FIN370T Wk. 4 – Apply: Exercise

FedEx Corp. stock ended the previous year at $113.39 per share. It paid a $0.40 per share dividend last year. It ended last year at $126.69. If you owned 300 shares of FedEx, what was your dollar return and percent return?

• $4,110; 12.08 percent
• $4,250; 12.29 percent
• $3,990; 11.73 percent
• $2,009; 9.13 percent

A stock has an expected return of 12 percent and a standard deviation of 25 percent. Long-term Treasury bonds have an expected return of 5 percent and a standard deviation of 9 percent. Given this data, which of the following statements is correct?

• The two assets have the same coefficient of variation.
• The bond investment has a better risk-return trade-off.
• The stock investment has a better risk-return trade-off.
• Both investments have the same diversifiable risk.

Year-to-date, Company O had earned a −2.10 percent return. During the same time period, Company V earned 8.00 percent and Company M earned 6.25 percent. If you have a portfolio made up of 40 percent Company O, 30 percent Company V, and 30 percent Company M, what is your portfolio return?

• 15 percent
• 115 percent
• 35 percent
• 435 percent

If the risk-free rate is 8 percent and the market risk premium is 2 percent, what is the required return for the market?

• 8 percent
• 10 percent
• 2 percent
• 6 percent

You have a portfolio with a beta of 1.25. What will be the new portfolio beta if you keep 80 percent of your money in the old portfolio and 20 percent in a stock with a beta of 1.75?

• 35
• 00
• 50
• 00

A company’s current stock price is $84.50 and it is likely to pay a $3.50 dividend next year. Since analysts estimate the company will have a 10 percent growth rate, what is its expected return?

• 14 percent
• 00 percent
• 14 percent
• 26 percent

Which of the following will impact the cost of equity component in the weighted average cost of capital?

• Expected return on the market
• The risk-free rate
• Beta
• All of the above

FarCry Industries, a maker of telecommunications equipment, has 26 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10 thousand bonds. If the common shares sell for $12 per share, the preferred shares sell for $114.50 per share, and the bonds sell for 98 percent of par ($1,000), what weight should you use for preferred stock in the computation of FarCry’s WACC?

• 01 percent
• 52 percent
• 51 percent
• 24 percent

Fern has preferred stock selling for 95 percent of par that pays an 8 percent annual coupon. What would be Fern’s component cost of preferred stock?

• 60 percent
• 00 percent
• 42 percent
• 00 percent

Which of these are fees paid by firms to investment bankers for issuing new securities?

• Interest expense
• User fees
• Seller financing charges
• Flotation costs

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