MariJane Tripp

7) You are considering a sales job that pays you on a commission basis or a salaried position that pays you $50,000 per year. Historical data suggests the following probability distribution for your commission income. Which job has the higher expected income?

 

Probability of

CommissionOccurrence

$15,000.15

$35,000.20

$48,000.35

$67,000.22

$80,000.18

A) The salary of $50,000 is greater than the expected commission of $49,630.

B) The salary of $50,000 is greater than the expected commission of $48,400.

C) The salary of $50,000 is less than the expected commission of $50,050.

D) The salary of $50,000 is less than the expected commission of $52,720.

 

6) Assume that you have $165,000 invested in a stock that is returning 11.50%, $85,000 invested in a stock that is returning 22.75%, and $235,000 invested in a stock that is returning 10.25%. What is the expected return of your portfolio?

A) 15.6%

B) 12.9%

C) 18.3%

D) 14.8%

 

26) Assume that an investment is forecasted to produce the following returns: a 20% probability of a 12% return; a 50% probability of a 16% return; and a 30% probability of a 19% return. What is the standard deviation of return for this investment?

A) 5.89%

B) 16.1%

C) 2.43%

D) 15.7%

 

21) Assume that Brady Corp. has an issue of 18-year $1,000 par value bonds that pay 7% interest, annually. Further assume that today's required rate of return on these bonds is 5%. How much would these bonds sell for today? Round off to the nearest $1.

A) $1,233.79

B) $1,201.32

C) $1,134.88

D) $1,032.56

 

13) 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%.

A) $822.90

B) $856.29

C) $895.23

D) $904.87

 

18) A company has preferred stock that can be sold for $21 per share. The preferred stock pays an annual dividend of 3.5% based on a par value of $100. Flotation costs associated with the sale of preferred stock equal $1.25 per share. The company's marginal tax rate is 35%. Therefore, the cost of preferred stock is:

A) 18.87%.

B) 17.72%.

C) 14.26%.

D) 12.94%.

 

16) Asian Trading Company paid a dividend yesterday of $5 per share (D0= $4). The dividend is expected to grow at a constant rate of 8% per year. The price of Asian Trading Company's stock today is $29 per share. If Asian Trading Company decides to issue new common stock, flotation costs will equal $2.50 per share. Asian Trading Company's marginal tax rate is 35%. Based on the above information, the cost of retained earnings is

A) 28.38%.

B) 24.12%.

C) 26.62%.

D) 31.40%.

 

33) Jiffy Co. expects to pay a dividend of $3.00 per share in one year. The current price of Jiffy common stock is $60 per share. Flotation costs are $3.00 per share when Jiffy issues new stock. What is the cost of internal common equity (retained earnings) if the long-term growth in dividends is projected to be 8 percent indefinitely?

A) 13 percent

B) 14 percent

C) 15 percent

D) 16 percent