Question 1 (2.5 points)

A bond has a yield to maturity of 10%. The coupon rate is 8% and the payment is annually. The bond is sold at $900. What is the capital gain yield?

Question 1 options:

	8%
	1.1%
	9%
	-8%
	-1.1%
	10%

Question 2 (2 points)

Amazing Dreams just paid $3 dividend per share. It is expected that the payment is going to increase by 8% each year. If the current stock price is $50, what should be the expected stock price for the next year? The required return by shareholders is 11.30%.

Question 2 options:

	$52.5
	$54.
	$60
	$55.5
	$50

Question 3 (3 points)

Fly High has just launched. They don't expect to pay any dividends for the next three years. Thereafter, they plan to pay $3 and increase that by 5% per year. If the required return by shareholders is 10%, what should be the (approximate) current stock price? Hint: the first dividend payment will be at the end of year 4.

Question 3 options:

	$34
	$45
	$60
	$42
	$32
	$40

Question 4 (2.5 points)

If the one-year and two-year interest rates are 6.5% and 7.5% respectively, what should be the forward rate for year 2 (according to the expectations theory)?

Question 4 options:

	6.75%.
	7%
	7.75%
	7.5%
	8.5%
	8.25%

Question 5 (1.5 points)

Suppose a bond gets upgraded to a higher rating, then

Question 5 options:

	The coupon rate on the bond will increase.
	The yield to maturity of the bond will increase.
	The price of the bond will increase.
	The time to maturity of the bond will increase.
	The bond will not be affected.

Question 6 (3 points)

You are offered two investments with the payments as follows. Both investments cost you $2,000 now. If you have limited budget, which one do you choose? You may round up the final answer to a whole number. Hint: you may calculate the current value of the investments.

Options	Annual Payment	Number of Years	Annual Interest Rate
A	$600	12	10.45%
B	$400	Unlimited	10%

Question 6 options:

	A
	You are indifferent between A and B.
	A and B.
	B

Question 7 (2 points)

Amazing Dreams just paid $3 dividend per share. The required return by shareholders is 12%. If the current price is $100, what should be the expected dividend growth rate?

Question 7 options:

	3%
	8.7%
	9.2%
	12%
	4.2%
	10%
	10.7%

Question 8 (3 points)

Match to the right description.

Question 8 options:

1234567	This feature allows the bond issuer to buy back its own bonds.
1234567	Another name for the high-risk fixed income investment. Their ranking is BB or lower.
1234567	The portion of the earnings which is not distributed amongst the shareholders.
1234567	The possibility of drops in the interest rates. This is an issue which is relevant for short-term investments.

1.	Reinvestment risk
2.	Callable bonds
3.	Junk bonds
4.	Retention rate
5.	Payout ratio
6.	Putable bonds
7.	Investment-grade bonds

Question 9 (2 points)

Which of the following will have the "highest" interest rate risk?

Question 9 options:

	A 30-year zero coupon bond.
	It depends on current market rates.
	A five-year, zero-coupon bond.
	A five-year bond with a 10 percent coupon.
	A 30-year bond with a 10 percent coupon.

Question 10 (2 points)

Which one of the following quotes provides the lowest return?

Investment Option	APR (Annual Percentage Rate)	Frequency of interest payment (in a year)
A	17.50%	12
B	18.00%	2
C	18.50%	1
D	17.00%	100

Question 10 options:

	C
	C and D are same.
	You are indifferent among the options.
	B
	D
	A

Question 11 (1.5 points)

Which statement is NOT correct?

Question 11 options:

	According to DDM formula, there is a one period lag between the stock price and the dividend payment.
	All statements are correct.
	According to DDM, the discount rate should be greater than the growth rate of dividends.
	If the payout ratio is fixed, the growth rates of earnings and dividends are the same.
	DDM can be used to calculate the terminal value.
	As the payout ratio goes up, the stock price goes down.

Question 12 (1.5 points)

If the annual inflation is 8%, how much approximately should you earn in which your real return can be 5%?

Question 12 options:

	8%
	14.8%
	12.8%
	5%
	13%.
	11.5%

Question 13 (2 points)

You just borrowed $10,000 and agreed to pay back the loan with the monthly payments of $400. If the interest rate is 24% stated as an APR, how long (in months) will it take to pay back the loan?

Question 13 options:

	45
	Never
	25
	35
	40
	30
	20

Question 14 (2 points)

Given the following information, what should be the expected dividend growth rate? Hint: you can use the sustainable growth rate approach.

Last year DPS	Last year EPS	Total net income	Total shareholders' equity
$4	$10	$1,000,000	$5,000,000

Question 14 options:

	12%
	6%
	10%
	4%
	8%

Question 15 (3 points)

You just received a 20-year, $500,000 mortgage with a 12% annual interest rate (APR). What portion of the first payment (approximately) goes towards paying the principal? Hint: find the total monthly payment first, and the first month interest payment next.

Question 15 options:

	1,000.
	$800.
	$900.
	$500.
	$700.
	$600.

Question 16 (2 points)

Which statement is correct?

Question 16 options:

	For premium bonds: Coupon rate > Current yield = YTM
	For premium bonds: Coupon rate < Current yield < YTM
	For discount bonds: YTM < Current yield > Coupon rate
	For par bonds: Coupon rate = Current yield > YTM
	For premium bonds: Coupon rate > Current yield > YTM

Question 17 (2.5 points)

Given the following information, what is the terminal (horizon) value of the company's stock? The company just paid a $5 dividend per share. The required rate of return is 10%.

Years	Annual dividend growth rate
1 and 2	15%
3 and 4	10%
5 and on	5%

Question 17 options:

	$168.
	$189.
	$150.
	$100.
	$159.
	$183.
	$200.

Question 18 (2 points)

A perpetuity of $5,000 per year beginning today has a present value of $50,000. What is the annual interest (discount) rate? Hint: for the ordinary perpetuity the payments start at the end of each period, not the beginning.

Question 18 options:

	9.1%
	8.1%
	More information is required.
	10.1%
	12.1%
	11.1%

Question 19 (2 points)

What is the coupon rate for a bond that makes semi-annual coupon payments with five years to maturity, a price of $1,050, and a yield to maturity of 10%?

Question 19 options:

	4.4%
	5.40%
	10%
	11.3%
	8.7%

Question 20 (3 points)

You have $110,000 in your savings account. If you withdraw $3,500 at the end of each month, you will have no money left at the end of 3 years. What interest rate approximately (in terms of APR) are you earning on your account? Hint: find the monthly rate first.

Question 20 options:

	12%
	11%
	8%
	5%
	4%.
	9%
	4.5%
	6%
	10%