gm ai l.c om rd @ co ak er co n Concordia COMM 308 rt Winter 2024 Winter 2024 Midterm Mock Exam #1 Booklet © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. wizeprep.com gm ai l.c om Table of Contents Chapter 1. Mock Exams rt ak er co n co rd @ 1.1. Midterm Mock #1 1.1.1. Midterm Mock #1 F23 © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. wizeprep.com 1.1 Midterm Mock #1 1 .1 .1 gm ai l.c om 1. Mock Exams Part I: Multiple Choice Questions (25 Questions, 75 Points Total): ak er co n co rd @ 1. The convex shape of the bond price yield curve shows: I. The curve is always downward sloping II. The curve is flatter when the yield is high III. For 1% changes in the interest rate, the decreases in the bond price when the interest rate increases are greater than the increases in the bond price when the interest rate decreases. a. Only I is correct b. Both I and II are correct c. Both I and III are correct d. Both II and III are correct e. All statements are correct rt 2. Two investments, X and Y, both investments offer a constant payment A per year for n years. However, investment X pays each payment A at the beginning of each year ,while investment Y pays each payment A at the end of each year. If the future value of the investment Y is F and the present value of the investment X is P. Which of the following will increase the ratio of F to P. Given the discount rate k. a. Decreases in the discount rate k b. Increases in the discount rate k c. Decreases in the number of years n d. Increases in the constant annual payment A e. Decreases in the constant annual payment A © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. wizeprep.com gm ai l.c om 3. XYZ Inc. issued a 15-year loan with an interest rate quoted at 3.31% (APR compounded quarterly). XYZ makes a monthly payment of $2,146. How much did XYZ Inc. borrow? a. 304,334.22 b. 304,143,26 c. 31,492.53 d. 1,279,136.84 e. Incorrect question. Mortgage are always quoted in APR compounded monthly. rd @ 4. Thomas Inc. issued the 10% preferred stock at a price of $105 last year. This preferred share is priced at $153.79. If Michael wishes to sell some new preferred stock at par, what rate should it assign to the new shares? The stock has a notional face value of $100. a. 6.5% b. 9.52% c. 10.00% d. 9.67% e. 6.83% rt ak er co n co 5. Which of the following statements is false? a. The quoted price of a bond is the actual price an investor pays for the bond when the bond is sold on the date of a coupon payment. b. A callable bond usually charges a higher price because it gives additional rights to the bondholders. c. A coupon bond with a longer maturity date is more sensitive than a bond with a shorter maturity date when other parameters are the same. d. The current yield of a bond is equal to its yield to maturity when the bond is issued at par. © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. wizeprep.com gm ai l.c om 6. A company is expected to pay dividends of $0.42 at the end of the first three years, and $0.22 at the end of year 4. Thereafter, it is estimated that the dividends will grow at a constant rate of 3% per year forever. Investors require a return of 11.12%. Given the above information, the current market value of this company’s common stock = ______ 7. The stock of SuperGrowth Inc. just paid a dividend of $0.74. The dividend next year is expected to be $0.91 and will grow at 6% thereafter. What is the expected capital gain yield if the stock is selling for $28.25 today? a. 2.76% b. 6% c. 11.54% d. 3.08% e. Insufficient information ak er co n co rd @ 8. Your investment advisor recommends you the following investment. The investment will pay you every year over the next 19 years. The first payment is $1,283 at the end of this year. The payments will grow by 19% every year thereafter. If the appropriate discount rate is 10%, how much would you be willing to pay for this investment today? a. $49,265.16 b. $10,732.19 c. $6,504.84 d. $-14,255.56 e. The growth rate is greater than the discount rate, therefore, this cannot be solved. rt 9. Use the following THREE statements to answer this question: I. Preferred shares typically have a fixed dividend, whereas the dividend from common shares is determined by the board of directors every year. II. The growth rate of the dividend g is equal to the firm’s ROE times its payout ratio III. When the firm goes bankrupt preferred shareholders have priority over bondholders. a. Only I is correct b. Both I and II are correct c. Both I and III are correct d. All statements are correct © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. wizeprep.com gm ai l.c om 10. A 25-year bond with a face value of 1,000 and coupons payable quarterly is selling at par. If the effective semi-annual yield on this bond is 15.55%. The value of the coupon paid every quarter is $____________ 11. You have a 17 year, 7%, fully amortized mortgage. What fraction of the payment made in the 12th payment will represent the interest? (the mortgage rate is quoted as APR compounded monthly) a. 67.46% b. 67.07% c. 67.27% d. 32.54% e. Insufficient information to solve the question. We need to know the amount borrowed. rt ak er co n co rd @ 12. The “vanilla” perpetuity pays $50 at the end of every 3 years forever starting at the end of the first year. Thus, the first payment is at the end of year one, second at the end of year 4, etc. The yearly effective interest rate is 19%. What is the present value of the vanilla perpetuity? a. $72.98 b. $372.66 c. $103.34 d. $263.16 e. $122.98 © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. wizeprep.com gm ai l.c om 13. Lucy wants to borrow $500,000 from the Royal Bank of Canada. Which of the following is correct? I. As the term of a mortgage increase, holding the interest rate constant, the monthly payments will increase. II. As the interest rates of a mortgage increase, holding the number of payments constant, the monthly payments will increase. III. As the monthly payments increase, holding the interest rate constant, the number of payments will decrease. a. I only b. II only c. III only d. II and III only co rd @ 14. Given a 16% APR compounded every 5 years, what is the effective quarterly rate? a. 3.20% b. 2.98% c. 12.47% d. 17.06% e. 0.16% ak er co n 15. Seven years ago a firm issued a 25-year $1,000 face value bond at par. At the time, the market for such bonds was 4%. Today these bonds are yielding 2%. The coupon is paid semi-annually. rt Price of these bonds today = $____________- © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. wizeprep.com gm ai l.c om 16. As an investor, if you invest 100 dollars in each of the following investments, which one would provide you the lowest interest after 1 year? a. 10% QR compounded semi-annually b. 10% QR compounded monthly c. 10% QR compounded annually d. 9.5% QR compounded monthly e. 9.5% QR compounded quarterly rd @ 17. The exchange that acts as the Canadian national derivatives market and conducts all options and futures trading is called the: A) Bourse de Montreal (The Montreal Exchange) B) Winnipeg Commodity Exchange C) Toronto Stock Exchange D) Canadian Trading and Quotation System Inc. rt ak er co n co 18. What is the holding period return of a 9% annual coupon bond with a face value of $1000 and with five years to maturity if it is purchased at the beginning of year 1 at a Yield-to-Maturity (market rate) of 6.0% and sold at the beginning of year 2? Assume that rates do not change. A) 6.0% B) 7.1% C) 6.8% D) 7.4% E) None of the above © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. wizeprep.com gm ai l.c om 19. Never-On-Time Transportation Inc. has issued $2.5 million in preferred shares with a par value of $20 each and an annual dividend rate of 8.25 percent. The market value of the preferred shares is ____________ if the required rate of return is 12 percent. A) $1.72 million B) $17.19 million C) $3.64 million D) $34.38 million rd @ 20. SlowGrowth, Inc. is expected to pay a dividend of $1 in one year. If the dividend growth rate is 2 percent forever and the required return is 10 percent, what should the stock be sold for five years from now? A) $13.53 B) $13.80 C) $14.08 D) $14.62 rt ak er co n co 21. How long will lake to double your money. If you deposit it in a savings account which gives you 12% per year rate of interest (compounding semiannual)? a. 6.116 years b. 11.896 years c. 5.948 years d. 12.223 years e. 12 years © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. wizeprep.com gm ai l.c om 22. The MOB Bank currently offers an investment account with an interest rate of 18.4% compounded monthly. MOB wants to offer customers another account with interest compounded quarterly. It MOB wants the effective rates to be equal, what Interest rate should MOB quote for the second account? Note: Keep at least four decimal points while calculating a. 4.60 % b. 18.68 % c. 18.83 % d. 20.03 % co rd @ 23. Stock A is currently sold $34.25 per share. Stock A will pay a dividend of $1.5 per share in the coming year. Dividends are expected to grow by 25 percent for years 2 and 3 and 10 percent thereafter. The required rate of return on the stock is 15 percent. Which of the following statements are correct? Assume DDM is correct. a. Stock A’s fair price is $33.90 per share; Stock A Is underpriced. b. Stock A’s fair price is $33.90 per share; Stock A is overpriced. c. Stock A’s fair price is $34.25 per share; Stock A is fairly priced. d. Stock A’s fair price is $38.17 per share; Stock A Is overpriced. e. Stock A’s fair price is $38.17 per share; Stock A is underpriced. rt ak er co n 24. Snape’s Elixers expects to pay dividends at the end of each of the next four years of $2.00, $1.50, $2.50, and $1.50 respectively. Starting at the beginning of year 5, dividend growth is expected to remain constant at 7%. If you require a 10% rate of return, what is the price of Snape’s Elixers today? A) $39.12 B) $42.50 C) $53.50 D) $61.00 © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. wizeprep.com rt ak er co n co rd @ gm ai l.c om 25. A dividend declared on November 15, has an ex-dividend date of December 7, and a record date of December 9. Which of the following shareholders will NOT receive the dividend? A) A shareholder who purchases on December 1. B) A shareholder who purchases on December 6. C) A shareholder who purchases on December 7. D) Both B) and C) will not receive the dividend. © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. wizeprep.com gm ai l.c om Part II: Problems (25 Points Total) 26. Given a stream of positive payments of $7800 every other year forever, with the first payment occurring one year from today (t=0), and an interest rate of 16 percent compounded daily (365 days per year). a) Draw the monetary flow diagram associated with the stream of payments. rt ak er co n co rd @ b) Determine the present value today of the stream of payments: © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. wizeprep.com gm ai l.c om 27. 1. A bond originally sold at par for $1,000. The coupon rate on the bond is 9% while the current discount rate for the bond is 10% (APR, compounded semi-annually). a. Assuming no change in risk, would this bond sell for more or less than its original issue price? Why? rd @ b. Given the current market rate of of 10% (APR, compounded semi-annually): i. Would a $1000 face value, 9% coupon bond with 4 years left to maturity and annual coupons be priced higher or lower than the 4-year bond in (a) above? Why? There is no calculation required, just briefly state your argument. rt ak er co n co ii. Would a $1000 face value, 9% coupon bond with 8 years left to maturity and semi-annual coupons be priced higher or lower than the 4-year bond in (a) above? Why? Again, there is no calculation required, just briefly state your argument. © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. gm ai l.c om Thanks for Studying With Us co rd @ Good Luck! ak er co n Find this, and much, much more on Wizeprep.com Solutions to Problems 24/7 Instructor Q&A Each section corresponds to a minutes-long video explanation by your expert instructors. See the solutions to the practice problems as well as a step-by-step breakdown of the answers. Need help clarifying a concept? You have direct access to your instructor. rt Bite-Sized Video Lessons © Wizedemy Inc. All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or sorted in a data base or retrieval system, without the prior written permission of Wizedemy Inc. 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ELITE 515 LIVE 144 hrs of expert instruction Flexible live schedules, face-time with our MCAT instructors. rd @ SELF-PACED Study planner 6 top-quality textbooks 100+ practice passages Unlimited Q&A with MCAT experts 405+ passage-based questions ak er co n co Watch 144 hours of expert MCAT instruction whenever you have time. Psych All AAMC materials 15 full-length practice exams 515+ performance guarantee CARS Performance Guarantee rt The Elite 515 program promises you a score of at least 515 on the MCAT or money back. A 515 puts you within the top 2% of scores! Find Free MCAT Resources on Wizeprep.com/MCAT Free Live Events Free Diagnostic Exam Free Trial Learn about the med school application process and more. Predict your MCAT score and assesses strengths and weaknesses. Don’t just take our word for it. Try out the first few lessons yourself. © Wizedemy Inc. All Rights Reserved. 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