Question
1
1 / 1 pts
A bond differs from term in loans in that
a bond issue is
generally advertised
a bond is sold to many
investors
a bond is offered to
the public.
Correct!
All of these are ways that bonds differ from loans
None of these are ways
that bonds differ from loans
1 / 1 pts
"Other things held constant, if a bond
indenture contains a call provision, the yield to maturity that would exist
without such a call provision will generally be __________ the YTM with
it."
Higher than
Correct!
Lower than
The same as
"Either higher or
lower, depending on the level of call premium, than"
Unrelated to
1 / 1 pts
"A $1,000 par value bond sells for
$1,299. It matures in 10 years, has a 14 percent coupon, pays interest
semiannually, and can be called in 5 years at a price of $1,100. What is the
bond's YTM?"
7.55%
11.53%
10.66%
9.77%
Correct!
9.34%
In financial calculator N=20 PV= -$1299 FV=
1000 PMT = 70 CPT I Multiply by 2.
0 / 1 pts
"Cold Boxes Ltd. has 100 bonds
outstanding (maturity value = $1,000). The required rate of return on these
bonds is currently 8 percent, and interest is paid semiannually. The bonds
mature in 10 years, and their current market value is $796 per bond. What is
the annual coupon interest rate rounded to the nearest percent? How much is
each payment to an individual bond holder?
5%; $49.98
4%; $20.00
Correct answer
5%; $24.99
You Answered
2.5%; $24.99
1%; $10.00
First calculate each interest payment/ coupon.
N= 10*2=20 I/Y= 10/2=5 PV= $-796 FV= $1000 CPT PMT PMT=24.99 Since payments are
semiannual, multiply by 2 then divide by Future Value of $1000 to get 5%
1 / 1 pts
"If interest rates fall from 8 percent to
7 percent, which of the following bonds will have the largest percentage
increase in its value?"
Correct!
A 10-year zero-coupon bond.
A 10-year bond with a
10 percent semiannual coupon.
A 10-year bond with a
10 percent annual coupon.
A 5-year zero-coupon
bond.
A 5-year bond with a
12 percent annual coupon.
1 / 1 pts
"A $1,000 par value bond pays interest of
$50 each quarter and will mature in 10 years. If your simple annual required
rate of return is 7 percent with quarterly compounding, how much should you be
willing to pay for this bond?"
Correct!
$1,929.31
$1,917.92
$2,172.23
$859.53
In your financial calculator N=4*10 I= 7/4
PMT= 50 FV=1000 CPT PV
1 / 1 pts
"Assume that a 15-year, $1,000 face value
bond pays interest of $37.50 every 6 months. If you require a simple annual
rate of return of 11 percent, with semi annual compounding, how much should you
be willing to pay for this bond?"
$200.64
Correct!
$745.66
$1491.22
$1192.31
In your financial Calculator: N= 6*15= 90 I/Y
= 11/6 PMT = 37.50 FV= 1,000 CPT PV
1 / 1 pts
"A firm expects to pay dividends at the
end of each of the next four years of $2.00, $1.50, $2.50, and $3.50. If growth
is then expected to level off at 8 percent, and if you require a 12 percent
rate of return, how much should you be willing to pay for this stock?"
Hint: the evenly growing portion needs to be discounted to present day.
$66.32
$27.99
$60.05
$101.48
Correct!
$67.05
This is a 2 part question. First discount the
Cash flows that are given to present day.
=sum(2/1.12,1.5/1.12^2,2.5/1.12^3,3.5/1.12^4)=6.99 Then calculate the growing
perpetuity value = 3.5*1.08/(1.12-1.08)=94.5 Then discount that to present day
and add up both types 94.5/1.12^4=60.06 60.06+6.99=67.05
1 / 1 pts
"A share of common stock has a current
price of $87.50 and is expected to grow at a constant rate of 10 percent. If
you require a 14 percent rate of return, what is the current dividend on this stock?"
$3.50
Correct!
$3.18
$4.22
$4.36
$5.09
D hat 1 = 82.5*(0.14-0.1) = 3.5 D hat 0 =
3.3/(1+0.1)=3.18
1 / 1 pts
"Stephanie just purchased a corporate
bond that matures in three years. The bond has a coupon interest rate equal to
9 percent and its yield to maturity is 6 percent. If market conditions do not
change that is market interest rates remain constant and Stephanie sells the
bond in 12 months, what will be her capital gain from holding the bond?"
"Positive;
because she bought the bond for a discount, which means its price has to
increase as the maturity date nears."
Correct!
"Negative; because she bought the bond for a
premium, which means its price has to decrease as the maturity date
nears."
"Zero, because
she must have bought the bond for par, which means its price will not change as
the maturity date nears."
"This question
cannot be answered, because the face (maturity) value of the bond is not
given."
None of the above is
correct
1 / 1 pts
"A share of perpetual preferred stock
pays an annual dividend of $6 per share. If investors require a 20 percent rate
of return, what should be the price of this preferred stock?"
$29.00
Correct!
$30.00
$34.50
$33.00
$32.00
=6/0.20
1 / 1 pts
"A share of preferred stock pays a
dividend of $0.35 each quarter. If you are willing to pay $20.00 for this
preferred stock, what is your simple (not effective) annual rate of return?"
Correct!
7%
1.75%
3.5%
3.25%
7.19%
= 0.35*4/20=7%
0 / 1 pts
A bond that can be redeemed for cash at the
bondholder's option is called what?
Convertible bond
Correct answer
Putable bond.
You Answered
Callable bond
Debenture
Income bond
1 / 1 pts
"__________ are high-risk, high-yield
bonds used to finance mergers, leveraged buyouts, and troubled companies."
Callable bonds
Correct!
Junk bonds
Convertible bonds
Floating rate bonds
Putable bonds
0 / 1 pts
"Certificates representing ownership in
stocks of foreign companies, which are held in a trust bank located in the
country the stock is traded are called __________."
Certificates of
Ownership
You Answered
Foreign Stock Funds
Mutual Funds
Correct answer
American Depository Receipts
Investment Bankers
1 / 1 pts
A 15-year zero coupon bond has a yield to
maturity of 8 percent and a maturity value of $1,000. What is the amount that an
investor would be willing to pay for this bond?
Correct!
$315.24
$335.34
$226.57
$1,000
$252.22
Rationale: Step 1:Find PV of bond: N = 15I =
8PMT = 0FV = 1,000 Solve for PV = 315.24. Step 2:Find interest for the first
year:Value at t=0$315.24 Interest rate 0.08 Interest income$25.22 Step 3:Find
tax due:Interest income$ 25.22 Tax rate 0.30 Tax due$ 7.57
1 / 1 pts
An 8 percent annual coupon, noncallable $1,000
bond has ten years until it matures and a yield to maturity of 9.1 percent.
What should be the price be?
$898.64
Correct!
$929.72
$736.86
$941.08
$964.23
N = 10 (since this is an annual bond, we don't
need to make any adjustments for semi-annual payments); I/Y = 9.1; PMT =
1,000*0.08 = 80; FV = 1,000 => FV = 929.72
1 / 1 pts
Alpha's preferred stock currently has a market
price equal to $80 per share. If the dividend paid on this stock is $7 per
share, what is the required rate of return investors are demanding from Alpha's
preferred stock?
Correct!
8.75%
13.2%
9.0%
6.0%
None of the above is a
correct answer.
=7/80
1 / 1 pts
When using the Dividend Discount Model, assuming that growth (g)
will remain constant, the dividend yield is a good measure of the required
return on a common stock under which of the following circumstances?
Correct!
g = 0
g > 0
g < 0
Under no
circumstances.
Answers a and b are
both correct.
1 / 1 pts
If the expected rate of return on a stock exceeds the required
rate,
The stock is
experiencing supernormal growth.
The stock should be
sold.
The company is
probably not trying to maximize price per share.
Correct!
The stock is a good buy.
Dividends are not
being declared.
1 / 1 pts
In international markets, excluding stocks sold in the United States,
what is any stock that is traded in a country other than the issuing company's
home country called?
ADRs
Yankee stock
Correct!
Euro stock
Class A stock
Preferred stock
1 / 1 pts
Shareholders exert control of the management of the firm by
Correct!
electing board members who can replace management.
directly replacing
management with themselves.
buying shares in an
IPO at a discounted price.
running the daily
operations of the firm.
None of the above.
0 / 1 pts
Stock owned by the organizers of the firm who have sole voting
rights is
preferred stock.
You Answered
common equity.
Correct answer
founders' shares.
convertible equity.
retained earnings.
1 / 1 pts
The net income that firm earns can either be paid out to
shareholders as ____ or can be reinvested in the company as ____.
interest; additional
paid-in capital
Correct!
dividends; retained earnings
shares; capital stock.
capital gains;
additional paid-in capital
interest; retained
earnings
1 / 1 pts
Worldwide Inc., a large conglomerate, has
decided to acquire another firm. Analysts are forecasting a period (2 years) of
extraordinary growth (15 percent), followed by another 2 years of unusual
growth (10 percent), and finally a normal (sustainable) growth rate of 6
percent annually. If the last dividend was D0 = $1.00 per
share and the required return is 8 percent, what should the market price be
today?
$72.55
Correct!
$66.87
$79.55
$62.35
First calculate the PV of the unevenly growing
payments =(1*1.15/1.08)+(1*1.15^2/1.08^2)+((1*1.1*(1.15^2))/1.08^3)+((1*1.1^2*1.15^2)/1.08^4)
=$4.53 Then calculate the PV of the evenly growing payments
=((1*1.1^2*1.15^2*1.06)/(1.08-1.06))/1.08^4=$62.34 Then add them
together=4.53+62.34=66.87
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