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Free CMA Exam Braindumps (page: 153)

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PDF with 1336 Questions
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Find the required rate of return for equity investors of a firm with a f of 1.2 when the ask- free rate is 6%, the market risk premium is 4%, and the return on the market is 10%.

  1. 4.80%
  2. 6%
  3. 10%
  4. 10.80%

Answer(s): D

Explanation:

The capital asset pacing model adds the risk-free rate to the product of the coefficient (a erasure of risk) and the difference between the market return and the risk-free rate. Thus, the required rate of return is 10.8% [6% + 1.2(4%)].



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Falcon AG, a German heavy machinery manufacturer, is planning to expand its manifesting base in the US. and has been offered a special loan of $25 million by the state of Georgia. The loan is for a term of 5 years and carries an interest of 4% to be paid annually Falcons normal borrowing rate for 5-year borrowing is 6%. What is the value of this special loan to Falcon?

  1. $4.212 million.
  2. $2113 million.
  3. $6325 million,
  4. $20.788 million.

Answer(s): B

Explanation:

The value of the special loan can be calculated by computing the NPV of the loan using Falcon's normal borrowing rate of 6% for 5 periods. NPV equals $25 million minus PV of interest payments minus PV of principal. Thus, the NPV is $2.1 13 million ($25 million --[($25 million x .04 annual interest) x4.212 PV of an annuity for Syrsat6%]-- ($25 millionx747PVof$1 in5yrs. at6%]}.



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Ricardo gets a Christmas bonus of $1,500 cash. He decides to invest the whole amount in a mutual fund where it is expected to earn a return of 12%. How much will Ricardo have in the account at the end of 4 years?

  1. $2,36100
  2. $2,107 50
  3. $2.64300
  4. $2,196.00

Answer(s): A

Explanation:

Using FV factor tables, the FV factor for 12% at the end of 4 years is 1 574. Thus, the future value of the account at the end of 4 years is $2.36 1 .00(1.574 x $1 500)



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Francis wants to create an endowment income of $15,500 a year for the Cancer Research Center at the Municipal Hospital. She proposes that the first payment not be made for 3 years' time. if Francis can earn a return of 6% on her investments, what amount should she invest now?

  1. $216,999.99
  2. $243,608.33
  3. $229,916.66
  4. $258,333.33

Answer(s): C

Explanation:

The present value of the perpetuity will be $258.333.33 ($15,500 ÷ 0,06). This amount has to be invested by the end of 2 years so that the first payment of $15,500 will be received at the end of 3 years. The present value of this today is equal to the present value factor for 6% for 2 years multiplied by $258,333.33. The present value factor for 6% for 2 years is 0.890, so the solution is $229,916.66.






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