UMUC FIN 610 Midterm 2 with Answers
UMUC FIN 610 Midterm 2 with Answers
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FIN 610 MidTerm Exam 2 Answers (UMUC)
1. Which of the following statements is true?
2. A bond sold by NVDIA Corp. has a face value on $100, a coupon payment of $6 per year, and a maturity of 4 years. The first coupon payment occurs a year from now. The market price is $80, what is the YTM?
3. ABC Inc. bonds have a $1,000 face value. The promised annual coupon is $89. The bonds mature in 8 years. There are 8 coupon payments of $89 each starting a year from now, and the last payment 8 years from now is coupon plus face.
The market’s required return for these bonds is 6%. What is the price of these bonds?
4. XYZ Corp has bonds on the market with 7.5 years to maturity, a YTM of 6 percent, and a current price of $1,040. The face value is $1,000. The bonds make semiannual payments. What must be the dollar coupons (dollar amount, not percentage) paid every six-months on XYZ’s bonds?
5. Perpetual bond, which is also known as a perpetual or just a perp, is a bond with no maturity date. Issuers pay coupons on perpetual bonds forever, and they do not have to redeem the principal. Perpetual bond cash flows are, therefore, those of a perpetuity.
A perpetual bond pays coupons of 4% every year on a face value of $1,000. The rate of return on the bond is 10.00% every year. What is the price of the bond?
6. Two analysts are calculating the value of the same stock. They projections for the stock's future dividends are the same. They also use the same discount rate.
However, one analyst discounts future dividends to calculate the price, whereas the other analyst discounts next periods dividends and price (again based on future dividends) to calculate the price.
The prices calculated by the two analysts will be:
7. Which of the following statements is FALSE?
8. Suppose a stock will pay $12 per share dividend in one year's time. The dividend is projected to grow at 8% the following year, and then 4% per year indefinitely after that.
9. A firm is evaluating a product. The market demand for the product can be low or high.
The product requires an investment of $1,240.
If the market demand is high, then there is a 30% chance that the product will sell for $1000 and a 70% chance it will sell for $1,500.
What is the NPV of the project if the market demand is high?
10. You are evaluating a product. The market demand for the product can be low or high.
The product requires an investment of $1000.
If the market demand is high, the product will have a payoff of $2000. If the market demand is low, the product will have payoff of $940.
You do not know whether the market demand is high or low, but you know the probability that the market demand will be high is 70%, and that it will be low is 30%.
Given the above information, you calculate the NPV to be:
(0.7*2000 + 0.3*940) - 1000
Now, a market research organization offers to do a survey to determine whether the demand will be high or low BEFORE you make the 1000 investment.
What is the value of the survey to you? That is, the maximum amount you would be ready to pay to have the survey conducted?
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