1. Suppose an investor can earn a steady 5 percent annually with investment A, while B will yield a constant 12% annually. Within 11 years’ time, the compounded value of B will be more than twice the value of investment A. (SHOW THE WORK)., a. True, b. False,,2. Which of the following statements is correct? (EXPLAIN WHY YOU CHOOSE YOUR ANSWER), a. Put options give investors the right to buy a stock at a certain exercise,price before a specified date., b. Call options give investors the right to sell a stock at a certain exercise,price before a specified date.,,3. Which of the following statements is most correct? (EXPLAIN WHY YOU CHOOSE YOUR ANSWER), a. The tax code encourages companies to pay large dividends to their,shareholders., b. If your company has established a clientele of investors who prefer large,dividends, the company is unlikely to adopt a residual dividend policy., c. If a firm follows a residual distribution policy, the dividend payout will,tend to rise whenever the firm’s investment opportunities improve., d. All of the above statements are correct., e. Answers b. and c. are correct.,,4. The XYZ corporation has $100 million of long term debt paying ten percent interest and is in the 40 percent tax bracket. The firm also has $50 million of preferred stock paying a 12 percent dividend and $100 million of common growing at a constant rate of 15 percent per year. If the expected dividend is $2.00 and the stock is selling for $40.00, what is XYZ’s weighted average cost of capital? (SHOW THE WORK).,,,,,,5. D.J. Mason Inc. recently issued non-callable bonds that mature in 10 years, They have a par value of $1,000 and an annual coupon of 5.5%. If you require a 7.0% return, what price would you pay for the bonds? (SHOW THE WORK),
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