Question

- What does P/E Ratio of a 10 indicate?

a. It would take 10 years for an investor to recover his or her initial investment

b. The firm will pay a dividend of $10 per share.

c. The value of the stock will be 10 times the initial investment at the time of maturity.

d. An investor would receive 10 percent of the total earnings of the firm, at the time of liquidation - Suppose a U.S. treasury bond will pay $2,500 five years from now. If the prevailing interest rate on 5-year treasury bonds is 4.25%, compounded semiannually, the value of the bond is closest to:
- The present value of $10,000 to be received in 10 years, discounted at an annual rate 6.78% is closest to?
- Which one of the following is a source of cash? a) Increase in accounts receivable, b) Decrease in accrued liabilities, c) Decrease in bank loan, d) Increase in retained earnings

Answer #1

1. **option c. **

The value of the stock will be 10 times the initial investment at the time of maturity.

2. Given

future value = $2500

time N = 5

r = 4.25% compounded semi-annually

Present value = FV/ (1 + r/2)^{N*2}

PV = 2500 / ( 1 + 0.0425/2)^10

**PV = $2025.91**

**Value of investment is $2025.91**

3. PV = 10000/ (1+r)^{n}

PV = 10000/(1.0678)^10

PV = 10000 / 1.927077

**PV= $5189.21**

**Present value of 10,000 is $5189.21**

**4. Option D .** Increase in retained
earnings

Payback period essentially provides the number of years it would
take for a project to recover the initial investment from its
operating cash flows. As the model was criticized, the model
evolved incorporating time value of money to create the discounted
payback method. The models still reflected faulty ranking criteria
but they provided important information about liquidity and
risk.
Cash flows expected in the distant future aremore
risky than cash flows received in the near-term—which
suggests that the payback period...

Payback period essentially provides the number of years it would
take for a project to recover the initial investment from its
operating cash flows. As the model was criticized, the model
evolved incorporating time value of money to create the discounted
payback method. The models still reflected faulty ranking criteria
but they provided important information about liquidity and
risk.
Cash flows expected in the distant future are
more/less risky than cash flows received in the
near-term—which suggests that the payback...

Which of the following is true about the P/E ratio of a
firm?
a.
If a firm's P/E ratio is 8, then, it would take 8 years for an
investor to double his or her initial investment.
b.
If a company's P/E ratio is too high relative to that of
similar firms, its earnings have not been fully captured in the
existing stock value.
c.
The higher the P/E ratio, the less investors are willing to pay
for each dollar...

The Vinson Corporation has earnings of $1,106,000 with 370,000
shares outstanding. Its P/E ratio is 12. The firm is holding
$410,000 of funds to invest or pay out in dividends. If the funds
are retained, the aftertax return on investment will be 10 percent,
and this will add to present earnings. The 10 percent is the normal
return anticipated for the corporation, and the P/E ratio would
remain unchanged. If the funds are paid out in the form of
dividends,...

5. Suppose that you bought a 14% Drexler bond with time to
maturity of 9 years for $1,379.75 (semiannual coupons, interest
rate=8%). After another ½ year, you sold the bond.
a. Assuming that the required rate of return remained at 8%,
what would the selling price be? What is the rate of return from
this investment?
b. Assuming that the required rate of return decreased to 7.5%,
what would the selling price be? What is the rate of return from...

Pacific Amalgamated (PA) issues 10-year bonds in 2011 with a
$1,000 face value and a $150 coupon. The interest rate at which PA
issues these bonds is _____. When the bond reaches maturity in
2021, how much will each investor holding one of these PA bonds
receive?
A.)The initial investment of $1,000 plus $150 for the 10th
coupon
B.) The initial investment of $1,000 plus $1,500 worth of
coupons ($150 per year x 10 years)
C.) $1,500 worth of coupons...

1. What is the present value of $500 5 years from today if the
opportunity cost of capital is 10%?
2. What is the value of $22.5 growing at 5% forever (“in
perpetuity”) if the opportunity cost of capital is 10%?
3. What is the present value of $500 million 5 years from today
if the target return for an investor is 40%?
4. If the 30-year treasury bill is currently paying 3%, and a
firm’s cash flows are perfectly...

1. When a
company goes bankrupt, the maximum that can be lost by an investor
protected by limited liability is:
a. the amount of the investor’s
personal wealth
b. the amount necessary to
pay the company’s debts
c. the amount of profit on the
investment
d. the amount of the initial
investment
2. Which of the following investment criteria doesn’t
take the time value of money into account:
a. Discounted payback period
b. Net present value
c. Internal rate of...

1. Consider the following supply and demand for money of an
economy:
MS = 400 + 20i
MD = 2000 – 30i
Find the equilibrium interest rate.
2. Consider the following savings and investment functions of an
economy:
S = 40 + 5i
I = 400 – 3i
Find the equilibrium interest rate.
3. Consider the following Treasury quote:
104-13+/24+. If you are the seller of the bond, at what price
will you sell?
4. Consider a bond paying an...

Question 2
2a) Suppose a risk-free bond promises
to pay $2,249.73 in 4 years. If the going risk-free
interest rate is 3.5%, how much is the bond worth
today?
Nper
Rate
PMT
FV
PV
2b) Suppose you can buy a U.S. Treasury
bond which makes no payments until the bond matures 10 years from
now, at which time it will pay you $1,000. What interest rate would
you earn if you bought this bond for $585.43?
Nper
PMT
PV
FV
Rate...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 6 minutes ago

asked 20 minutes ago

asked 35 minutes ago

asked 54 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago