More Review Problems for Corporate Finance (problems from S. Fridman).

 

 

 

  1. What is the present value of $500 to be received 10 years from today if the discount rate is 6 percent? [$279]

 

  1. What is the value of a preferred stock where the dividend rate is 16 percent on a $100 par value with a discount rate for the stock of 12 percent?  [$133.33]

 

  1. The preferred stock for AT&T pays $2.75 in dividends. What is the value of the stock if the desired rate of return is 9%? [ $30.56]

 

  1. What is the present value of an investment that yields $500 to be received in 5 years and a $1000 to be received in 10 years if the discount rate is 4 percent?
    [$1,087]

 

  1. What is the present value of $8000 to be paid at the end of 3 years if the interest rate is 11 percent? [$5,850]

 

  1. How long will it take you to double the amount of money you have if the interest rate is 8 percent? [ about 9 years]

 

  1. What is the implied interest rate of a perpetuity that pays $5 and has a present value of $60? [8.33%]

 

  1. How much money must be set aside today in order to have $2000 in six years with an interest rate of 12 percent? [$1,013]

 

  1. You purchased a corporate bond (par value of $1,000) that has 2 years to maturity with a coupon rate of 12 percent. If the interest rate falls to 9 percent, what will the new price of the bond be? [$1,053]

 

  1. What is the price of a 15-year corporate bond that matures in 10 years if it pays a 9 percent coupon rate semiannually and has a yield to maturity of 8 percent? [$1,040]

 

  1. You are awarded a $6.5 million prize to be paid out to you over the course of the next 20 years. You will receive $325,000 each year. How much is the $6.5 million really worth if the interest rate is 7 percent? [$3,443,050]

 

  1. What is the present value of $6,500 to be paid at the end of 8 years with an interest rate of 10 percent? [$3,032]

 

  1. Assuming an interest rate of 4 percent, what would be the present value of $4 million to be received at the end of 5 years? [$3,287,708.40]

 

  1. How long will it take for money to triple at an interest rate of 4.2 percent? [26.7 years]

 

  1. You currently have $8,000. How much will you have at the end of 9 years if you compound monthly with an interest rate of 6.2 percent? [$13,957.33]

 

  1. An AOL-Time Warner bond has a coupon rate of 9 percent (interest paid semi-annually) and 10 years to maturity. What is the value of the bond if the desired yield to maturity is 12 percent? [$827.95]

 

  1. Gap has a $3 dividend, which will grow by 2.3 percent per year. You would like a 7.2 percent return. What is the value of the stock? [$61.22]

 

  1.  A $20,000 bond was purchased for $3,000 with 30 years to maturity. What is the implicit interest rate? [6.52 %]

 

  1.  You have $9,500 compounded continuously at 6 percent. How much would you have at the end of 7 years? [$14,485.63]