BUS 401 Week 2 Quiz Version c

This work of BUS 401 Week 2 Quiz Version c consists of:

1. Butler Corp paid a dividend of $3.50 per share. The dividend is expected to grow at a constant rate of 8% per year. If Butler Corp. Is selling for $75.60 per share, the stockholders’ expected rate of return is _________

2. Emery Inc. has a beta equal to 1.5 and a required return of 14 % based on the CAPM. If the risk free rate of return is 2%, the expected return on the market portfolio is _______________.

3. The capital asset pricing model _________.

4. Stock A has an expected return of 14 % with a standard deviation of 6%. If returns are normally distributed, then approximately two-third of the time the return on Stock A will be _______.

5. A corporate coup bond has a coupon rate of 9%, a face value of $1,000, and matures in 15 years. Which of the following statements in most correct?

6. Investment A has an expected rate of return of 15 % per year, while investment B has an expected rate of return of 12 % per year. A rational investor will choose _________.

7. A financial analyst tells you that investing in stocks will allow you to triple your money in 15 years. What annual rate of return is the analyst assuming you can earn?

8. SWH Corporation issued bonds on January 1, 2004. The bonds had a coupon rate of 4.5%, with interest paid semiannually. The face of the bonds is $1,000 and the bonds mature on January 1, 2014. What is the intrinsic value [to the nearest dollar] of an SWH Corporation bond on January 1, 2008 to an investor with a required return of 6%?

9. Which of the following statements concerning stock valuation is most correct?

10. You are 21 years old today. Your grand parents set up a fund that will pay you $25,000 per year for 20 years, starting on your 65th birthday to supplement your retirement. If the trust can earn 7.5% per year, how much will your grand parents need to put in the trust fund today [rounded to the nearest ten dollars]?

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