1) IPO 80,000 shares. Full commitment underwriter. Initial price $32, 9% spread. Uw sells 68,500. Cash received by co.?

A: 32(.91) x 80,000 = 2,329,600 2) Quick ratio=1.5, CL=450,000. Must contain QR=1.2. Max it can borrow? A: 1.5=(CA-Inv)/CL, (CAInv)=675. 675/(450+x)=1.2, x=112,500 3) 15yr mortgage=250,000. Month pmt=2,109.64. IntRt=6%: The portion of the 2nd mortg. pmt. is interest is 1,246. 2nd pmt will not reduce principal by 806. Principal portion pd. changes over time. Final pmt will not all go to reducing principal owed. Portion of pmt thats interest decr. over time. Portion thats principal^ot. How long till amt owed is 125,000? A: I=.5 PV=250000 PMT=-2109.64 FV=-125000 N110
4) Raise 6.2M by sell 20yr, $1000 face val, 0-cpn bonds w/ yield 9.5%. Whats min. # to sell to raise 6.2M? A: N=20 FV=1000 I=9.5 PV162.8, (6.2M/162.8)=38,078

5) IntRt risk ^ with maturity of bonds. Nom. intRt is not always>inflation rate. Real intRt is not always<nom. intRt. IntRt risk is not 0 for 0-cpn bonds. 0-cpn bonds will not always sell at par value. 6) Borrow 2,000. 7.2% would be $144 interest for a year = 2144. Pay $178.67/mo. Whats the EAR? A: 13.85% 7) Own 27,000 shares. Currently 800,000 shares at $28. 100,000 shares offered (rights) for $20 subPr. Ownership after all rights exercised? A: 3% 8) Debt: if CY>CR then discount. Protective provision in bond indenture might require a max div payout ratio. Commercial paper isnt LT borrowing by corps. with junk/high bond ratings. Call bond not selling back.
9) Bond cpn=8%, 8yrs. Bought @ par. Currnt mkt rate=8.25%. Expect: capital loss if you sell bond @ mkt price today & the CY>8%. YTM isnt 8%, next semi-ann int. pmt not $41.125

10) Normal features of corp. bond: interest-only loan & payment of interest is tax deductible by corporation & fixed coupon payment 11) S&P issues bond ratings on sovereign debt. Bonds issued by US govt are free of default risk. Bond ratings dont assess default risk and volatility of bond. Fallen Angel hasnt dropped from hi YTM>CR. 12) Support IPO underpricing: counteract winners curse. Reward sharing of opinion of stocks mkt value. Diminish risk to firm commitment Uws. Reduce prob. Investors will sue inv. banks involved with IPO.
13) Retire today w/$387,419. Earn 6.8% cmpd monthly. Withdraw $3,000/beg.mo today. How long to run out? A:BegMode I=(6.8/12) PV=387419 PMT=-3000 FV=0 N230.19 mos.

14) Short selling stock: borrowing stock, selling it, buying it back later and then returning it to lender. 15) Unexpected increase in Interest rates: mostly want to own bond with LOW YEARS to maturity & a HIGH COUPON %. 16) 1st pmt=$10k today. Never ending pmt increase by 4% annually. 10% discRt. PV of prize? A: 10000(1.04)/(.1-.04) + 10000 = $183,333.33 17) Bond price decreases = CY^ & YTM^ 1) Ann. Div.=.48, .60, & .62. (Constant g after 3 years). Beta=1.5, ExRet=11%, Rf=5%. Max amt youd pay for 1 share? A: $4.43 2) Stock=$22. Div=3.8%. MktRR=8.2%. Whats amt of last div. pd? A: $0.93 3) 2-stage div grwth model: can be used to compute a stock price at any point of time. Does not consider cap gain & ignore the div yld. Does not state the mkt pr. of stock is only affected by amt of div. 4) What gives you val. of Equity? A: Discount future expected dividends by cost of equity & Discount future expected free cash flows by WACC, then deduct debt. 5) Boom=.50chance, .27return. Norm=.65chance, .13return. Rec=.30chance, -.20return. Whats the SD? A:15.87 6) Expected Div Yld=3.6%. Do=$1.8, D1=$1.86. (constant g=.033). A: 6.93% 7) SD of a portfolio: can be<SD of least risky sec. in port. Isnt a weight avg of SDs of individ sec. Can be<SD of most risky sec. May be=>lowest SD of any sec in port. Isnt arith. avg of SDs of individ secur comprising port. 8) As var=12 (60%), Bs var=8 (40%), Cov(A,B)=3. SD? A: (.6^2)(12)+(.4^2)(8)+2(.6)(.4)(3)= 2.65%
9) Just announced^ DivYld to $1.75 that ^2% annually. How much is stock worth in 6yrs if RR=14.5%? A: D7=D1(g)^n=1.75(.02)^6=1.97. P6=D7/(r-g)= =(1.97)/(.145-.02)= $15.77

10) NPV=0, then: projects RR just equals the rate required to accept project. Any delay in paying the projected cash outflows will cause project to have a positive NPV. IRR wont>disc rate. Not 0 acct profit 11) At the accounting break-even level of sales, the operating cash flow is equal to: Depreciation 12) Proj. w/ conventional CFs, IRR method: wont produce mult. rates return for 1proj. Doesnt always give same answer as NPV for MutExcl proj. Wont lead to incorrect acc/rej decisions. Not = Disc. Payback accept/reject decisions. 13) Proj. req. Pb period=3yrs, then: CF3 is valued just as highly as CF1. CFs in ea. yr mustnt exceed 1/3 of proj. cost. CF4 isnt valued as much as CF3. All CFs discounted by same discount rate. 14) Consistently earn abnormal + returns by buying stocks that lost >20% value. Mkt is: not semistrong form efficient and not weak form efficient. 15) Semi-strong form efficient markets: buy index funds, analysts rarely consistently make + abnormal profits, stock prices react quickly to unexpected news announcements. Shouldnt have active invest. strategy 16) Portfolio is already effectively diversified: unchanging port SD. Not inc/dec/constant port Beta. Not decr in port SD. 17) Risks: mkt rewards you for non-divers risk by risk prem. Divers risk assoc w/ individ firm/industry. SD measures all risk. Non-Div risk measured by Beta. Risk premium doesnt ^ as divers risk^. Syst risk cant be eliminated by investing in several stocks. Finance theory doesnt say that total risk should be rewarded. 18) Stock Beta=1.1, ExRet=10.5%. T-bills ret=3.2%, MktRR=10.1%: The return on stock will graph below SML. Port 91% stock, 9%T-bill gives lower return than mkt port but have approx same risk. Stock not Underpriced
19) When earn announcement made, delayed response for stock adjustments. You should: sell the stock short immediately after earn. announcemnt if earnings are lower than expected.

20) Stock returns=5%,16%,-18%,11&. Normally distributed. 99% prob range for any one given year? A: -41.6% to 148.6% 21) Perp. Pref. Stock par value=$10, div=8.5%. Cost of pref. stock=9%, how much is stock worth? A: (10x.085)/(.09) = $9.44
22) IRR will decrease if: each CF moved a year later. Not if initial cost of proj decr. Not if total amt of CF^. Not if RRR decr. Not if salv. value of assets utilized by project ^.

23) NPV=0, then: any delay in receiving the projected CF will cause project to have negative NPV. 24) Earnings & Div grow at 4% perp. ROE=16% (constant perp). Cost Debt=5%, Cost Equity=12%. Whats the theoretical lagged PE ratio? A: 9.75 25) Using Div Grwth Model to value stocks. Expect MktRR ^ across the board on all equity securities. Then we should expect: market values of all stocks to decrease. 26) Efficient frontier is found by plotting: SD on the x-axis(horizontal) & Expected Return on the y-axis(vertical). 27) Buy 6 call options. Strike=$40 when option quoted at $1.30. Expires today with value of stock at $41.90. Total profit? A: [(41.9 40) 1.30] x 6 x 600(b/c 100 shares per stock) = $360