UMUC FINC340 Final Exam latest (2016)

Jul 19th, 2016
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Question Answer 1. A company has paid $2 per share in dividends for the past several years and plans to continue to do so indefinitely. If an investor’s required return is 13%, what is the most she should pay for a share of this firm’s stock? A: $15.38 B: $20.00 C: $22.60 D: $26.13 E: $65.00 2. Bond mutual funds offer the following advantages over direct investment in bonds EXCEPT: A: Better diversification B: Transaction cost economies C: Buy and sell individual bonds at individual investor’s discretion D: Reinvestment of intermediate cash flows E: Better liquidity 3. A $1,000 par value bond with a 5% coupon that pays interest semiannually and matures in 2 ½ years and has a current price of $977. What is the annualized yield to maturity? A: 3.0% B: 4.0% C: 5.0% D: 6.0% E: 7.0% 4. An immunization strategy protects a portfolio from: A: Interest rate risk B: Default risk C: Liquidity risk D: Prepayment risk E: Event risk 5. Market multiple methods include valu

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umuc finc340 final exam latest 2016 julyQuestionAnswer1. A company has paid $2 per share in dividends for the past several years and plans to continueto do so indefinitely. If an investors required return is 13%, what is the most she should pay fora share of this firms stock?A: $15.38B: $20.00C: $22.60D: $26.13E: $65.00Dividend for Current Year (Do) = $2Dividend is planned to continue at $2 indefinitely.Therefore, Dividend Growth Rate (g) = 0Required Rate of Return (R) = 13%Price of the Share (P) = Do * (1+ g)/ (Rg)= $2 * (1 + 0)/ (0.130)=$2/0.13=$15.382. Bond mutual funds offer the following advantages over direct investment in bonds EXCEPT:A: Better diversificationB: Transaction cost economiesC: Buy and sell individual bonds at individual investors discretionD: Reinvestment of intermediate cash flowsE: Better liquidity3. A $1,000 par value bond with a 5% coupon that pays interest semiannually and matures in 2 years and has a current price of $977. What is the annualized yield to maturity?A: 3.0%B: 4.0%C: 5.0%D: 6.0%E: 7.0%Face Value of the bond(F)=$1000Current Price of the bond (P) = $977Coupon (C) @ 5% = 5% of F, i.e., 5% of $1000 = $50Years to Maturity (N) = 2.5 yearsYield to Maturity (YTM) = [C+(F-P)/N]/[(F+P)/2]= [$50 + ($1000- $977)/ 2.5]/ [($1000 + $977)/ 2] = 6%4. An immunization strategy protects a portfolio from:A: Interest rate riskB: Default riskC: Liquidity riskD: Prepayment riskE: Event risk5. Market

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