Kay purchases a $100, 30-year annuity. Kam purchases a $100 perpetuity. In both cases, payments begin in one year, and the appropriate interest rate is 10%. What is the present value of Kam’s payments that will occur from year 31 onwards?

A) $57.31

B) $58.11

C) $81.21

D) More than $100

Which one of the following will decrease the risk of a portfolio that consists of stocks, Canadian Treasury bills, and gold?

A) Decreasing the number of securities in the portfolio

B) Selling stocks and replacing them with Canadian Treasury bills

C) Selling a .90 beta stock and buying a 1.1 beta stock

D) Selling the gold and buying more diversified stocks

E) Selling the large-company stocks and buying small-company stocks

What is the expected return on asset A if it has a beta of 0.3, the expected market return is 14%, and the risk-free rate is 5%?

A) 6.0%

B) 9.2%

C) 7.2%

D) 7.7%

E) 4.5%

Andrew bought an 8.5% annual coupon bond at par. One year later, he sold the bond at a quoted price of 98. During the year, market interest rates rose and inflation was 3%. What real rate of return did Andrew earn on this investment?

A) 3.40%

B) 3.50%

C) 6.40%

D) 6.50%

E) 6.70%

Okie, Inc. has some 8% preferred stock (stated value $100) outstanding. How much are you willing to pay for one share of Okie preferred stock if you require a 7% rate of return?

A) $87.50

B) $98.11

C) $114.29

D) $123.87

E) $125.14

Muon purchased 1,000 shares of Quark stock this morning at a price of $45.67 a share. The stock paid a dividend last year of $1.80 per share. Muon’s required rate of return is 13% on this type of investment. What is the capital gains yield on Quark stock?

A) 7.41%

B) 8.72%

C) 9.06%

D) 13.85%

E) 16.94%