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How much net income must be expected to warrant starting the business 



1. An investor is considering starting a new business. The company would require $475,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%. How much net income must be expected to warrant starting the business ?

a.	$52,230 

b.	$54,979 

c.	$57,873 

d.	$60,919 

e.	$64,125 

2. D. J. Masson Inc. recently issued noncallable bonds that mature in 10 years. They have a par value of $1,000 and an annual coupon of 5.5%. If the current market interest rate is 7.0%, at what price should the bonds sell?
a.	$829.21 

b.	$850.47 

c.	$872.28 

d.	$894.65 

e.	$917.01 

3. McCue Inc.'s bonds currently sell for $1,250. They pay a $120 annual coupon, have a 15-year maturity, and a $1,000 par value, but they can be called in 5 years at $1,050. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. What is the difference between this bond's YTM and its YTC? (Subtract the YTC from the YTM.)
a.	2.11% 
b.	2.32% 

c.	2.55% 

d.	2.80% 

e.	3.09% 

4. Moerdyk Corporation's bonds have a 10-year maturity, a 6.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 4.75%, based on semiannual compounding. What is the bond's price?
a.	1,063.09 

b.	1,090.35


c.	1,118.31 
d.	1,146.27 

e.	1,174.93 

5. Rick Kish has a $100,000 stock portfolio. $32,000 is invested in a stock with a beta of 0.75 and the remainder is invested in a stock with a beta of 1.38. These are the only two investments in his portfolio. What is his portfolio's beta ?
a.	1.18 
b.	1.24 

c.	1.30 
d.	1.36 

e.	1.43 




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