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Saturday, January 28, 2012

A+ CORRECT ANSWERS Keyes Corporation preferred stock pays an annual dividend of $7 per share.

1. Keyes Corporation preferred stock pays an annual dividend of $7 per share. Which of the following statements is true for an investor with a required return of 9%? 
The value of the preferred stock is $7 because the dividend is fixed at $7 each year .
The value of the preferred stock is $63.00 per share.
The value of the preferred stock is $77.78 per share.
The value of the preferred stock is $6.30 per share because of the 9% required return.

2. What is the present value of $15,500 to be received 12 years from today? Assume a discount rate of 7.5% compounded annually and round to the nearest $1. 
$5,790
$6,508
$7,210
$9,010

3. A financial advisor tells you that you can make your child a millionaire if you just start saving early. You decide to put an equal amount each year into an investment account that earns 7.5% interest per year, starting on the day your child is born. How much would you need to invest each year (rounded to the nearest dollar) to accumulate a million for your child by the time he is 35 years old? (Your last deposit will be made on his 34th birthday.) 
$6,525
$7,910
$12,500
$20,347

4. Two brothers each open IRAs in 2009 and plan to invest $3,000 per year for the next 30 years. John makes his first deposit on January 1, 2009, and will make all future deposits on the first day of the year. Bill makes his first deposit on December 31, 2009, and will continue to make his annual deposits on the last day of each year. At the end of 30 years, the difference in the value of the IRAs (rounded to the nearest dollar), assuming an interest rate of 7% per year, will be (Points : 1)
$19,837.
$12,456.
$6,300.
$210.

5. The relevant variable a financial manager uses to measure returns is: (Points : 1)
net income determined using generally accepted accounting principles.
earnings per share minus dividends per share.
cash flows.
dividends.

6. Beta is a statistical measure of (Points : 1)
unsystematic risk.
total risk.
the standard deviation.
the relationship between an investment's returns and the market return.

7. At what rate must $500 be compounded annually for it to grow to $1,079.46 in 10 years? (Points : 1)
6 percent
5 percent
7 percent
8 percent

8. The capital asset pricing model (Points : 1)
provides a risk-return trade off in which risk is measured in terms of the market volatility.
provides a risk-return trade off in which risk is measured in terms of beta.
measures risk as the coefficient of variation between security and market rates of return.
depicts the total risk of a security.

9. What is the value of a bond that matures in 5 years, has an annual coupon payment of $110, and a par value of $2,000? Assume a required rate of return of 7%. (Points : 1)
$938.50
$1,876.99
$1,890.07
$1,750.00

10. If two firms have the same current dividend and the same expected growth rate, their stocks must sell at the same current price or else the market will not be in equilibrium. (Points : 1)
False, because the required return could be different
True, because we are using a dividend valuation model
True if markets are semi-strong form efficient
True if investors are risk-averse
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