Answer any two of the three questions below (10 points each; 20 points total). For the questions you pick you must answer all parts. Type in your answers in the space below. Clearly mark the question and the part you are answering. You need to show your work to receive credit. If you use your financial calculator, clearly state your inputs. For e.g., if you are calculating future value: I/Y = 10%, PV = $1000, PMT = $50, N = 5 years, CPT FV =

You will receive 24 annual payments of $33,500. The first payment will be received 8 years from today and the interest rate is 6.2 percent. What is the value of the payments today?

NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year (i.e., at t = 1) in the amount of $0.33 a share. The dividends will be $0.38, $0.53, and $0.83 a share annually for the following three years respectively. After that, dividends are projected to increase by 2.6 percent per year forever. How much are you willing to pay today to buy one share of this stock if your desired rate of return is 9 percent?

Explain what classification is in the corrections context and describe the factors that determine an inmate’s classification level. How does classification affect the inmate’s day-to-day experience? Using Donnie as an example, describe what his likely classification would be and what that would mean for his time in CDCR.

A 12-year bond has an annual coupon rate of 9%. The bond has a yield to maturity of 7%.  Which of the following statements is CORRECT?

What is the beta of a portfolio comprised of the following two securities? Stock Amount Invested Beta A $ 3,200 1.3 B $ 4,800 1.5  

Northeast Corporation’s stock expected return is 14%. Its dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT?

Today, the mortgage on your house is five years old. It required monthly payments of $1562, had an original term of 30 years, and had an interest rate of 12% APR (compounded monthly). In the intervening five years, interest rates have fallen and so you have decided to refinance—that is, you will roll over the outstanding balance into a new mortgage.  (2 points) What is the principal of the loan outstanding today? (Hint: You may need the answer of this part to answer parts B-D of this question below. If you do not know the answer to this part, say so in the space below, and use a made-up number of $150,000 to solve the remaining parts of this question. This can allow you to receive partial credit for the remaining parts, assuming you solve them correctly.) (2 points) What monthly repayments will be required with the new loan? The new mortgage has a 30-year term, requires monthly payments, and has an interest rate of 6% APR (compounded monthly). (2 points) If you still want to pay off the mortgage in 25 years under the new rate, what monthly payment should you make after you refinance? (2 points) Suppose you are willing to continue making monthly payments of $1562 under the new rate. How long will it take you to pay off the mortgage after refinancing? Answer the four parts in the space below. Clearly mark the part you are answering (A, B, C, or D). You need to show your work to receive credit. If you use your financial calculator, clearly state your inputs. For e.g., if you are calculating future value: I/Y = 10%, PV = $1000, PMT = $50, N = 5 years, CPT FV =

Prisonization describes a process that generally supports rehabilitation by helping inmates adjust to the institutional environment.

1. (Bonds) Answer the two questions (A and B) below. A. (6 points) Lloyd Industries raised $28 million in order to upgrade its roller kiln furnace for the production of ceramic tile. The company funded this by issuing 15-year bonds with a face value of $1000 and a coupon rate of 6.2%, paid annually. The below table shows the yield to maturity for similar 15-year corporate bonds of different ratings issued at the same time. When Lloyd Industries issued their bonds, they received a price of $962.63. What is most likely to be the rating these bonds received?  Security AAA Corporate AA Corporate A Corporate BBB Corporate BB Corporate Yield (%) 5.70% 5.80 6.00% 6.60% 6.90% B. (4 points) The yield to maturity of a $1000 bond with a 7% coupon rate, semiannual coupons, and two years to maturity is 7.6%. What must its price be?   2. (Stocks) Answer the two questions (A and B) below. (7 points) Simpkins Corporation is expanding rapidly, and it currently needs to retain all of its earnings; hence it does not pay any dividends. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow rapidly – at a rate of 50% per year – during Years 4 and 5. After Year 5, the earnings and dividends are expected to grow at a constant rate of 8% per year. The company’s stock has a beta equal to 0.9, the risk-free rate is 5.6%, and the market risk premium is 6%. What is your estimate of the stock’s price today?  (3 points) The Sisyphean Company’s stock is currently trading for $25.00 per share. The stock is expected to pay a $2.50 dividend at the end of the year and the required rate of return for Sisyphean Company’s stock is 14%. If the dividends are expected to grow at a constant rate, then what is the expected growth rate in the Sisyphean Company’s dividends?   3. (Projects) You are considering the following two projects, but can only take one. Your discount rate is 11%. The cash flows for the projects are given in the following table:  Project 0 1 2 3 4 A -$100 25 30 40 50 B -$100 50 40 30 20 (3 points) What are the IRRs of the two projects? (3 points) If your discount rate is 7%, what are the NPVs of the two projects? (3 points) What is the payback period of the two projects? (1 point) What should you do? Make sure you have read the instructions above the question before you begin writing your answers.