FIN 304 Fall 24 - Quiz #4 (10/17)

A Treasury yield curve plots Treasury interest rates relative to:

• market rates.
• comparable corporate bond rates.
• the risk-free rate.
• inflation rates.
• time to maturity.

Winter Tires Inc. bonds provide a real rate of return of 3.6 percent. If the current rate of inflation is 2.7 percent, what is the actual nominal rate of return on these bonds?

• 7.58 percent
• 7.33 percent
• 7.71 percent
• 6.76 percent
• 6.40 percent

A firm has an EPS of $2.08 and a benchmark PE of 12.7. Earnings are expected to grow by 3.8 percent annually. What is the estimated current stock price? (Hint: You don't need all of the information provided in this problem.)

• $27.42
• $27.09
• $26.08
• $26.42
• $28.13

The length of time a firm must wait to recoup the money it has invested in a project is called the:

• internal return period.
• payback period.
• profitability period.
• discounted cash period.
• valuation period.

The internal rate of return (IRR) is defined as the:

• maximum rate of return a firm expects to earn on a project.
• rate of return a project will generate if the project is financed solely with internal funds.
• discount rate that equates the net cash inflows (NCI) of a project to zero.
• discount rate which causes the net present value (NPV) of a project to equal zero.
• discount rate that causes the profitability index (PI) for a project to equal zero.