7.0%

e) None of the above

Question 4: The risk-free rate of interest, kRF, is 6 percent. The overall stock market has an expected return of 12 percent. Nutshell, Inc. has a beta of 1.2. What is the required return of Nutshell, Inc. stock?

a) 12.0%

b) 12.2%

c) 12.8%

d) 13.2%

e) None of the above

Question 5: Assume that you are considering the purchase of a 15-year bond with an annual coupon rate of 9.5%. The bond has face value of $1,000 and makes semiannual interest payments. If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

a) $920

b) $975

c) $891

d) $823

e) None of the above

Question 6: Shanz Enterprises has a beta of 1.28, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Kollo's required rate of return?

a) 11.016%

b) 9.670%

c) 9.920%

d) 10.170%

e) None of the above