5) One important difference between bonds and stocks is

a. Stocks involve the mandatory payment of dividends

b. dividends on stocks are tax deductible

c. bonds have a finite life while stocks do not

d. bond prices do not fluctuate whereas stocks do

7) The Dow Jones Industrial Average (DIJA) was started by Charles Dow and is the sum of the prices of the 30 companies stock prices that make up DJIA

a. True

b. False

8)The Security Market Line (SML) aka Capital Asset Pricing Model (CAPM) formula is R = r(f) + B ( r(m) r(f) ). It calculates the expected return of an asset by

a. Finding the risk free rate of return in the market, then adding a calculated increase based on how that asset reacts to general market changes times a risk premium.

b. Looking at the weighted average cost of capital of a company minus the average weighted cost of capital of all companies in that industry

c. Applying the overall risk beta of a mutual fund to a new asset

d. Using Treasury Bonds increased by two standard deviations from the mean

9) What is the value of a stock that will pay a dividend in Yr 1 of $4.50 per share and then increase dividends 5% per year, assuming a discount rate of 9% ? a. $58.33

b. $33.58

c. 5.16%

d. $112.50

11)If the dividend yield for year 1 is expected to be 10% based on a stock price of $35, what will the year 5 dividend be if dividends grow annually at a constant rate of 4%?

a. $1.33

b. $1.49

c. $4.09

For Questions 20-22 use the following set of cash flows:

Initial investment = $1,300,000

Yr 1 : 140,000

Yr 2: 150,000

Yr 3: 155,000

Yr 4: 175,000

Yr 5: 190,000

Sale of property occurs at the end of Yr 5 for a price of $1,750,000

20) What is the IRR of this investment?

a. 16.41% b. 14.51% c. 12.22% d. 17.09%

21) If the hurdle rate for this company is 11.50%

a. There must be a positive IRR b. There must be negative NPV c. The NPV is zero because the IRR is above the hurdle rate d. There must be a positive NPV

22) The NPV of the investment is

a. $151,902 b. - $125,678 c. $296,968 d. $-23,455

For Questions 23-25 use the facts for Questions 20-22, and assume that there is 65% debt financing used for the same investment. Interest is 6.00% (monthly pymts) over 240 months.

23) The amount borrowed on this investment and the amount of equity required are:

a. $845,000 and $455,000 respectively b. $700,000 and $300,000 respectively b. $1,200,000 and $300,000 respectively c. $910,000 and $390,000 respectively

24) Monthly debt service is:

a. $9,703.44 b. $6,519.52 c. $5,270.00 d. $6,053.84

25) Cash Flow after debt service in year 2 is:

a. $77,354 b. $88,760 c. $71,765.76 d. $93,240