BUS 401 Week 2 Quiz Paper

1.     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.)

2.    Positive Tronics Industries preferred stock has a par value of $100 and pays a dividend of $6.00 per share. It presently sells for $87 per share. What do investors require as a rate of return on this stock? Round off to the nearest .10%

3.    Lily Co. paid a dividend of $5.25 on its common stock yesterday. The company’s dividends are expected to grow at a constant rate of 8.5% indefinitely. The required rate of return on this stock is 15.5%. You observe a market price of $78.50 for the stock. Should you purchase this stock?

4.    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.    What is the value of a bond that matures in 17 years, makes an annual coupon payment of $50, and has a par value of $1,000? Assume a required rate of return of 6%

6.    Investment A has an expected return of 15% per year, while investment B has an expected return of 12% per year. A rational investor will choose

7.    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%?

8.    The minimum rate of return necessary to attract an investor to purchase or hold a security is referred to as the

9.    Butler Corp paid a dividend today of $5 per share. The dividend is expected to grow at a constant rate of 6.5% per year. If Butler Corp stock is selling for $50.00 per share, the stockholders’ expected rate of return is

10.  What is the value of a preferred stock that pays a $4.50 dividend to an investor with a required rate of return of 10%