Question Details

Which of these bonds would best meet his criteria 



1.	Your uncle would like to limit both his interest rate price risk (the risk that rising rates will cause the value of his bonds to decline) and his default risk, but he would still like to invest in corporate bonds.  He is considering the following bonds. Which of these bonds would best meet his criteria ?
a)	AAA bonds with 10 years to maturity
b)	BBB perpetual bonds
c)	BBB bonds with 10 years to maturity
d)	AAA bonds with 5 years to maturity
e)	BBB bonds with 5 years to maturity
2. Tom Skinner has $45,000 invested in a stock with a beta of 0.8 and another $55,000 invested in a stock with a beta of 1.4.  These are the only two investments in his portfolio.  What is his portfolio- beta?
a)	0.93
b)	0.98
c)	1.03
d)	1.08
e)	1.13
3.A share of common stock has just paid a dividend of $2.00.  If the expected long-run growth rate for this stock is 7%, and if investors require a(n) 11% rate of return, what is the price of the stock?
a)	$47.50
b)	$49.00
c)	$50.50
d)	$52.00
e)	$53.50

4.	Wagner Inc estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%.  Which of the following projects (A, B, and C) should the company accept?
a)	Project A is of average risk and has a return of 9%.
b)	Project B is of below-average risk and has a return of 8.5%.
c)	Project C is of above-average risk and has a return of 11%.
d)	None of the projects should be accepted
e)	All of the projects should be accepted

5.	The regular payback method has a number of disadvantages. Which of the following items is NOT a disadvantage of this method?
a)	Lack of an objective, market-determined benchmark for making decisions.
b)	Ignores cash flows beyond the payback period.
c)	Does not directly account for the time value of money.
d)	Does not provide any indication regarding a project- liquidity.
e)	Does not directly account for differences in risk among projects.




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