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I’ve attached 6 questions. Show your work for all problems including the appropriate time value of money formulas.Do NOT use Chat GPT as I could to the same instead of posting here. If I see it’s done on Chat GPT, I’ll request a refund.
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PLEASE DO NOT UNSTAPLE THIS EXAM!
Please note that you must show your work (calculations) to receive full credit.
1.
(15 points) Consider an annuity that will pay $15,000 at the end of each year for 10 years beginning five years
from today (years 6-15), followed by an annuity that will pay $35,000 at the end of each year for years 16-35.
Compute the present value of these future cash flows at an interest rate of 6.75 percent per year.
2.
(10 points) Consider a bond selling at a premium with a 10% required rate of return which initially has 15 years
remaining until maturity. Assume three years elapse and the required rate of return remains constant at 10%.
What will happen to the price of the bond after these three years? (Please write an “X” on the line in front your
answer to the question.)
____ The bond price would decrease.
____ The bond price would increase.
____ The bond price would remain the same.
3.
(25 points) Wally-World Corp has 7.25% semiannual-pay bonds outstanding that have a $1,000 par value and 25
years remaining until maturity that are currently selling for $835.60. What is the yield to maturity (YTM) for
these bonds?
4.
(15 points) Assume the risk-free rate of return is 4% and the required rate of return on the market is 10%. Stock
X has a standard deviation of returns of 52% and a beta coefficient of 1.6 while Stock Y has a standard deviation
of returns of 65% and a beta coefficient of 1.2. Which stock would investors require a higher rate of return for?
Explain your answer.
5.
(20 points) DP Corp. just paid its annual dividend of $1.58. You expect these dividends to grow at an annual rate
of 20% for the next 5 years, followed by 12% for 2 years, and then at a constant rate of 6% per year indefinitely
thereafter. The required return on DP Corp. common stock is 10%. Compute the value of DP Corp. common
stock. (Please use four decimal places when estimating future dividends.)
6.
(15 points) An analyst expects Arc Corp. to pay its first dividend of $0.80 per share three years from today. She
expects future dividends to then grow indefinitely at a constant rate of 8.0% per year. Assume the risk-free rate
is 5.2%, market risk premium is 7%, and the beta on Aquinas common stock is 1.5 What is the value of Arc
common stock?
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