Question: A bond sells for $902.30 and

> Why is it that the preferred stockholders’ equity section of the balance sheet changes only when new shares are sold or repurchased, whereas the common stockholders’ equity section changes from year to year regardless of whether new shares are bought or

> How do dividends and interest expense differ?

> How do gross profits, operating profits, and net income differ?

> A company’s financial statements consist of the balance sheet, income statement, and statement of cash flows. Describe what each statement tells us.

> What is the major difference between a negotiated purchase and a competitive bid purchase?

> It’s been 2 months since you took a position as an assistant financial analyst at Caledonia Products. Although your boss has been pleased with your work, he is still a bit hesitant about unleashing you without supervision. Your next ass

> What is an investment banker, and what major functions does he or she perform?

> Explain the popular theories for the rationale of the term structure of interest rates.

> Why do you think most secondary-market trading in bonds takes place over the counter?

> It has been said that in recent years the difference between an organized exchange and the over-the-counter market has blurred. What does this statement mean and do you think it is correct?

> Compare and explain the historical rates of return for different types of securities.

> Explain the term opportunity cost with respect to the cost of funds to the firm.

> What major benefits do corporations and investors enjoy because of the existence of organized security exchanges?

> Distinguish between the money and capital markets.

> Why might a large corporation want to raise long-term capital through a private placement rather than a public offering?

> Using the following criteria, specify the legal form of business that is favored: (a) organizational requirements and costs, (b) liability of the owners, (c) the continuity of the business, (d) the transferability of ownership, (e) management control and

> Your first assignment in your new position as assistant financial analyst at Caledonia Products is to evaluate two new capital-budgeting proposals. Because this is your first assignment, you have been asked not only to provide a recommendation but also t

> Identify the primary characteristics of each form of legal business organization.

> Define (a) sole proprietorship, (b) partnership, and (c) corporation.

> What is the agency problem, and how might it impact the goal of maximization of shareholder wealth?

> What is the relationship between financial decision making and risk and return? Would all financial managers view risk–return trade-offs similarly?

> Firms often involve themselves in projects that do not result directly in profits. For example, Apple, which we featured in the chapter introduction, donated $50 million to Stanford University hospitals and another $50 million to the African aid organiza

> What are some of the problems involved in implementing the goal of maximization of shareholder wealth?

> Is the evaluation of a direct foreign investment more complicated than the evaluation of a domestic investment?

> What risks are associated with direct foreign investment? How do these risks differ from those encountered in domestic investment?

> What is meant by (a) exchange rate risk and (b) political risk?

> How do purchasing-power parity, interest rate parity, and the Fisher effect explain the relationships among the current spot rate, the future spot rate, and the forward rate?

> ExxonMobil (XOM) is one of the half-dozen major oil companies in the world. The firm has four primary operating divisions (upstream, downstream, chemical, and global services) as well as a number of operating companies that it has acquired over the years

> This Mini Case is available in My Finance Lab. The final stage in the interview process for an assistant financial analyst at Caledonia Products involves a test of your understanding of basic financial concepts. You are given the following memorandum and

> A share of stock sells for $35 today. The beta of the stock is 1.2 and the expected return on the market is 12 percent. The stock is expected to pay a dividend of $0.80 in one year. If the risk-free rate is 5.5 percent, what should the share price be in

> A stock has a beta of 0.85, the expected return on the market is 11 percent, and the risk-free rate is 3 percent. What must the expected return on this stock be?

> You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.20 and the total portfolio is exactly as risky as the market, what must the beta be for the other stock in your portfolio?

> You own 400 shares of stock A at a price of $60 per share, 500 shares of stock B at $85 per share, and 900 shares of stock C at $25 per share. The betas for the stocks are 0.8, 1.2, and 0.7, respectively. What is the beta of your portfolio?

> You own a stock portfolio invested 10 percent in stock Q, 25 percent in stock R, 50 percent in stock S, and 15 percent in stock T. The betas for these four stocks are 1.4, 0.6, 1.5, and 0.9, respectively. What is the portfolio beta?

> A stock has a beta of 0.8 and an expected return of 11 percent. If the risk-free rate is 4.5 percent, what is the market risk premium?

> A stock has an expected return of 12 percent and a beta of 1.4, and the expected return on the market is 10 percent. What must the risk-free rate be?

> A stock has an expected return of 8.0 percent, its beta is 0.60, and the risk-free rate is 3 percent. What must the expected return on the market be?

> A stock has an expected return of 13.2 percent, the risk-free rate is 3.5 percent, and the market risk premium is 7.5 percent. What must the beta of this stock be?

> Calculate the volatility of a portfolio of 35 percent Roll and 65 percent Ross by filling in the following table: Data for Question 7: (1) State of (2) Probability of State of Economy (3) Portfolio Return (4) Squared Devlatlon from Expected Return

> Which of the following is closest to the expected standard deviation of the client’s portfolio if 10 percent of the portfolio is invested in the Quality Commodity (QC) Fund? a. 9.6 percent b. 14.1 percent c. 16.0 percent

> Calculate the expected returns for Roll and Ross by filling in the following table (verify your answer by expressing returns as percentages as well as decimals): Data for Question 4: Roll Ross (2) Probablity of State of Economy (4) (1) State of (

> Repeat Questions 1 and 2 assuming that all three states are equally likely. Data from Question 1: Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone: Data from Question

> Using the information in Question 1, calculate the standard deviation of returns. Data from Question 1: Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone: State of P

> Fill in the missing information in the following table. Assume that portfolio AB is 40 percent invested in stock A. Year Stock A Stock B Portfollo AB 2012 11% 21% 2013 37 -38 2014 -21 48 2015 26 16 2016 13 24 Average return Standard deviation

> Use the following information on states of the economy and stock returns to calculate the expected return for Dingaling Telephone: State of Probablity of State of Economy Security Return If State Occurs Economy Recession .25 -8% Normal .50 13 Вoom

> Atlantis Fisheries’ zero coupon bonds referred to in Problem 8 are callable in 10 years at a call price of $500. Using semiannual compounding, what is the yield to call for these bonds?

> Atlantis Fisheries issues zero coupon bonds on the market at a price of $417 per bond. Each bond has a face value of $1,000 payable at maturity in 20 years. What is the yield to maturity for these bonds?

> May Industries has a bond outstanding that sells for $928. The bond has a coupon rate of 7.5 percent and nine years until maturity. What is the yield to maturity of the bond?

> A bond with a maturity of 12 years sells for $1,047. If the coupon rate is 8.2 percent, what is the yield to maturity of the bond?

> Which of the following is closest to the expected return of the client’s portfolio if 10 percent of the portfolio is invested in the New Horizon (NH) Emerging Market Fund? a. 11 percent b. 10.2 percent c. 11.8 percent

> A bond with 25 years until maturity has a coupon rate of 7.2  percent and a yield to maturity of 6 percent. What is the price of the bond?

> A bond has a coupon rate of 8.2 percent and 9 years until maturity. If the yield to maturity is 7.4 percent, what is the price of the bond?

> Rolling Company bonds have a coupon rate of 4 percent, 14 years to maturity, and a current price of $1,086. What is the YTM? The current yield?

> If, instead, the Atlantis Fisheries zero coupon bonds referred to in Problems 8 and 9 are callable in 10 years at a call price of $550, what is their yield to call?

> Aloha Inc. has 7 percent coupon bonds on the market that have 12 years left to maturity. If the YTM on these bonds is 9.1 percent, what is the current bond price?

> How much would you pay for a U.S. Treasury bill with 112 days to maturity quoted at a discount yield of 2.18 percent? Assume a $1 million face value.

> In Problem 7, what is the bond equivalent yield? Data from Problem 7: What is the price of a U.S. Treasury bill with 56 days to maturity quoted at a discount yield of 1.15 percent? Assume a $1 million face value.

> What is the price of a U.S. Treasury bill with 56 days to maturity quoted at a discount yield of 1.15 percent? Assume a $1 million face value.

> Your investments increased in value by 11.6 percent last year, but your purchasing power increased by only 7.6 percent. What was the approximate inflation rate?

> A stock had a return of 8.9 percent last year. If the inflation rate was 2.1 percent, what was the approximate real return?

> Mr. Spice wonders how a fixed-income manager could position his portfolio to capitalize on the expectation of an upward-shifting and twisting term structure. For the twist, interest rates on long-term bonds increase by more than those on shorter-term not

> What is the yield to maturity on a Treasury STRIPS with 4 years to maturity and a quoted price of 70.485?

> A Treasury STRIPS is quoted at 90.875 and has 5 years until maturity. What is the yield to maturity?

> A Treasury STRIPS matures in 7 years and has a yield to maturity of 4.4 percent. If the par value is $100,000, what is the price of the STRIPS? What is the quoted price?

> In Problem 9, what is the bond equivalent yield? Data from Problem 9: How much would you pay for a U.S. Treasury bill with 112 days to maturity quoted at a discount yield of 2.18 percent? Assume a $1 million face value.

> What is the price of a Treasury STRIPS with a face value of $100 that matures in 10 years and has a yield to maturity of 3.5 percent?

> Below you will see a stock price chart for Cisco Systems from finance.yahoo.com. Do you see any resistance or support levels? What do support and resistance levels mean for the stock price? CISCO SYSTEMS INC as of 10-Jan-2008 Splits: 36 34 32 30 28

> Suppose you are given the following information on the S&P 500: Date ………………………….…….Close 10/1/2015………………………………..1,923.82 10/2/2015 ………………………………1,951.36 10/5/2015 ……………………………..1,987.05 10/6/2015 ………………………………1,979.92 10/7/2015 ……………………………..1,995.83 10/8

> You are given the following information concerning the trades made on a particular stock. Calculate the money flow for the stock based on these trades. Is the money flow a positive or negative signal in this case? Price…………………………Volume $70.12 70.14 ………

> A group of investors was polled each week for the last five weeks about whether they were bullish or bearish concerning the market. Construct the market sentiment index for each week based on these polls. Assuming the market sentiment index is being used

> Using the stock prices in Problem 3, calculate the exponential three-month moving average for IBM and Amazon. Place 50 percent of the average weight on the most recent price. How does this exponential moving average compare to your result from Problem 4?

> For an increase of 100 basis points in the yield to maturity, by what amount would the fixed-rate bond’s price change? a. −$7.49 b. −$5.73 c. −$4.63

> Using the stock prices in Problem 3, calculate the exponential three-month moving average for both stocks where two-thirds of the average weight is placed on the most recent price. Data from Problem 3: The table below shows the closing monthly stock pr

> The table below shows the closing monthly stock prices for IBM and Amazon. Calculate the simple three-month moving average for each month for both companies. IBM………………………………………………….…..AMZN $169.64 …………………………………………………$600.36 173.29  ……………………………………………………

> Using the data in Problem 1, construct the Arms ratio on each of the five trading days. Data from Problem 1: Use the data below to construct the advance/decline line for the stock market. Volume figures are in thousands of shares. Stocks Advancin

> A stock had the following trades during a particular period. What was the money flow for the stock? Is the money flow a positive or negative signal in this case? Week Day Price Volume 1 Monday $61.85 Tuesday 61.81 1,000 Wednesday 61.82 1,400 Thurs

> Use the data below to construct the advance/decline line and Arms ratio for the market. Volume is in thousands of shares. Stocks Advancing Volume Stocks Declining Volume Advancing Declining Monday 2,530 995,111 519 111,203 Tuesday 2,429 934,531 639

> Use the data below to construct the advance/decline line for the stock market. Volume figures are in thousands of shares. Stocks Advancing Volume Stocks Declining Volume Advancing Declining Monday 1,634 825,503 1,402 684,997 Tuesday 1,876 928,360 1

> Star Light & Power increases its dividend 3.8 percent per year every year. This utility is valued using a discount rate of 9 percent, and the stock currently sells for $38 per share. If you buy a share of stock today and hold on to it for at least three

> Xytex Products just paid a dividend of $1.62 per share, and the stock currently sells for $28. If the discount rate is 10 percent, what is the dividend growth rate?

> If a firm has an EV of $750 million and EBITDA of $165 million, what is its EV ratio?

> Using your answers from Problems 3 through 5, value Lauryn’s Doll Co. assuming her FCF is expected to grow at a rate of 3 percent into perpetuity. Is this value the value of the equity?

> What is the estimated value of Country Point in a proposed spin-off? a. $144.5 million b. $162.6 million c. $178.3 million

> Lauryn’s Doll Co. had EBIT last year of $40 million, which is net of a depreciation expense of $4 million. In addition, Lauryn’s made $5 million in capital expenditures and increased net working capital by $3 million. Using the information from Problem 3

> Using your answer to Problem 3, calculate the appropriate discount rate assuming a risk-free rate of 4 percent and a market risk premium of 7 percent. Data from Problem 3: You are going to value Lauryn’s Doll Co. using the FCF model. After consulting v

> You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn’s has a reported equity beta of 1.4, a debt-to-equity ratio of 0.3, and a tax rate of 30 percent. Based on this information, what is the

> In Problem 1, suppose the current share price is $60. If all other information remains the same, what must the liquidating dividend be? Data from Problem 1: JJ Industries will pay a regular dividend of $2.40 per share for each of the next four years. A

> For Bill’s Bakery described in Problem 13, suppose instead that current earnings per share are $2.56. Calculate the share price for Bill’s Bakery.

> Bill’s Bakery expects earnings per share of $2.56 next year. Current book value is $4.70 per share. The appropriate discount rate for Bill’s Bakery is 11 percent. Calculate the share price for Bill’s Bakery if earnings grow at 3 percent forever.

> A certain stock has a beta of 1.3. If the risk-free rate of return is 3.2 percent and the market risk premium is 7.5 percent, what is the expected return of the stock? What is the expected return of a stock with a beta of 0.75?

> Joker stock has a sustainable growth rate of 8 percent, ROE of 14 percent, and dividends per share of $1.65. If the P/E ratio is 19, what is the value of a share of stock?

> Johnson Products earned $2.80 per share last year and paid a $1.25 per share dividend. If ROE was 14 percent, what is the sustainable growth rate?

> JJ Industries will pay a regular dividend of $2.40 per share for each of the next four years. At the end of the four years, the company will also pay out a $40 per share liquidating dividend, and the company will cease operations. If the discount rate is

> The value of beta for Country Point is: a. 1.09 b. 1.27 c. 1.00

> In Problem 5, assume the value-weighted index level was 408.16 at the beginning of the year. What is the index level at the end of the year? Data from Problem 5: Calculate the index return for the information in Problem 4 using a value-weighted index.

> In Problem 5, assume that you want to re index with the index value at the beginning of the year equal to 100. What is the index level at the end of the year? Data from Problem 5: Calculate the index return for the information in Problem 4 using a valu

> You are given the following information concerning two stocks that make up an index. What is the price-weighted return for the index? Price per Share Shares Beginning End of Outstanding of Year Year Kirk, Inc. 35,000 $37 $42 Picard Co. 26,000 84 9

> You find the following order book on a particular stock. The last trade on the stock was at $70.54. a. If you place a market buy order for 100 shares, at what price will it be filled? b. If you place a market sell order for 200 shares, at what price

> In Problem 1, assume that Baker undergoes a 4-for-1 stock split. What is the new divisor now? Data from Problem 1: Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $93, $312, and $78, respectively. If Baker undergoes

> Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $93, $312, and $78, respectively. If Baker undergoes a 2-for-1 stock split, what is the new divisor for the price-weighted index?