1)How many British pounds can be obtained for $500 when the exchange rate is one
ID: 2628602 • Letter: 1
Question
1)How many British pounds can be obtained for $500 when the exchange rate is one pound = $1.5288?
A)500
B)1,529
C)327
D)764
2)McCormick & Company recently earned a profit of $2.96 per share and has a P/E ratio of 25.4. The dividend has been growing at a 9.0 percent rate. If this growth rate continues, what would be the stock price in four years if the P/E ratio decreases to 19?
A)$56.24
B)$75.18
C)$79.39
D)$106.13
3)Value Coca-Cola stock using the constant growth model and assume a discount rate of 12 percent. Coca-Cola recently increased its dividend by 9 percent to $1.22 per share. What is the value of the stock?
A)$40.67
B)$43.58
C)$44.33
D)$44.67
4)When a credit-rating agency lowers the rating on a bond (e.g. from a rating of AAA to AA), what will happen to the price of the bond? Why?
A)It will increase because it is considered less risky now and its cash flows will be discounted with a lower rate.
B)It will increase because bondholders need to be compensated for the increased risk.
C)It will decrease because of the selling pressure that occurs after a rating deterioration.
D)It will stay the same because price is not affected by credit ratings.
5)What is the PI for a project with yearly cash flows of -10,000, 2,500, 3,500, 5,000, 4,000 and 2,000 if the company faces a 12 percent cost of capital?
A)2.31
B)1.23
C)0.23
D)1.00
A)500
B)1,529
C)327
D)764
Explanation / Answer
1. C 500/1.5288
2. C 2.96*(1.09)^4*19
3. C (1,22)*1.09/(.12-.09)
4. C
5. B
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