Wednesday, 14 November 2018

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."


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


Question 2
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


Question 3
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.

Question 4
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%

Question 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.


Question 6
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

Question 7
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

Question 8
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

Question 9
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

Question 10
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


Question 11
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

Question 12
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%

Question 13
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


Question 14
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


Question 15
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


Question 16
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

Question 17
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

Question 18
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

Question 19
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.


Question 20
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.


Question 21
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


Question 22
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.


Question 23
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.


Question 24
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


Question 25
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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