Question 2: Briefly discuss the difference between a share of common stock versus a share of preferred stock. What are the characteristics of each? What is meant by a call provision and what is a convertible stock? (10 points)

Question 3: What is a bond? Briefly discuss the difference between a coupon bond and a zero coupon bond. What are the characteristics of each? Define par value as it relates to a bond. (10 points)

Question 4: What is the value today of the following two bonds? Which of the two bonds has a greater value today bond A or B? (10 points)

Bond A:

Par Value: $1,200

Coupon Rate = 10% paid annually

Yield to Maturity = 5%

Maturity = 4 Years

Bond B:

Par Value: $1,600

Coupon Rate = $110 paid annually

Yield to Maturity = 3.5%

Maturity = 6 Years

Question 5: What is the expected dividend yield and capital appreciation rate for the following share of common stock. (10 points)

Po = $41

P1 = $37

D1= $2.50

Question 6: Current forecasts are for ABC Company to pay annual cash dividends of $3.00, $0, and $6.50 per share over the next three years, respectively. At the end of three years, you expect to sell your share at a market price of $127. What should the price of a share today be with a 10% expected rate of return? (10 points)

Question 7: Smith Inc. is considering an investment in one of two common stocks. Given the following information, which investment is better, based on the risk (as measured by the standard deviation) and return of each? (Please calculate the expected rate of return of each investment and its corresponding standard deviation). (20 points)

Common Stock A:

Probability Return

0.30 10%

0.40 15%

0.30 17%

Common Stock B:

Probability Return

0.20 - 2%

0.30 5%

0.30 11%

0.20 22%

Question 8: Briefly discuss the relationship between bond price and yield to maturity (interest rate). (5 points)

Question 9: If you were to invest $230 today at a simple interest rate of 7% annually, how much interest will accumulate in 9 years? How much interest will accumulate in the same period if the interest rate is 7% compounded annually? (5 points)

Question 10: An investment today of $250,500 is expected to generate the following cash inflows during the next 6 years. The investment has a 10% expected rate of return. What is the Net Present Value (NPV) of this investment? (10 points)

Years	Cash Inflows ($)
1	110,000
2	85,000
3	95,525
4	82,890
5	5,250
6	3,990