BMGT 321: Fundamentals of Building Wealth
Quiz Three: Chapters 11-15
Please submit quiz answers through your Assignments Folder. Create a Microsoft Word document that contains your numbered answers to the quiz. Do not retype the questions. Number your answers to correspond with the quiz. You will then submit the file through the Assignment Folder. Please clearly mark your quiz with: 1) your name, and 2) quiz title.
1. You just found out that you are going to receive an end-of-year bonus of $50,000. You are in the 25 percent marginal tax bracket. Calculate your tax on this bonus. Now assume that instead of receiving a bonus, you receive the $50,000 as a long-term capital gain. What will your tax be? Which form of compensation offers you the best after-tax return? Would your calculation be different if the gain was short term rather than long-term?
- You just learned that a blue chip company will issue a bond with a maturity of 30 years. The bond appears to be a good deal because it yields 3.5 percent. Assuming that the inflation rate stays at 3 percent, what is the bond’s real rate of return today?
- An investor is considering purchasing a bond with a 3.50-percent coupon interest rate, a par value of $1,000, and a market price of $917.50. The bond will mature in 9 years. Based on this information, answer the following questions:
- What is the bond’s current yield?
- Calculate the bond’s approximate yield to maturity using the formula.
- What is the value (today’s price) of a preferred stock that pays an annual dividend of $2.00 when the required rate of return is 7.5 percent?
- A highly rated corporate bond with 7 years left until maturity was recently quoted as selling for 97½. The bond’s par value is $1,000, and its initial interest rate was 2.5 percent. If this bond pays interest every 6 months, and it has been 4 months since interest was last paid, how much would you be required to pay for the bond?
- Assume that you own 250 shares of Widget Extreme selling at $67.00 per share. In order to make the stock more affordable for the average investor, Widget Extreme’s management has decided to split the stock.
- How much was your investment worth prior to the split?
- Assuming Widgets Extreme’s management decides to split the stock two-for-one, how many shares would you own after the split?
- What is the new price per share immediately after the split?
- How much would your investment be worth after the two-for-one split?
- What is the value of a preferred stock that pays an annual dividend of $2.00 when the required rate of return is 5 percent?
- Suppose that you are interested in purchasing a bond issued by the Healthy Market Corporation. The bond is quoted in the Wall Street Journal as selling for 93.475. How much will you pay for the bond if you purchase it at the quoted price? Assuming you hold the bond until maturity, how much will you receive at that time?
9. The X Corporation has just announced yearend results as follows:
Value of company assets $9,700,000
Net income $1,033,000
Common stock dividends $309,900
Preferred stock dividends $258,250
Number of shares of common stock outstanding 2,000,000
Closing price of X Corporation’s stock $48.00 per share
- Calculate the book value per share
- Calculate earnings per share
- This is a continuation of problem number nine (X Corporation).
- Calculate X Corporation’s dividend yield
- Calculate the P/B ratio
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