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Free CMA Exam Braindumps (page: 150)

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PDF with 1336 Questions
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A company has 100,000 outstanding common shares with a market value of $20 per share. Dividends of $2 per share were paid in the current year and the company has a dividend payout ratio of 40%. The price to earnings ratio of the company is

  1. 2.5
  2. 4
  3. 10
  4. 50

Answer(s): B

Explanation:

The P-E ratio equals the share price divided by EPS. If the dividends per share equaled $2 and the dividend-payout ratio was 40%, EPS must have been $5 ($2 ÷ 4). Accordingly, the P-E ratio is 4 ($20 share price ÷ $5 EPS).



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The equity section of Smith Corporation's Statement of Financial Position is presented below.



The book value per share of Smith Corporation's common stock is

  1. $18.50
  2. $5.00
  3. $14.00
  4. $100

Answer(s): A

Explanation:

The book value per common share equals the net assets (equity) attributable to common shareholders divided by the common shares outstanding, or $18.50 [($10,000,000 common stock + $18,000,000 additional paid-in capital + $9,000,000 RE) ÷ ($10,000,000 ÷ $5 par)]



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The Dawson Corporation projects the following for the year



If Dawson Corporation's common stock is expected to trade at a price-earnings ratio of eight, the market price per share (to the nearest dollar) would be

  1. $104
  2. $56
  3. $72
  4. $68

Answer(s): B

Explanation:

Net income is $18,000,000 [($35,000,000 EBIT -- $5,000,000 interest) x (1.0-- .4 tax rate)], and EPS is $7 [($18,000,000 NI -- $4,000,000 preferred dividends) 2,000,000 common shares]. Consequently, the market price is $56 ($7 EPS x 8 P-E ratio).



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A company has purchased a $1000. 7%, 5-year bond at par that pays interest annually. The discount tractors for he present value $1at 7% for five periods are as follows



For purposes of duration hedging, the duration of the bond is

  1. 39years.
  2. 5O0years
  3. 439years.
  4. 3.8lyears

Answer(s): C

Explanation:

Duration hedging inverse hedging interest-rate ask by matching the duration and value of s assets with the duration and value of habitable. Duration is the weighted average of the times to interest and principal aments. If duration increases, the vitality of the price of the debt instrument increases. Duration is lower if the nominal rate on the instrument is higher because more of the return is received ear1ier. The formula for duration is as follows if Ct is the interest or principal payment, T is the time to the payment, n is the time to aunty, r is the yield to math', and V is the value of the instrument



Because the expression 1 (1 + )T is the present value of $1, the weighted present values of the payments can be I calculated as follows: $65.45 (1 period x $1 .000 x 7% x .935), $122.22 (2 periods x $1 .000 x 7% x .873), $171.36 (3 periods x $1 .000 x 7% x .816). $213.64 (4 periods x $1,000 x 7% x .763). and $3,814.55 (5 periods x $1,000 x 107% x .713).The total is $4.387.22The value of the bond is $1000 {[$70 x (935 + .873 + .816 + .763 + 713)] + * ($1,000 x .713)). Thus, the duration is approximately 4.39 years ($4,387.22 $1.000)






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