**Calculate the after tax yields on the foregoing**

**investment assuming the Bitten’s have a 28% marginal tax rate**

Personal Finance Concepts

c a young married couple beginning careers and establishing a

house hold. They will each make about $50,000. next year

and will have accumulated about $40,000. to invest. They

now rent an apartment but are considering purchasing a condominium

for $10,000. If they do a down payment of $10,000. will

required. They have discussed their situation with Lew

McCarthy and he has recommended the following investment.

1. The condominium-expected annual increase in market

value=2%

2. Municipal bonds- expected annual yield=3%

3. High yield corporate stock- expected dividend yield=5%

4. Saving account in a commercial bank expected annual

yield=1%

5. High-growth common stocks expected annual increase in

market=6%;expected dividend yield=0

1. Calculate the after tax yields on the foregoing

investment assuming the Bitten’s have a 28% marginal tax rate

(based on Public law 108-27, the job growth tax relief

reconciliation act of 2003)3.

2. How would you recommend the Britten’s invest their

$40,000.. Explain your answer

show all work for each assignment and explain each step

carefully

BUS401 Finance Multiple Choice – Please Rate, Thanks!

1. The capital asset pricing model

provides a risk-return trade off in which risk is

measured in terms of the market volatility.

provides a risk-return trade off in which risk is

measured in terms of beta.

measures risk as the coefficient of variation between

security and market rates of return.

depicts the total risk of a security.

2. At what rate must $500 be compounded annually for it to

grow to $1,079.46 in 10 years?

6 percent

5 percent

7 percent

8 percent

3. Positive Tronics Industries preferred stock has a par value

of $100 and pays a dividend of $6.00 per share. It presently sells

for $87 per share. What do investors require as a rate of return on

this stock? Round off to the nearest .10%.

14.5%

9.3%

6.9%

6.0%

4. A typical measure for the risk-free rate of return is

the

U.S. Treasury Bill rate.

prime lending rate.

money market rate.

short-term AAA-rated bond rate.

5. Butler Corp paid a dividend today of $5 per share. The

dividend is expected to grow at a constant rate of 6.5% per year.

If Butler Corp stock is selling for $50.00 per share, the

stockholders’ expected rate of return is

11.50%

13.56%

15.49%

16.50%

6. Emery Company just paid a dividend yesterday of $2.25 per

share. The company’s stock is currently selling for $60 per share,

and the required rate of return on Emery Company stock is 16%. What

is the growth rate expected for Emery Company dividends assuming

constant growth?

9.47%

9.89%

10.87%

11.81%

7. What is the value of a preferred stock that pays a $4.50

dividend to an investor with a required rate of return of

10%?

$22.22

$27.83

$45

$55.50

8. A financial advisor tells you that you can make your child

a millionaire if you just start saving early. You decide to put an

equal amount each year into an investment account that earns 7.5%

interest per year, starting on the day your child is born. How much

would you need to invest each year (rounded to the nearest dollar)

to accumulate a million for your child by the time he is 35 years

old? (Your last deposit will be made on his 34th birthday.)

$6,525

$7,910

$12,500

$20,347

9. Bell Corp. has a preferred stock that pays a dividend of

$2.40. If you are willing to purchase the stock at $11, what is

your required rate of return (round your answer to the nearest .1%

and assume that there are no transaction costs)?

21.8%

11.0%

9.1%

20.1%

10. What is the present value of $15,500 to be received 12

years from today? Assume a discount rate of 7.5% compounded

annually and round to the nearest $1.

$5,790

$6,508

$7,210

$9,010

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