Questions and Answers of Fundamentals Of Investments Valuation

Suppose Borg Corporation was operating at 88 percent of capacity. What would sales be at full capacity? What is the EFN in this case? What is the capital intensity ratio at full capacity?
Prepare a pro forma income statement for Paul Bunyan Lumber Co. assuming a 5 percent increase in sales. Based only on the pro forma income statement, what is the projected stock price?
Operating cash flow is:a. $20.b. $16.c. $12.d. $30. Net income: Depreciation/amortization: Repurchase of outstanding common stock: Issuance of new debt: Sale of property: Purchase of equipment:
Investing cash flow is:a. $2.b. ($2).c. $12.d. ($12). Net income: Depreciation/amortization: Repurchase of outstanding common stock: Issuance of new debt: Sale of property: Purchase of equipment:
Financing cash flow is:a. $8.b. ($8).c. $4.d. ($4). Net income: Depreciation/amortization: Repurchase of outstanding common stock: Issuance of new debt: Sale of property: Purchase of equipment:
Net cash increase is:a. $18.b. $20.c. $22.d. $24. Net income: Depreciation/amortization: Repurchase of outstanding common stock: Issuance of new debt: Sale of property: Purchase of equipment:
Consider the following information on GDP and CPI for an economy over the last three years:Calculate nominal GDP growth for 2021 and 2022. GDP ($ billions) CPI 2020 125.4 105.3 2021 136.1 106.1 2022
Given the information in the previous problem, how would the trade change if instead the futures price for gasoline were $2.95 per gallon?Problem 17.19Suppose unleaded gasoline is currently trading
a. Look up prices for Freddie Mac and Fannie Mae common stock under their ticker symbols FMCC and FNMA online at finance.yahoo.com.
The principal reduction component of a monthly payment for a fixed-rate mortgage is:a. Highest during the first year of the mortgage.b. Highest during the middle year of the mortgage.c. Highest
Which of the following mortgages will pay the smallest total interest over the life of the mortgage (no calculation necessary)?a. 30-year, 8 percentb. 30-year, 10 percentc. 15-year, 8
The most important difference between effective duration and Macaulay duration for a mortgage passthrough security is that:a. Macaulay duration is easier to calculate.b. Effective duration is
Which of the following most accurately measures interest rate sensitivity for mortgage passthrough securities with prepayment risk?a. Static durationb. Effective durationc. Modified
Higher prepayments have what impact on the effective duration of a mortgage passthrough security?a. They decrease effective duration for all maturity mortgages.b. They increase effective duration
For a given mortgage pool, which of the following CMOs based on that pool is most likely to increase in price when market interest rates increase?a. 100/300 PAC bondb. A-tranche sequential
A bond analyst at Omnipotent Bank (OB) notices that the prepayment experience on his holdings of high-coupon GNMA issues has been moving sharply higher. What does this indicate?a. Interest rates are
Which of the following should a bond portfolio manager purchase if the manager is looking for mortgage-backed securities that would perform best during a period of rising interest rates?a. A 12
Which of the following is not a source of risk for GNMA mortgage pool investors?a. Prepayment riskb. Default riskc. Interest rate riskd. Reinvestment risk.
Mortgages in GNMA pools are said to be fully modified because GNMA guarantees bondholders which of the following?a. A minimum rate of return on their investmentb. A modified schedule of cash flows
Which of the following mortgages will have the largest remaining balance after 180 monthly payments (no calculation necessary)?a. 30-year, 8 percentb. 30-year, 10 percentc. 15-year, 8
a. Suppose a $100,000 mortgage financed at 9 percent (.75 percent monthly) is paid off in the first month after issuance. In this case, what are the cash flows to an IO strip and a PO strip from
Which of the following mortgages has the lowest monthly payment (no calculation necessary)?a. 30-year, 8 percentb. 30-year, 10 percentc. 15-year, 8 percentd. 15-year, 10 percent.
a. GNMA bond investors face significant cash flow uncertainty. Why might cash flow uncertainty be a problem for many portfolio managers?b. Why might cash flow uncertainty be less of a problem for
The remaining balance on a 30-year, $100,000 mortgage loan financed at 8 percent after the 180th payment is (no calculation necessary):a. $100,000.b. $50,000.c. $76,782.d. $23,219.
a. Referring to Figure 21.2, what are the CPRs for seasoned 50 PSA, 100 PSA, and 200 PSA mortgages?b. Referring to Figure 21.2, what is the CPR for an unseasoned 100 PSA mortgage in month 20 of the
After five years of payments on a mortgage loan financed at 8 percent, what are the remaining balance and interest and principal reduction components of the monthly payment?
Identify upcoming mergers and acquisitions.
Suppose unleaded gasoline is currently trading at $3 per gallon. You face an interest rate of 4 percent and a carrying cost of $.07 per gallon per month. The current market price of a four-month
Sky High Partners is evaluating a high-rise office building to add to its investment portfolio. To calculate a value, Sky High plans to use the income approach, based on the following
You have decided to purchase 25 oil futures contracts at a settle price of $55 per barrel. Each futures contract has a standard size of 1,000 barrels and an initial margin requirement of
Why do agency bonds carry a higher yield than comparable U.S. Treasury bonds?
Review the current yields on major U.S. Treasury securities.
A particular bond matures in 30 years. It is callable in 10 years at 110. The call price is then cut by 1 percent of par each year until the call price reaches par. If the bond is called in 12 years,
Which is true for bonds issued by all agencies of the U.S. government?a. They become direct obligations of the U.S. Treasury.b. They are secured bonds backed by government holdings.c. They are
Collect financial statements for Goldman Sachs (GS).
Review the price ratios for Delta Air (DAL).
Cash flow per share is typically calculated as:a. Net cash flow/Shares outstanding.b. Operating cash flow/Shares outstanding.c. Investing cash flow/Shares outstanding.d. Financing cash
Evaluate earnings estimates for Harley-Davidson (HOG).
The difference between net income and operating cash flow is at least partially accounted for by which of the following items?a. Retained earningsb. Cash and cash
The interest component of a monthly payment for a fixedrate mortgage is:a. Highest during the first year of the mortgage.b. Highest during the middle year of the mortgage.c. Highest during the
Consider a 15-year, $210,000 mortgage with a 7 percent interest rate. After 10 years, the borrower (the mortgage issuer) pays it off. How much will the lender receive?
a. The most popular fixed-rate mortgages among home buyers are those with 15-year and 30-year maturities. What might be some of the comparative advantages and disadvantages of these two mortgage
Test the CPR to PSA calculator.
What is the monthly payment for a 15-year, $100,000 mortgage loan financed at 8 percent interest?
Which of the following statements about fixed-rate mortgages is false?a. Fifteen-year mortgages have higher monthly payments than 30-year mortgages.b. Scheduled monthly payments are constant over
What are the monthly payments on a 30-year, $150,000 mortgage if the mortgage rate is 6 percent? What portion of the first payment is interest? Principal?
Use the search function to identify available mortgage-backed securities.
You are a U.S. investor who invested $420,000 in India five years ago. Assume that your investment gained 7 percent per year. If the exchange rate moved from 70.1 rupees per dollar to 72.4 rupees per
Assume the following. In 2011, the U.S. had real GDP of $16.2 trillion and the CPI was at 211.4. At the end of 2021, real GDP in the U.S. was $19.5 trillion and the CPI was at 280.2. Calculate the
Using the information from Problem 10, calculate the inflation rates and approximate real GDP growth rates for 2021 and 2022.Problem 10Consider the following information on GDP and CPI for an economy
Which of the following is not one of Porter’s five forces?a. Bargaining power of buyersb. Threat of substitute productsc. Threat of new entrantsd. All of the above are part of Porter’s five
An analyst gathered the following year-end price level data for an economy:What is the economy’s annual inflation rate for 2022? What is the average compounded inflation rate for 2017–2022?
All of the following are ways the Federal Reserve changes the money supply except:a. The discount rate.b. Open market operations.c. The prime rate.d. All of the above are used by the Fed.
If the average wage rate increases from $15.23 per hour to $15.65 per hour and the inflation rate over the period is 4.2 percent, what is the approximate real increase in wages?a. 2.8 percentb. 1.4
Suppose you are a U.S. investor looking to buy assets in Mexico. If you have $10,000 and the current exchange rate is 11.87 pesos/dollar, how many pesos will you have to
Which of the following is not one of the four stages of the business cycle?a. Peakb. Contractionc. Troughd. Cliff.
Map out Boeing’s (BA) largest suppliers and customers.
Which of the following is not considered a leading economic indicator?a. Stock prices, 500 common stocksb. Money supply (M2) growth ratec. Average duration of unemploymentd. Index of consumer
a. Are all firms in the same sector comparable?b. How is Porter’s five forces model useful in analyzing industries?
Which of the following profitability ratios is incorrect?a. Gross margin = Gross profit/Cost of goods soldb. Operating margin = Operating income/Net salesc. Return on assets = Net income/Total
Identify which countries have the highest levels of debt to GDP.
Which of the following industries would be considered the most defensive?a. Consumer discretionaryb. Industrialsc. Technologyd. Consumer staples.
a. Who controls monetary policy? Who controls fiscal policyb. If the Fed adds $10 billion to the money supply, why would the money supply be expected to grow by more than $10 billion?
Determine which countries have the highest/lowest level of inflation.
Determine which countries have the highest/lowest level of inflation.
If the CPI increased from 123.4 to 125.3, the inflation rate is closest to:a. −1.5 percent.b. 0 percent.c. 1.5 percent.d. 3.0 percent.
a. If all else stayed the same, but the labor force participation rate declined, what would happen to the unemployment rate?b. What is the “Goldilocks” scenario with regard to economic
a. If all else stayed the same, but the labor force participation rate declined, what would happen to the unemployment rate?b. What is the “Goldilocks” scenario with regard to economic
a. If all else stayed the same, but the labor force participation rate declined, what would happen to the unemployment rate?b. What is the “Goldilocks” scenario with regard to economic
a. If all else stayed the same, but the labor force participation rate declined, what would happen to the unemployment rate?b. What is the “Goldilocks” scenario with regard to economic
a. If all else stayed the same, but the labor force participation rate declined, what would happen to the unemployment rate?b. What is the “Goldilocks” scenario with regard to economic
Identify which economic statistics are set to be released today.
If nominal GDP grew by 5 percent and inflation was 3 percent, the closest approximation of real GDP is:a. 15 percent.b. 8 percent.c. 5 percent.d. 2 percent.
If nominal GDP grew by 5 percent and inflation was 3 percent, the closest approximation of real GDP is:a. 15 percent.b. 8 percent.c. 5 percent.d. 2 percent.
Assume the inflation rate in 2022 is 2.4 percent. If nominal GDP grew 3.5 percent and nominal wages grew 2.8 percent, what are the approximate real growth rates in GDP and wages?
a. What is the difference between nominal and real GDP?b. In what stages of the business cycle would you prefer to invest in cyclical industries?c. How do exchange rates impact investor returns?
Pick four financial metrics and conduct an equity screen.
If the Fed adds $10 billion to the banking system and the reserve requirement is 20 percent, what is the maximum increase in the money supply?a. $200 billionb. $50 billionc. $10 billiond. $2
a. What does it mean to be a top-down analyst?b. How does economic information play into top-down analysis?
You invest $50,000 in Germany when the exchange rate is $1.42/€. Your investment gains 15 percent, and you subsequently exchange the euros back into dollars at a rate of $1.48/€. What is your
You have found an attractive stock listed on the Bolsa (the Mexican stock exchange). You decide to invest $25,000. The investment does well, earning 15 percent in one year. During the year, the
All else the same, which of the following ratios is unaffected by an increase in depreciation?a. Price-earnings (PE)b. Price-book (P/B)c. Price-cash flow (P/CF)d. Price-sales (P/S).
An increase in the market price of a company’s stock would cause which of the following ratios to increase?a. Return on assets (ROA)b. Return on equity (ROE)c. Price-book (P/B)d. Book value per
An increase in the market price of a company’s stock would cause which of the following ratios to increase?a. Return on assets (ROA)b. Return on equity (ROE)c. Price-book (P/B)d. Book value per
A firm using straight-line depreciation reports gross investment in fixed assets of $80 million, accumulated depreciation of $45 million, and annual depreciation expense of $5 million. The
A firm has net sales of $3,000, cash expenses (including taxes) of $1,400, and depreciation of $500. If accounts receivable increase over the period by $400, cash flow from operations
Cash flows from financing activities are:a. ($81).b. ($69).c. ($49).d. ($37). Cash payments for interest: Retirement of common stock: Cash payments to merchandise suppliers: Purchase of
Cash flows from investing activities are:a. ($67).b. ($48).c. ($18).d. ($10). Cash payments for interest: Retirement of common stock: Cash payments to merchandise suppliers: Purchase of
Cash flows from operating activities are:a. $91.b. $128.c. $140.d. $175. Cash payments for interest: Retirement of common stock: Cash payments to merchandise suppliers: Purchase of land: Sale of
Which of the following is true regarding the full-capacity sales level of a firm?a. A firm that is operating at less than full capacity will never need external financing.b. For a firm that is
A particular firm is operating at less than full capacity. If sales are expected to grow at only a modest rate next year, which of the following is true?a. Assets will likely increase faster than
A dividend payment has which of the following effects on the balance sheet?a. An increase in shares outstandingb. A decrease in shareholder equityc. A decrease in paid-in capitald. An increase in
Which of the following per-share ratios is incorrect?a. Book value per share = Total assets/Shares outstandingb. Earnings per share = Net income/Shares outstandingc. Cash flow per share =
a. Use the high sales estimate and data in Table 19.12 to determine the level of external financing needed if short-term and long-term investments were held at their 2018 levels.b. Using the high
Which of the following is not an adjustment to net income used to obtain operating cash flow?a. Changes in operating assetsb. Changes in current liabilitiesc. Depreciationd. Dividends paid.
Use the following balance sheet for Paul Bunyan Lumber Co. along with the income statement in Question 1 to calculate return on assets and return on equity:Question 1Use the following income
a. What are some examples of current assets?b. What are some examples of fixed assets?c. What are some examples of current liabilities?d. Which accounts in Table 19.1 show changes between the
White Company assets as of December 31, 2021:White Co. experienced the following events in 2022:Old equipment that cost $120 and that was fully depreciated was scrapped.Depreciation expense was
Use the following income statement for Paul Bunyan Lumber Co. to calculate gross and operating margins: Paul Bunyan Lumber Income Statement Net sales Cost of goods sold Gross profit Operating
Assume that Kendal Corp. has an outstanding bond issue with a par value of $1,000 and a current market price of $1,022.70 per bond. The bond has seven years remaining and a coupon rate of 6

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