King Fahd University of Petroleum & Minerals
College of Industrial Management
Department of Finance & Economics
Financial Management (FIN 301)
Sample Questions 2
First Semester 2008-2009
1. The Carter Company's bonds mature in 10 years have a par value of $1,000 and
an annual coupon payment of $80. The market interest rate for the bonds is 9%.
What is the price of these bonds?
a.
b.
c.
d.
e.
$935.82
$941.51
$958.15
$964.41
$979.53
2. Brown Enterprises’ bonds currently sell for $1,025. They have a 9-year maturity,
an annual coupon of $80, and a par value of $1,000. What is their current yield?
a.
b.
c.
d.
e.
7.80%
7.90%
9.00%
9.10%
9.20%
3. Leggio Corporation issued 20-year, 7% annual coupon bonds at their par value
of $1,000 one year ago. Today, the market interest rate on these bonds has
dropped to 6%. What is the new price of the bonds, given that they now have 19
years to maturity?
a.
b.
c.
d.
e.
$1,046.59
$1,111.58
$1,133.40
$1,177.78
$1,189.04
1
4. Yest Corporation's bonds have a 15-year maturity, a 7% semiannual coupon, and
a par value of $1,000. The going interest rate (rd) is 6%, based on semiannual
compounding. What is the bond’s price?
a.
b.
c.
d.
e.
$1,008.65
$1,024.67
$1,051.34
$1,098.00
$1,105.78
5. Moussawi Ltd's outstanding bonds have a $1,000 par value, and they mature in 5
years. Their yield to maturity is 9%, based on semiannual compounding, and the
current market price is $853.61. What is the bond's annual coupon interest rate?
a.
b.
c.
d.
e.
5.10%
5.20%
5.30%
5.40%
5.50%
6. You intend to purchase a 10-year, $1,000 face value bond that pays interest of
$60 every 6 months. If your nominal annual required rate of return is 10% with
semiannual compounding, how much should you be willing to pay for this bond?
a.
b.
c.
d.
e.
$ 826.31
$1,086.15
$ 957.50
$1,431.49
$1,124.62
7. Cold Boxes Ltd. has 100 bonds outstanding (maturity value = $1,000). Their
nominal required yield to maturity is 10%, and interest is paid semiannually. The
bonds mature in 5 years, and their current market value is $768 per bond. What is
the annual coupon interest rate?
a.
b.
c.
d.
e.
8%
6%
4%
2%
0%
8. A 10-year, $1,000 face value bond has an 8% annual coupon and a yield to
maturity of 10%. If market interest rates remain at 10%, what will be the bond’s
price two years from today?
a.
b.
c.
d.
e.
$ 877.11
$ 893.30
$1,061.30
$ 912.55
$1,023.06
2
9. Meade Corporation has 6-year, $1,000 par value bonds that have a yield to
maturity of 8.5% and a 10% semiannual coupon rate. What are the current and
capital gains yields on the bonds for this year?
a.
b.
c.
d.
e.
Current yield = 8.50%; capital gains yield = 1.50%
Current yield = 9.35%; capital gains yield = 0.65%
Current yield = 9.36%; capital gains yield = -0.86%
Current yield = 10.00%; capital gains yield = 0.00%
Current yield = 10.50%; capital gains yield = -1.50%
10. T. Martell Inc.'s stock has a 50% chance of producing a 30% return, a 25%
chance of producing a 9% return, and a 25% chance of producing a -25% return.
What is Martell's expected return?
a.
b.
c.
d.
e.
14.4%
15.2%
16.0%
16.8%
17.6%
11. Miller Inc. is considering a capital budgeting project that has an expected return
of 10% and a standard deviation of 30%. What is the project's coefficient of
variation?
a.
b.
c.
d.
e.
1.8
2.2
2.6
3.0
3.4
12. Returns for the Corrigan Company over the last 5 years are shown below. What's
the standard deviation of Corrigan's returns? (Hint: this is a sample, not a
complete population, so the sample standard deviation formula should be used.)
Year
2005
2004
2003
a.
b.
c.
d.
e.
Return
25%
-10
30
20.10%
21.79%
23.87%
25.18%
27.54%
3
13. An analyst believes that economic conditions during the next year will be either
Strong, Normal, or Weak, and she thinks that the Corrigan Company's returns
will have the following probability distribution. What's the standard deviation of
Corrigan's returns as estimated by this analyst?
Conditions
Strong
Normal
Weak
a.
b.
c.
d.
e.
Probability
Return
30%
30%
40
15
30
-10
12.34%
13.41%
14.87%
15.68%
16.94%
4