Question: Let’s assume that you’re thinking

> Red Eléctrica de España SA is refinancing its bank loans by issuing 6.5% euro denominated bonds to investors. You are considering buying €15,000 of these bonds at par value. You could also invest $15,000 in a 5.5% U.S. bond (also at par value) with simil

> Letticia Garcia, an aggressive bond investor, is currently thinking about investing in a foreign (non-dollar-denominated) government bond. In particular, she’s looking at a Swiss government bond that matures in 15 years and carries a 9.5% coupon. The bon

> Burt purchased an interest-bearing security last year, planning to hold it until maturity. He received interest payments and, to his surprise, a sizable amount of the principal was paid back in the first year. This happened again in year two. What type o

> Rhonda purchased a 12%, zero-coupon bond with a 20-year maturity and a $15,000 par value 20 years ago. The bond matures tomorrow. How much will Rhonda receive in total from this investment, assuming all payments were made on these bonds as expected?

> In early January 2014, you purchased $100,000 worth of some high-grade corporate bonds. The bonds carried a coupon of 6% and mature in 2027. You paid a price of 102.625 when you bought the bonds. Over the five years from 2014 through 2018, the bonds were

> Caleb buys an 8.75% corporate bond with a current yield of 5.6%. When he sells the bond one year later, the current yield on the bond is 6.6%. How much did Caleb make on this investment?

> A 9%, 20-year bond is callable in 12 years at a call price of $1,090. The bond is currently priced in the market at $923.68. What is the issue’s current yield?

> You are given the following information for the number of stocks making new highs and new lows for each day: a. Calculate the 10-day moving-average NH-NL indicator. b. If there are 120 new highs and 20 new lows today, what is the new 10-day moving-avera

> At the end of a trading day you find that on the NYSE 1,200 stocks advanced and 2,000 stocks declined. What is the value of the advance-decline line for that day?

> You hear a market analyst on television say that the advance/decline ratio for the session was 2.2. What does that mean?

> An investor short sells 500 shares of a stock for $35 per share. The initial margin is 45%. How much equity will be required in the account to complete this transaction?

> Following are figures representing the number of stocks making new highs and new lows for each month over a six-month period: Would a technical analyst consider the trend to be bullish or bearish over this period? Explain.

> Compute the level of on-balance volume (OBV) for the following three-day period for a stock if the beginning level of OBV is 50,000 and the stock closed yesterday at $42. Does the movement in OBV appear to confirm the rising trend in prices? Explain.

> Listed in the table are data that pertain to the corporate bond market. (Note: Each “period” covers a span of six months.) a. Compute the confidence index for each of the four periods listed in the table. b. Assume tha

> Compute the Arms index for the S&P 500 over the following three days: Which of the three days would be considered the most bullish? Explain why.

> Which of the following facts, if true, would violate the weak form of the efficient markets hypothesis? a. Stocks earn higher returns than bonds over time. b. You can earn better-than-average returns by purchasing a stock any time it reaches a 52-week hi

> Technical analysis looks at the demand and supply for securities based on trading volumes and price studies. Charting is a common method used to identify and project price trends in a security. A well-known technical indicator is the Bollinger Band. It c

> Data on a stock’s closing price and its price change for the last 14 trading days appears in the table. a. Over this 14-day period, what is the average gain on up days? (Note: To calculate the average, divide the sum of all gains by 14,

> You find the closing prices for a stock you own. You want to use a 10-day moving average to monitor the stock. Calculate the 10-day moving average for days 11 through 20. Based on the data in the following table, are there any signals you should act on?

> You are presented with the following data (dollars in trillions): Calculate the MFCR for each month. At the end of May, are you bullish or bearish?

> You have collected the following NH-NL indicator data: If you are a technician following a momentum-based strategy, are you buying or selling today?

> Not long ago, Ed Sheeran bought 400 shares of Division Signs Inc. at $47 per share; he bought the stock on margin of 60%. The stock is now trading at $60 per share, and the Federal Reserve has recently lowered initial margin requirements to 50%. Ed now w

> The High-Growth mutual fund earned a return last year of 11% and had a beta of 1.3. The Value Stock fund earned a return of 13% and had a beta of 1.5. The risk-free rate was 2%, and the market return was 9%. Did either fund earn an abnormal return? Posit

> Investors expect that Aviation Aircraft Parts will pay a dividend of $2.00 in the coming year. Investors require an 11% rate of return on the company’s shares, and they expect dividends to grow at 6% per year. Using the dividend valuation model, find the

> Melissa Cutt is thinking about buying some shares of EZLawn Equipment at $42 per share. She expects the price of the stock to rise to $50 over the next three years. During that time she also expects to receive annual dividends of $3 per share. a. What is

> From 2013 to 2018, Beer Brothers, Inc., paid dividends of $2.29, $2.36, $2.44, $2.48, $2.54, and $2.61. Use an Excel spreadsheet like the template shown to find Brother’s historical dividend growth rate.

> During the previous year, Leveraged Inc. paid $110 million of interest expense, and its average rate of interest for the year was 8%. The company’s ROE is 11%, and it pays no dividends. Estimate next year’s interest expense, assuming that interest rates

> Big Auto has an ROE of 8.6%. Its earnings per share are $0.97, and its dividends per share are $0.37. Estimate Big Auto’s growth rate.

> Jensen Inc. has total equity of $73 billion and 675 million shares outstanding. Its ROE is 12.7%. The dividend payout ratio is 21%. Calculate the company’s dividends per share (round to the nearest penny).

> Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Nabor have decided to make their own estimate of the firmâ&

> Our Space is a social media site that is growing in popularity. The firm has been around for a few years and has created a nice market niche for itself. In fact, it actually turned a profit last year, albeit a fairly small one. After doing some basic res

> Newco is a young company that has yet to make a profit. You are trying to place a value on the stock, but it pays no dividends and you obviously cannot calculate a P/E ratio. As a result, you decide to look at other stocks in the same industry as Newco t

> Sara Sanders purchased 50 shares of Apple stock at $190 per share using the minimum initial margin requirement of 50%. She held the stock for exactly six months and sold it without brokerage costs at the end of that period. During the 6-month holding per

> Next Gear Corp. has total equity of $82 million and 54 million shares outstanding. Its ROE is 13%. Calculate the company’s EPS.

> Energy Resources generated an EPS of $1.85 over the past 12 months. The company’s earnings are expected to grow by 17% next year, and because there will be no significant change in the number of shares outstanding, EPS should grow at about the same rate.

> You’re thinking about buying some stock in Affiliated Computer Corporation and want to use the P/E approach to value the shares. You’ve estimated that next year’s earnings should come in at about $3.25 a share. In addition, although the stock normally tr

> Assume you obtain the following information about Wild Amusement Park: Total assets $75,000,000 Total equity $35,000,000 Net income $4,780,000 EPS $4.65 Dividend payout ratio 37% Required return 14% Use the constant-growth DVM to place a value on this co

> Create a spreadsheet that applies the variable-growth model to predict the intrinsic value of the Rhyhorn Company common stock. Assume that dividends will grow at a variable rate for the next three years (2019, 2020, and 2021). After that, the annual rat

> You are interested in purchasing the common stock of Azure Corporation. The firm recently paid a dividend of $3.00 per share. It expects its earnings—and, hence, its dividends—to grow at a rate of 7% for the foreseeable future. Currently, similar-risk s

> Captured Photographs doesn’t currently pay any dividends but is expected to start doing so in four years. That is, Captured Photographs will go three more years without paying dividends and then is expected to pay its first dividend (of $2 per share) in

> A major investment service has just given Big Lake Realty its highest investment rating along with a strong buy recommendation. As a result, you decide to take a look for yourself and to place a value on the company’s stock. Here’s what you find: This ye

> Nextbig Corp. currently has sales of $870 million; sales are expected to grow by 26% next year (year 1). For the year after next (year 2), the growth rate in sales is expected to equal 13%. Over each of the next two years, the company is expected to have

> The Millennium Company earned $2.5 million in net income last year. It took depreciation deductions of $300,000 and made new investments in working capital and fixed assets of $100,000 and $350,000, respectively. a. What was Millennium’s free cash flow l

> An investor buys 300 shares of stock selling at $65 per share using a margin of 70%. The stock pays annual dividends of $2 per share. A margin loan can be obtained at an annual interest cost of 4%. Determine what return on invested capital the investor w

> Assume there are three companies that in the past year paid exactly the same annual dividend of $1.85 a share. In addition, the future annual rate of growth in dividends for each of the three companies has been estimated as follows: Assume also that as t

> FastPaced Inc. had sales of $125 million in 2019 and is expected to have sales of $165 million for 2020. The company’s net profit margin was 3% in 2019 and is expected to increase to 7% by 2020. Estimate the company’s net profit for 2020.

> Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $4.25 per share and paid cash dividends of $2.55 per share (D0 = +2.55). Grips’ earnings and dividends are expected to grow at 25

> This year, Midland Light and Gas (ML&G) paid its stockholders an annual dividend of $1.75 a share. A major brokerage firm recently put out a report on ML&G predicting that the company’s annual dividends would grow at the rate of 5% per year for each of t

> The price of Jane’s Book Co. is now $50. The company pays no dividends. Ms. Johnson expects the price four years from now to be $75 per share. Should she buy Jane’s Book Co. stock if she desires a 9% rate of return? Explain.

> Use the constant-growth dividend valuation model to find the value of each firm shown in the following table.

> Assume you’ve generated the following information about the stock of Ben’s Banana Splits: The company’s latest dividends of $2.00 a share are expected to grow to $2.27 next year, to $2.71 the year after that, and to $3.10 in three years. After that, you

> Wilbur and Orville are brothers. They’re both serious investors, but they have different approaches to valuing stocks. Wilbur, the older brother, likes to use the dividend valuation model. Orville prefers the free cash flow to equity valuation model. As

> Kelsey Drums Inc. is a well-established supplier of fine percussion instruments to orchestras all over the United States. The company’s class A common stock has paid a dividend of $2.80 per share per year for the past 12 years. Management expects to cont

> Allen Bagley bought 300 shares of stock at $95 per share using an initial margin of 60%. Given a maintenance margin of 35%, how far does the stock have to drop before Allen faces a margin call? (Assume that there are no other securities in the margin acc

> Jack is considering a stock purchase. The stock pays a constant annual dividend of $3.00 per share and is currently trading at $21. Jack’s required rate of return for this stock is 13%. Should he buy this stock?

> TXS Manufacturing has an outstanding preferred stock issue with a par value of $65 per share. The preferred shares pay dividends annually at a rate of 10%. a. What is the annual dividend on TXS preferred stock? b. If investors require a return of 8% on t

> An investor estimates that next year’s sales for Dursley’s Hotels, Inc. should amount to about $100 million. The company has five million shares outstanding, generates a net profit margin of about 10%, and has a payout ratio of 50%. All figures are expec

> Financial Learning Systems has 2.5 million shares of common stock outstanding and 100,000 shares of preferred stock. (The preferred pays annual cash dividends of $5 a share, and the common pays annual cash dividends of 25 cents a share.) Last year, the c

> The following data have been gathered from the financial statements of General Nutrition Centers (in thousands of dollars): Calculate the times interest earned ratios for 2016 and 2017. Is the company more or less able to meet its interest payments in 20

> For its fiscal year ending on June 30, 2018, Microsoft reported net income of $16.57 billion from sales of $110.36 billion. The company also reported total assets of $258.85 billion. a. Calculate Microsoft’s total asset turnover and its net profit margin

> In late 2017, Apple had a P/E ratio of 16.9, and analysts were projecting earnings growth of 17.5% per year for 2018, 2019, and 2020. What was Apple’s PEG ratio?

> ZIPBIT common stock is selling at a P/E of 10 times earnings. The stock price is $23.50. What were the firm’s earnings per share?

> The Anderson Company has net profits of $20 million, sales of $250 million, and 4.5 million shares of common stock outstanding. The company has total assets of $175 million and total stockholders’ equity of $95 million. It pays $1.50 per share in common

> A firm has $750 million in total assets, no preferred stock, and total liabilities of $300 million. There are 300 million shares of common stock outstanding. The stock is selling for $5.25 per share. What is the price-to-book ratio?

> Barbara Simmons purchased 100 shares of Home Depot stock for $187 per share, using as little of her own money as she could. Her broker has a 55% initial margin requirement and a 45% maintenance margin requirement. If the price of Home Depot stock falls t

> You have been asked to analyze the financial statements of the Dayton Corporation for the two years ending 2018 and 2019. a. Create a comparative balance sheet for the years 2019 and 2018, similar to the spreadsheet for Table 7.3, which can be viewed at

> The following table shows 2017 total revenues, cost of goods sold, earnings available for common stockholders, total assets, and stockholders’ equity for three companies competing in the bottled drinks market: the Coca-Cola Company, Pep

> A firm has 1 million shares of common stock outstanding with a book value of $15 per share. The firm also has total assets with a book value of $20 million. There is no preferred stock. What are the firm’s total liabilities?

> The following table shows key financial data for three firms that compete in the consumer products market: Procter & Gamble, Colgate-Palmolive, and Clorox. All dollar values are in thousands. a. Calculate each of the following ratios for all three co

> The following table lists the 2018 and 2019 financial statements for Otago Bay Marine Motors, a major manufacturer of top-of-the-line outboard motors. a. On the basis of the information provided, calculate the following financial ratios for 2018 and 2019

> Three companies that compete in the footwear market are Foot Locker, Finish Line, and DSW. The following table shows inventory levels and cost of goods sold for each company for the 2017, 2016, and 2015 fiscal years. Calculate the inventory turnover rati

> Listed are six pairs of stocks. Pick one of these pairs and then, using the resources available at your campus or public library (or on the Internet), comparatively analyze the two stocks. Which is fundamentally stronger and holds more promise for the fu

> Using the resources available at your campus or public library (or on the Internet), select any common stock you like and determine as many of the profitability, activity, liquidity, leverage, and market ratios covered in this and the preceding chapter a

> Snapgram Corporation has a net profit margin of 8%, a total asset turnover of 2.0 times, total assets of $1 billion, and total equity of $500 million. What were the company’s sales and net profit?

> Stroud Sporting Gear Inc. has a net profit margin of 9%, a total asset turnover of 2.4, total assets of $225 million, and total equity of $120 million. What is the company’s return on equity?

> Assume that an investor buys 100 shares of stock at $35 per share, putting up a 75% margin. a. What is the debit balance in this transaction? b. How much equity funds must the investor provide to make this margin transaction? c. If the stock rises to $55

> P. Deen Enterprises Inc. has a total asset turnover ratio of 3.0 and a net profit margin of 9%. What is the company’s return on assets?

> Find the EPS, P/E ratio, and dividend yield of a company that has five million shares of common stock outstanding (the shares trade in the market at $25), earns 10% after taxes on annual sales of $150 million, and has a dividend payout ratio of 35%. At w

> In 2018, FedEx had total assets of $52.3 billion, an asset turnover ratio of 1.25 times, and a net profit margin of 7%. a. What is FedEx’s return on assets? b. Find FedEx’s ROE, given that 37.1% of the assets are financed with stockholders’ equity.

> Assume you are given the following abbreviated financial statement. On the basis of this information, calculate as many liquidity, activity, leverage, profitability, and common stock measures as you can. (Note: Assume the current market price of the comm

> In early 2018, FedEx stock was selling for $245. The company’s annual dividend was $2.60. What was the dividend yield?

> Consider the following information about Truly Good Coffee, Inc. Total assets $240 million Total debt $115 million Preferred stock $ 25 million Common stockholders’ equity $100 million Net profits after taxes $22.5 million Number of preferred stock outst

> On January 1, 2019, an investor bought 200 shares of Absaroka, Inc., for $60 per share. On January 3, 2020, the investor sold the stock for $75 per share. The stock paid a quarterly dividend of $0.50 per share. How much (in $) did the investor earn on th

> The Longmire Company recently reported net profits after taxes of $35.8 million. It has 3.5 million shares of common stock outstanding and pays preferred dividends of $2 million per year. a. Compute the firm’s earnings per share (EPS). b. Assuming that t

> Build a spreadsheet containing the following quoted information. Based on the information given, what is the firm’s current market cap? What was the firm’s net income?

> Lockhart’s Bookstores is trading at $45 per share. There are 280 million shares outstanding. What is the market capitalization of this company?

> Assume that an investor buys 100 shares of stock at $45 per share, putting up a 65% margin. If the stock rises to $60 per share, what is the investor’s new margin (expressed as a percentage and as a dollar figure)?

> Ron’s Rodents Co. has total assets of $5 million, total short- and long-term debt of $2.8 million, and $400,000 worth of 8% preferred stock outstanding. What is the firm’s total book value? What would its book value per share be if the firm had 50,000 sh

> An investor deposits $20,000 into a new brokerage account. The investor buys 1,000 shares of Tipco stock for $19 per share. Two weeks later, the investor sells the Tipco stock for $20 per share. When the investor receives his brokerage account statement,

> Bruce buys $5,000 of Sketchy Corporation stock. Unfortunately, a major newspaper reveals the very next day that the company is being investigated for accounting fraud, and the stock price falls by 50%. What is the percentage increase now required for the

> George Robbins considers himself an aggressive investor. He’s thinking about investing in some foreign securities and is looking at stocks in (1) Bayer AG, the big German chemical and health-care firm; and (2) Swisscom AG, the Swiss telecommunications co

> In January 2016 an investor purchased 800 shares of Engulf & Devour, a rapidly growing high-tech conglomerate. From 2016 through 2020, the stock turned in the following dividend and share price performance. *Investor purchased stock in 2016 at this p

> Using the resources at your campus or public library or on the Internet, select any three common stocks you like and determine the latest book value per share, earnings per share, dividend payout ratio, and dividend yield for each. (Show all your calcula

> Southern Cities Trucking Company has the following five-year record of earnings per share. Which of the following procedures would produce higher dividends to stockholders over this five-year period? a. Paying out dividends at a fixed ratio of 50% of EPS

> Eric Nadal owns 200 shares of Ranger Inc. The company’s board of directors recently declared a cash dividend of 1.90 cents a share payable April 18 (a Wednesday) to shareholders of record on March 22 (a Thursday). a. How much in dividends, if any, will E

> In 2017, AT&T earned net income of $29.45 billion. It had 7.26 billion shares outstanding and paid an annual dividend of $1.98 per share. What was the 2017 dividend payout ratio?

> An investor owns some stock in Harry’s Pottery Inc. The stock recently underwent a five-for-three stock split. If the stock was trading at $40 per share just before the split, how much is each share most likely selling for after the split? If the investo

> Assume that an investor buys 250 shares of stock at $37.50 per share, putting up a 45% margin. a. What is the value of the position? b. How much equity capital must the investor provide to make this margin transaction? c. What is the debit balance in thi

> The following table contains annual returns for the stocks of Home Depot (HD) and Lowe’s (LOW). The returns are calculated using end-of-year prices (adjusted for dividends and stock splits) retrieved from http://www.finance.yahoo.com/.

> Assume you wish to evaluate the risk and return behaviors associated with various combinations of two stocks, Alpha Software and Beta Electronics, under three possible degrees of correlation: perfect positive, uncorrelated, and perfect negative. The aver