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Free CMA Exam Braindumps (page: 154)

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PDF with 1336 Questions
View Related Case Study

What is the pence of a 10-year, 10% coupon bond with a $1 .000 face value if investors require a 12% return? Assume annual coupon payments.

  1. $565.00
  2. $322.00
  3. $604.50
  4. $887.00

Answer(s): B

Explanation:

The pence of the bond is equal to the sum of present value of the face value of the bond and the present value of the interest payments. Thus, the price is $887.00 [($1 .000 x .322 PV factor) + ($100 x 5.65 PV factor)].



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What is the duration of a 9%, 5-year Treasury bond that has a yield of 8%?

  1. 3.27
  2. 4.26
  3. 0.69
  4. 0.98

Answer(s): B

Explanation:

To calculate the duration of a bond, the present value of the cash flows associated with the bond, and the proportion of die total value of the bond that is realized in each period that the bond is held must be determined. The duration is then the product of the proportion of the value and the time (until that proportion of the value is recognized). Thus, the duration is 4.26. calculated as follows:



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If a firm uses external financing as a plug item, has a new capital budget of $1 million, a net income of $750,000, and a plowback ratio of 40%. how much should be raised in external funds?

  1. $300,000
  2. $450,000
  3. $550,000
  4. $700,000

Answer(s): D

Explanation:

Mumping the 40% plowback ratio times the $750,000 of income produces $300,000 of funds for arrestment. Subtracting the $300,000 from the $1 million needed results in $700,000 to be obtained from external sources.



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What happens to the NPV of a 1-year project if fixed costs are increased from $200 to $300, the firm is profitable, has a 35% tax rate and employs a 12% cost of capital?

  1. NPV decreases by $100.
  2. NPV decreases by $89.29.
  3. NPV decreases by $65.
  4. NPV decreases by $58 .05%

Answer(s): D

Explanation:

The $100 increase in costs is tax deductible. Therefore, the after-tax effect is only $65. Discounting the $65 decline at 12% (PV factor = .893) results in a decline in NPV of $58.05.






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