**BUS 530 Test Number 1**

Instructions:

1. After you are done, submit your answers to Blackboard. Please submit it as a solution to the assignment.

2. Attempt all the parts on the assignment.

3. **Show all work for credit.** When using the calculator, type what you enter in each button. This will get you partial credit if the final answer is not correct.

4. **A grade of zero will be assigned to all essay questions without a proper citation for all sources of information.**

Best of luck on the test.

**Student name:**

**Useful Formulae BUS 530**

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How does a portfolio reduce risk?

**Use the following information for Questions 2 and 3.**

Securities in vested in the portfolio | ||||

Security | Investment amount | | Expected return | Standard deviation |

A | $375 | 1.2 | 17% | 12% |

B | $550 | 1 | 15% | 8% |

**Part 2. (Show all work for credit)**

What are the expected return and of the portfolio?

**Part 3. (Show all work for credit)**

What is the standard deviation of the portfolio?

**Part 4. (Show all work for credit)**

Use the following information to calculate the required return on a company’s stock. The company has a of 1.2 and the 90-day Treasury Bill rate is 2%. The stock price is $32, next year’s dividends are expected to be $2.5 per share, and the stock is expected to grow at a rate of 3% annually.

**Part 5. (Show all work for credit)**

**Part a.** Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding?

**Part b.** You have just purchased a U.S. Treasury bond for $747.25. No payments will be made until the bond matures 5 years from now, at which time it will be redeemed for $1,000. What interest rate will you earn on this bond?

**Part 6. (Show all work for credit)**

**Part a.** What’s the present value of a 4-year ordinary annuity of $2,250 per year plus an additional $3,000 at the end of Year 4 if the interest rate is 5%?

**Part b.** Suppose you borrowed $12,000 at a rate of 9.0% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be?

**Part 7. (Show all work for credit)**

What is the difference between a bond’s coupon rate and its yield to maturity?

**Part 8. (Show all work for credit)**

What is the price of a bond that pays a semiannual coupon rate of 8%? The bond matures in 20 years, has a yield to maturity equal to 7%, and has a face value of $1,000.

**Part 9. (Show all work for credit)**

What would the stock price be for a company that just paid $2.35 dividends per share? The required return on the stock is 12% and the dividends are expected to grow at a constant 3% for the future.