(TCO A) The distinguishing feature of a corporation is that

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FIN 515 FIN515 Midterm Exam Answers

1. (TCO A) The distinguishing feature of a corporation is that
2. (TCO A) A _____ is when a rich individual or organization purchases a large fraction of the stock of a poorly performing firm, and in doing so, gets enough votes to replace the board of directors and the CEO.

3. (TCO A) The firm's equity multiplier measures

4. (TCO B) By evaluating cost and benefits using competitive market prices, we can determine whether a decision will make the firm and its investors wealthier. This central concept is called:

5. (TCO D) Which of the following statements is FALSE?

6. (TCO D) Which of the following statements is FALSE?

7. (TCO B) If today you put \$10,000 into an account paying 10% annually, how much will there be in the account after 5 years? Show your work.

8. (TCO B) You start saving \$100 per month in an account that pays 5% interest, compounded monthly. You make the payment at the beginning of each month and interest is applied at the end of each month. How much money will you have in the account in 5 years? Show your work.

9. (TCO D) A particular bond has 8 years to maturity. It has a face value of \$1,000. It has a YTM of 7% and the coupons are paid semiannually at a 10% annual rate. What does the bond currently sell for? Show your work.

10. (TCO D) A bond currently sells for \$1,000 and has a par of \$1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 7% and the interest payments are made semiannually. What is its YTM? Show your work.

11. (TCO D) A stock has just paid a dividend and will pay a dividend of \$3.00 in a year. The dividend will stay constant for the rest of time. The return on equity for similar stocks is 14%. What is P0? Show your work.

12. TCO D) A stock has just declared an annual dividend of \$2.25 to be paid one year from today. The dividend is expected to grow at a 7% annual rate. The return on equity for similar stocks is 12%. What is P0? Show your work.

13. (TCO A) If Moon Corporation has an increase in sales, what would result in no change in its EBIT margin? Explain in details.

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