FIN 515 Midterm Exam
1. (TCO A) Which of the following statements is CORRECT?
2. (TCO G) Which of the following statements is CORRECT?
3. (TCO G)LeCompte Corp. has $312,900 of assets, and it
uses only common equity capital (zero debt). Its sales for the last year were
$620,000, and its net income after taxes was $24,655. Stockholders
recently voted in a new management team that has promised to lower costs and
get the return on equity up to 15%. What profit margin would LeCompte need in
order to achieve the 15% ROE, holding everything else constant?
4. (TCO B)You want to buy a new sports car three
years from now, and you plan to save $4,200 per year, beginning one year from
today. You will deposit your savings in an account that pays 5.2%
interest. How much will you have just after you make the third
deposit, three years from now?
5. (TCO B)You sold a car and accepted a note with the
following cash flow stream as your payment. What was the effective price
you received for the car assuming an interest rate of 6.0%?
6. (TCO B)Suppose you borrowed $14,000 at a rate of
10.0% and must repay it in five equal installments at the end of each of
the next five years. How much interest would you have to pay in the first
year?
7. (TCO D)A 15-year bond with a face value of $1,000
currently sells for $850. Which of the following statements is CORRECT?
8. (TCO D)Garvin EnterprisesΓ’ΒΒ bonds currently sell for
$1,150. They have a six-year maturity, an annual coupon of $85, and a par
value of $1,000. What is their current yield?
9. (TCO C)Niendorf Corporation’s five-year bonds yield
6.75%, and five-year T-bonds yield 4.80%. The real risk-free rate is r* =
2.75%, the inflation premium for five-year bonds is IP = 1.65%, the default
risk premium for Niendorf’s bonds is DRP = 1.20% versus zero for T-bonds, and
the maturity risk premium for all bonds is found with the formula MRP =
(t – 1) x 0.1%, where t = number of years to maturity. What is
the liquidity premium (LP) on Niendorf’s bonds?
10. (TCO C)Assume that to cool off the economy and
decrease expectations for inflation, the Federal Reserve tightened the money
supply, causing an increase in the risk-free rate, rRF. Investors also became
concerned that the Fed’s actions would lead to a recession, and that led to an
increase in the market risk premium, (rM – rRF). Under these conditions, with
other things held constant, which of the following statements is most correct?
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