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1. (Bonds) Answer the two questions (A and B) below. A. (6 points) Lloyd Industries raised $28 million in order to upgrade its roller kiln furnace for the production of ceramic tile. The company funded this by issuing 15-year bonds with a face value of $1000 and a coupon rate of 6.2%, paid annually. The below table shows the yield to maturity for similar 15-year corporate bonds of different ratings issued at the same time. When Lloyd Industries issued their bonds, they received a price of $962.63. What is most likely to be the rating these bonds received?  Security AAA Corporate AA Corporate A Corporate BBB Corporate BB Corporate Yield (%) 5.70% 5.80 6.00% 6.60% 6.90% B. (4 points) The yield to maturity of a $1000 bond with a 7% coupon rate, semiannual coupons, and two years to maturity is 7.6%. What must its price be?   2. (Stocks) Answer the two questions (A and B) below. (7 points) Simpkins Corporation is expanding rapidly, and it currently needs to retain all of its earnings; hence it does not pay any dividends. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow rapidly – at a rate of 50% per year – during Years 4 and 5. After Year 5, the earnings and dividends are expected to grow at a constant rate of 8% per year. The company’s stock has a beta equal to 0.9, the risk-free rate is 5.6%, and the market risk premium is 6%. What is your estimate of the stock’s price today?  (3 points) The Sisyphean Company’s stock is currently trading for $25.00 per share. The stock is expected to pay a $2.50 dividend at the end of the year and the required rate of return for Sisyphean Company’s stock is 14%. If the dividends are expected to grow at a constant rate, then what is the expected growth rate in the Sisyphean Company’s dividends?   3. (Projects) You are considering the following two projects, but can only take one. Your discount rate is 11%. The cash flows for the projects are given in the following table:  Project 0 1 2 3 4 A -$100 25 30 40 50 B -$100 50 40 30 20 (3 points) What are the IRRs of the two projects? (3 points) If your discount rate is 7%, what are the NPVs of the two projects? (3 points) What is the payback period of the two projects? (1 point) What should you do? Make sure you have read the instructions above the question before you begin writing your answers.

What is the beta of a portfolio comprised of the following two securities? Stock Amount Invested Beta A $ 3,200 1.3 B $ 4,800 1.5  

1. (Bonds) HMK Enterprises would like to raise $10 million to invest in capital expenditure. The company plans to issue five-year bonds with a face value of $1000 and a coupon rate of 6.5% (annual payments). The following table summarizes the yield to maturity for five-year (annual-pay) coupon corporate bonds of various ratings: Rating AAA AA A BBB BB Yield to maturity 6.20% 6.30% 6.50% 6.90% 7.50% (4 points) Assuming the bonds will be rated AA, what will the price of the bonds be?  (2 points) What must the rating of the bonds be for them to sell at par? Explain. (4 points) Suppose that when the bonds are issued, the price of each bond is $959.54. What is the likely rating of the bonds? Are they junk bonds?    2. (Stocks) Answer the two questions (A and B) below. (7 points) A company has just paid a dividend of $2 per share yesterday. It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, and then the dividend will grow at a constant rate of 7% thereafter. The company’s stock has a beta equal to 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s price today? (3 points) A company has stock which costs $42.00 per share and pays a dividend of $2.50 per share at the end of this year. Future dividends are paid annually and are expected to grow at a constant rate. If the discount rate is 8%, what is the expected annual growth rate of the company’s dividends?   3. (Projects) You are choosing between two projects, but can only take one. The cash flows for the projects are given in the following table:   0 1 2 3 4 A -$50 25 20 20 15 B -$100 20 40 50 60 (3 points) What are the IRRs of the two projects? (3 points) If your discount rate is 5%, what are the NPVs of the two projects? (3 points) What is the payback period of the two projects? (1 point) What should you do? Make sure you have read the instructions above the question before you begin writing your answers.

A company releases a five-year bond with a face value of $1000 and coupons paid semiannually. If market interest rates imply a YTM of 6%, which of the following coupon rates will cause the bond to be issued at a premium?

Northeast Corporation’s stock expected return is 14%. Its dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT?

Which of the following best describes the scale of California’s prison population crisis at its peak?

Courts have recognized that adolescents are generally less culpable than adults for the same conduct because of developmental differences in brain function that affect impulse control and decision-making.

A 12-year bond has an annual coupon rate of 9%. The bond has a yield to maturity of 7%.  Which of the following statements is CORRECT?

Today, the mortgage on your house is five years old. It required monthly payments of $1562, had an original term of 30 years, and had an interest rate of 12% APR (compounded monthly). In the intervening five years, interest rates have fallen and so you have decided to refinance—that is, you will roll over the outstanding balance into a new mortgage.  (2 points) What is the principal of the loan outstanding today? (Hint: You may need the answer of this part to answer parts B-D of this question below. If you do not know the answer to this part, say so in the space below, and use a made-up number of $150,000 to solve the remaining parts of this question. This can allow you to receive partial credit for the remaining parts, assuming you solve them correctly.) (2 points) What monthly repayments will be required with the new loan? The new mortgage has a 30-year term, requires monthly payments, and has an interest rate of 6% APR (compounded monthly). (2 points) If you still want to pay off the mortgage in 25 years under the new rate, what monthly payment should you make after you refinance? (2 points) Suppose you are willing to continue making monthly payments of $1562 under the new rate. How long will it take you to pay off the mortgage after refinancing? Answer the four parts in the space below. Clearly mark the part you are answering (A, B, C, or D). You need to show your work to receive credit. If you use your financial calculator, clearly state your inputs. For e.g., if you are calculating future value: I/Y = 10%, PV = $1000, PMT = $50, N = 5 years, CPT FV =

A felony conviction in California carries no legal consequences beyond the formal sentence — once released, a person’s rights are fully restored.