Question: You paid cash for $1,000 worth

> Use the Black-Scholes model to find the value for a European put option that has an exercise price of $62 and four months to expiration. The underlying stock is selling for $64 currently and pays an annual dividend of $1.92. The standard deviation of the

> You observe a premium of $7.14 for a call option on Birdwell Enterprises common stock, which is currently selling for $48.00. The strike price on the call option is $50.00. The option has four months to maturity. The stock pays no dividends. The current

> Use the Black-Scholes formula to find the value of a call option based on the following inputs.(Round your final answer to 2 decimal places. Do not round intermediate calculations.) Call value

> Use the information below to prepare a statement of cash flows for Windswept Woodworks, Inc. for year 2. Net income is given. (Use a minus sign to indicate negative values. Round each entry to 2 decimal places.) / / / / / / / / / / / / / / / / / /

> Based on the informationin the table below, prepare an income statement for Windswept Woodworks, Inc. for year 2. Assume that the company pays a flat tax rate of 21% on its taxable income.(Round each entry to 2 decimal places.) Windswept Woodworks, Inc.

> Based on the information in the table below, prepare comparative balance sheets for Windswept Woodworks, Inc. for years 1 and 2.(Round your answers to the nearest whole number.) Windswept Woodworks, Inc.Input Data (millions of dollars) / / / / / / /

> Ken Webster manages a $400 million equity portfolio benchmarked to the S&P 500 Index. Webster believes the market is overvalued when measured by several traditional fundamental/economic indicators. He is therefore concerned about potential losses but

> One common goal among fixed-income portfolio managers is to earn high incremental returns on corporate bonds versus government bonds of comparable durations. The approach of some corporate-bond portfolio managers is to find and purchase those corporate b

> Your firm recently lent Arlington Enterprises $23 million for one year at an interest rate of 14%. Inflation during the year is expected to be 5%. Answer the following questions to gauge the impact of inflation on the real interest to be paid.(Round all

> You have the following information about two firms, Debt Free, Inc. and Debt Spree, Inc. Both firms have the same prospects for sales and EBIT, and both have the same level of assets, tax rate and borrowing rate. They differ in their use of debt financin

> Use the information in the table below to calculate the following ratios for Windswept Woodworks for year 1 and year 2.(Round your answers to 2 decimal places.) a. Interest coverage ratio (Assume that year 1 EBIT was 1,297 and year 1 interest expense was

> Use the information in the table below to answer the following questions. /  /  /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  / / /  

> The common stock of Royal Ranch House is selling for $21.29. The firm pays dividends that are expected to grow at a rate of 5.0% indefinitely. Your investment horizon is 11 years. What do you estimate the price of Royal Ranch House stock will be at that

> Elk City Utility recently paid a dividend of $3.85 per share. Dividends are expected to grow at a rate of 4.2%. Elk City stock currently sells for $38.20 per share. If you were on the utility regulatory commission, what rate of return would you allow Elk

> Lotsa Lenses paid a dividend of $1.25 last year, and plans a dividend growth rate of 4.0% indefinitely. Lotsa’s stock price is now $14.44. What return can Lotsa Lenses’ investors expect on their stock? Expected return

> Dishwasher’s Delights plows back 70% of its earnings to take on projects that earn the firm a 16% rate of return. Dishwasher’s stockholders require a 12.5% return on their common stock. Earnings per share are expected to be $5.00 next year. a.What is t

> CD Bargain Barn is forecasting earnings per share of $3.30 next year. Its investors require a return of 16%. a. What is the no-growth value of CD’s stock?(Round your answer to 3 decimal places.) No-growth value b.If the stock’s price is currently $47,

> Jumbo Shrimp Oxy morons, Inc. recently paid a dividend of $2.15 per share. The firm expects explosive growth of 20% over the next two years. After that the firm’s managers expect that growth will drop to 14% for the following three years, then settle at

> Rich McDonald, CFA, is evaluating his investment alternatives in Ytel Incorporated by analyzing a Ytel convertible bond and Ytel common equity. Characteristics of the two securities are given in the following exhibit: a. Calculate, based on the exhibit,

> Indigo Ink Supply paid a dividend of $6.00 last year on its common stock. It is expected that this dividend will grow at a rate of 9% for the next five years. After that, the company will settle into a slower growth pattern and plans to pay dividends tha

> Dishwasher’s Delights plows back 70% of its earnings to take on projects that earn the firm a 16% rate of return. Dishwasher’s stockholders require a 12.5% return on their common stock. Earnings per share are expected to be $5.00 next year. a. What is

> Hornberger, Inc. recently paid a dividend of $2.00 per share. The next dividend is expected to be $2.05 per share. Hornberger has a return on equity of 12.00%. What percentage of its earnings does Hornberger plow back into the firm?(Round your answer to

> Plastic Pretzels stock recently paid a dividend of $1.35 per share. The dividend growth rate is expected to be 7.2% indefinitely. Stockholders require a return of 12.8% on this stock. a.What is the current intrinsic value of Plastic Pretzels stock?(Roun

> Suppose that you purchase a bond with a quoted price of $1,032 on January 15. The bond has a coupon rate of 6.5% and pays interest on May 15 and November 15 of each year. The exact number of days between November 15 and January 15 is 61, and the exact n

> Given the following listing for a Treasury note, calculate the bid-ask spread. Bid-ask spread

> The yield to maturity on one-year zero coupon bonds is 6.3%. The yield to maturity on two-year zero coupon bonds is 7.9%. a. What is the forward rate of interest for the second year? places.Forward rate b. According to the expectations hypothesis, what

> Suppose you just purchased a bond (Face Value = $1,000) with 20years to maturity that pays an annual coupon of $40 and is selling at par. Calculate the one-year holding period return for each of these three cases: a. The yield to maturity is 5.5% one yea

> a. What is the yield to maturity on a bond that you purchased for $1,249, assuming that the bond has 16 years to maturity, a par value of $1,000, and a coupon rate of 6.35%? The bond pays coupon interest semiannually.(Round your answer to 4 decimal place

> Assume that coupon interest payments are made semiannually and that par value is $1,000 for both bonds. a. Calculate the values of Bond A and Bond B Bond value A Bond value B b. Recalculate the bonds’ values if the required rate of

> Suresh Singh, CFA, is analyzing a convertible bond. The characteristics of the bond and the underlying common stock are given in the following table. Compute the bond’s: a. Conversion value. b. Market conversion price.

> A bond has a par value of $1,000, 7 years to maturity, and a coupon rate of 4.3%? Assume that coupon payments are made semiannually. a. If the required rate of return is 5.2%, what is the value of the bond? Bond value b. What is the bond’s value if

> You have invested in a Treasury Inflation Protected Security (TIPS) that has a par value of $1,000 and a coupon rate of 3.2%. You paid par value for the security, and it matures in two years. Assume that the inflation rate for next year is 3.9% and for t

> You have purchased a convertible bond for $1,120. It is convertible into 50 shares of the firm’s common stock. The current stock price is $18 per share. a. What is the market conversion value of the bond? Market conversion value b. What is the conver

> Round Barn stock has a required return of 11% and is expected to pay a dividend of $3.25 next year. Investors expect a growth rate of 6% on the dividends for the foreseeable future. a. What is the current fair price for the stock Current fair price

> You are evaluating a closed-end mutual fund and see that its price is different from its net asset value (NAV). The fund has an expense ratio () of 2.8% and a dividend yield () of 4%. The fund has experienced a risk-adjusted abnormal return () of 2%. By

> On February 1, the put/call ratio was .65. On April 1 there are 202 put options and 259 call options outstanding on a stock. Calculate the put/call ratio for April 1 Put/call ratio

> Use the information in the table below to calculate the trin ratio for October 1 and February 1. State whether each ratio represents a bullish or a bearish outlook a-1. October 1 Tri a-2: [Set up as a multiple choice with radio buttons, options: Bullish

> You invested in a 3-month certificate of deposit at your bank. Your investment was $1,500, and at the end of the term you will receive $1,530. a.What is the holding period return (HPR) on your investment?( b.What is the annual percentage rate (APR)?( c.

> You are the manager of the Mighty Fine mutual fund. The following table reflects the activity of the fund during the last quarter. The fund started the quarter on January 1 with a balance of $100 million. a. Calculate the quarterly arithmetic average ret

> You purchased a bond 72 days ago for $891.26. You received an interest payment of $20 56 days ago. Today the bond’s price is $884.89. What is the holding period return (HPR) on the bond as of today?(Round your answer to 2 decimal places.)

> A member of an investment committee interested in learning more about fixed-income investment procedures recalls that a fixed-income manager recently stated that derivative instruments could be used to control portfolio duration, saying, “A futures-like

> A portfolio earned a rate of return equal to 18% lastyear with a standard deviation of 27%. Treasury Bills returned 3%. a. What is the portfolio’s excess return Approximate real rate of return b. What is the portfolio’s Sharpe Ratio? Real rate of retu

> If the real interest rate is 6.5% per year and the expected inflation rate is 2.2%, what is the nominal interest rate according to the Fisher equation? Nominal interest rate

> You earned a nominal rate of return equal to 11.7% on your investmentslastyear.The annual inflation rate was 2.3%. a. What was your approximate real rate of return? Approximate real rate of return b. What was your exact real rate of return? Real rate of

> The common stock of Perforated Pool Liners, Inc. now sells for $50.00 per share. The table below shows the anticipated stock price and the dividend to be paid one year from now. Both the price and the dividend will depend on the level of growth experienc

> The following data represent the probability distribution of the holding period returns for an investment in Lazy Rapids Kayaks (LARK) stock. a. What is the expected return on LARK? b. What is the standard deviation of the returns on LARK?(

> Your firm invested $2,500,000 in 270-day commercial paper today. At the end of the investment period (in 270 days) the firm will receive $2,585,000. a What is the 270-day holding period rate of return on the investment? b. How many 270-day periods are t

> The Arizona Stock Exchange lists a bid price of .97 and an ask price of 1.00 for Kickingbird Energy Corporation. a.At what price can you buy the stock?(Round your answer to 2 decimal places.)Ask price b.What is the dealer’s bid-ask spread?(Round your

> ByLine, Inc. just sold 500,000 shares in a public offering for an offering price of $20 per share. The underwriting fee was 6.5% of the issue’s total value based on the offering price. As soon as the shares were issued, the price jumped to $32 per share

> a. If you place a market order to buy 1,000 shares, in what sequence will you pay for theshares?(Round the price to 2 decimal places. Round number of shares to the nearest whole number.) b. What is the total cost of the purchase?(Round your answer to the

> Donna Donie, CFA, has a client who believes the common stock price of TRT Materials (currently $58 per share) could move substantially in either direction in reaction to an expected court decision involving the company. The client currently owns no TRT s

> Suppose that you just short sold 100 shares of Quiet Minds stock for $73 per share. a. If the initial margin requirement is 55%, how much equity must you invest? (Round your answer to the nearest dollar)Equity $ b. Construct the balance sheet that corr

> Suppose that you just purchased 100 shares of Beta Banana’s stock for $40 per share. The initial margin requirement is 60%, which means the amount borrowed is $1,600. The corresponding balance sheet is below: a. Now suppose the price of

> Suppose that you just purchased 100 shares of Talk&Tell stock for $40 per share. a. Ifthe initial margin requirement is 60%, how much money must you borrow? Amount borrowed b. Construct the balance sheet that corresponds to the transaction.

> Macaulay’s duration is less than modified duration except for: a. Zero-coupon bonds. b. Premium bonds. c. Bonds selling at par value. d. None of the above.

> A bond currently sells for $1,050, which gives it a yield to maturity of 6%. Suppose that if the yield increases by 25 basis points, the price of the bond falls to $1,025. What is the modified duration of this bond?

> The historical yield spread between AAA bonds and Treasury bonds widened dramatically during the financial crisis a. If you believed the spread would soon return to more typical historical levels, what should you have done? b. This would be an example

> You predict that interest rates are about to fall. Which bond will give you the highest capital gain? a. Low coupon, long maturity b. High coupon, short maturity c. High coupon, long maturity d. Zero coupon, long maturity

> How can a perpetuity, which has an infinite maturity, have a duration as short as 10 or years?

> Jand, Inc., currently pays a dividend of $1.22, which is expected to grow indefinitely at 5%. If the current value of Jand ’s shares based on the constant-growth dividend discount model is $32.03, what is the required rate of return?

> Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 20% for two years and then at 4% thereafter. If the required return for Deployment Specialists is 8.5%, what is the intrinsic value of its stock?

> Which one of the following statements about the value of a call option at expiration is false? a. A short position in a call option will result in a loss if the stock price substantially exceeds the exercise price. b. The value of a long position equal

> If a security is underpriced (i.e., intrinsic value > price), then what is the relationship between its market capitalization rate and its expected rate of return?

> Chiptech, Inc., is an established computer chip firm with several profitable existing products as well as some promising new products in development. The company earned $1 per share last year and just paid out a dividend of $0.50 per share. Investors bel

> For each of the following scenarios, recalculate the intrinsic value of Chevron’s shares using the free cash flow model of Spreadsheet 13.2 (available in Connect; link to Chapter 13 material). Treat each scenario independently. a. The terminal growth ra

> For each of the following scenarios, recalculate the intrinsic value of Chevron using the three-stage growth model of Spreadsheet 13.1 (available in Connect; link to Chapter 13 material). Treat each scenario independently. a. The terminal growth rate wi

> The MoMi Corporation’s cash flow from operations before interest and taxes was $2 million in the year just ended, and it expects that this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 20% of preta

> The risk-free rate of return is 8%, the expected rate of return on the market portfolio is 15%, and the stock of Xyrong Corporation has a beta coefficient of 1.2. Xyrong pays out 40% of its earnings in dividends, and the latest earnings announced were $1

> The stock of Nogro Corporation is currently selling for $10 per share. Earnings per share in the coming year are expected to be $2. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in pr

> The FI Corporation’s dividends per share are expected to grow indefinitely by 5% per year. a. If this year’s year-end dividend is $8 and the market capitalization rate is 10% per year, what must the current stock price be according to the dividend disco

> The market consensus is that Analog Electronic Corporation has an ROE of 9% and a beta of 1.25. It plans to maintain indefinitely its traditional plowback ratio of 2/3. This year’s earnings were $3 per share. The annual dividend was just paid. The consen

> In what circumstances is it most important to use multistage dividend discount models rather than constant growth models?

> The DuPont formula defines the net return on shareholders’ equity as a function of the following components Operating margin. Asset turnover. Interest burden. Financial leverage. Income tax rate.Using only the data in Table 14.20: a. C

> a. MF Corp. has an ROE of 16% and a plowback ratio of 50%. If the coming year’s earnings are expected to be $2 per share, at what price will the stock sell? The market capitalization rate is 12%. b. What price do you expect MF shares to sell for in thre

> Even Better Products has come out with an even better product. As a result, the firm projects an ROE of 20%, and it will maintain a plowback ratio of 0.30. Its earnings this year will be $2 per share. Investors expect a 12% rate of return on the stock.

> a. Computer stocks currently provide an expected rate of return of 16%. MBI, a large computer company, will pay a year-end dividend of $2 per share. If the stock is selling at $50 per share, what must be the market’s expectation of the growth rate of MBI

> Explain why the following statements are true/false/uncertain. a. With all else held constant, a firm will have a higher P/E if its beta is higher. b. P/E will tend to be higher when ROE is higher (assuming plowback is positive). c. P/E will tend to be

> The risk-free rate of return is 5%, the required rate of return on the market is 10%, and High-Flyer stock has a beta coefficient of 1.5. If the dividend per share expected during the coming year, D1, is $2.50 and g = 4%, at what price should a share sel

> A common stock pays an annual dividend per share of $2.10. The risk-free rate is 7% and the risk premium for this stock is 4%. If the annual dividend is expected to remain at $2.10, what is the value of the stock?

> Fin Corp’s free cash flow to the firm is reported as $205 million. The firm’s interest expense is $22 million. Assume the corporate tax rate is 21% and the net debt of the firm increases by $3 million. What is the market value of equity if the FCFE is pr

> Eagle Products’ EBIT is $300, its tax rate is 21%, depreciation is $20, capital expenditures are $60, and the planned increase in net working capital is $30. What is the free cash flow to the firm?

> Sisters Corp. expects to earn $6 per share next year. The firm’s ROE is 15% and its plowback ratio is 60%. If the firm’s market capitalization rate is 10%, what is the present value of its growth opportunities?

> Miltmar Corporation will pay a year-end dividend of $4, and dividends thereafter are expected to grow at the constant rate of 4% per year. The risk-free rate is 4%, and the expected return on the market portfolio is 12%. The stock has a beta of 0.75. Wha

> Scott Kelly is reviewing Master Toy’s financial statements to estimate its sustainable growth rate. Using the information presented in Table 14.19: a. Identify and calculate the components of the DuPont formula. b. Calculate the ROE fo

> In what circumstances would you choose to use a dividend discount model rather than a free cash flow model to value a firm?

> Which of the following is not a governmental structural policy that supply-side economists believe would promote long-term growth in an economy? a. A redistributive tax system. b. Promotion of competition. c. Minimal government interference in the eco

> Which of the following is consistent with a steeply upwardly sloping yield curve? a. Monetary policy will be expansive and fiscal policy will be expansive b. Monetary policy will be expansive while fiscal policy will be restrictive. c. Monetary policy wi

> Define each of the following in the context of a business cycle. a. Peak. b. Contraction. c. Trough. d. Expansion

> The present value of a firm’s projected cash flows are $15 million. The breakup value of the firm if you were to sell the major assets and divisions separately would be $20 million. This is an example of what Peter Lynch would call a(n): a. Stalwart. b

> How do each of the following affect the sensitivity of profits to the business cycle? a. Financial leverage. b. Operating leverage.

> The price of oil fell dramatically in 2020. What sort of macroeconomic shock would this be considered?

> Which one of the following firms would be described as having belowaverage sensitivity to the state of the economy? a. An asset play firm. b. A cyclical firm. c. A defensive firm. d. A stalwart firm.

> Mary Smith, a CFA candidate, was recently hired for an analyst position at the Bank of Ireland. Her first assignment is to examine the competitive strategies employed by various French wineries. Smith’s report identifies four wineries t

> Institutional Advisors for All Inc. (IAAI) is a consulting firm that advises foundations, endowments, pension plans, and insurance companies. The research department predicts an upward trend in job creation and consumer confidence, which it expects to co

> The information in the following table comes from the 2020 financial statements of QuickBrush Company and Smile White Corporation: Determine which company has the higher quality of earnings by discussing each of the three notes.

> Institutional Advisors for All Inc. (IAAI) is a consulting firm that advises foundations, endowments, pension plans, and insurance companies. The research department predicts an upward trend in job creation and consumer confidence, which it expects to co

> Institutional Advisors for All Inc. (IAAI) is a consulting firm that advises foundations, endowments, pension plans, and insurance companies. The research department predicts an upward trend in job creation and consumer confidence, which it expects to co

> General Weed killers dominates the chemical weed control market with its patented product Weed-ex. The patent is about to expire, however. What are your forecasts for changes in the industry? Specifically, what will happen to industry prices, sales, the

> You have $5,000 to invest for the next year and are considering three alternatives: a. A money market fund with an average maturity of 30 days offering a current annualized yield of 3%. A two-year CD at a bank offering an interest rate of 4.5%. c. A 20

> Why do you think the change in the index of labor cost per unit of output is a useful lagging indicator of the macroeconomy? (See Table 12.2.) Table 12 .2: