Download Finance Exam Questions and Answers: Bond and Stock Valuation and more Exams Financial Statement Analysis in PDF only on Docsity!
BUSI 7110 EXAM 2 QUESTIONS AND CORRECT ANSWERS 100%
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A bond that makes no coupon payments and is issued at a deep discount to its par value is called a bond. zero coupon The periodic interest payment, in dollars, made on a bond is known as the bond's: coupon The annual interest paid by a bond divided by the bond's par value is known as the: coupon rate The premium is that portion of a nominal interest rate or bond yield that represents compensation for expected future loss in purchasing power. inflation A bond with a coupon rate of 6 percent that pays interest semiannually and is priced at par will have a market price of and interest payments in the amount of each. $1,000; $ We have an expert-written solution to this problem! All else constant, a bond will sell at when the yield to maturity is the coupon rate. a discount; greater than
We have an expert-written solution to this problem! The premium is that portion of the bond yield that represents compensation for potential difficulties that might be encountered should the bond holder wish to sell the bond prior to maturity. liquidity Aspens is issuing bonds with a coupon rate of 5.5 percent. The bonds mature in 10 years. The company will issue the bonds at par and will pay interest semiannually. Which of the following statements is CORRECT? The yield to maturity on this bond at issuance is 5.5%. Consider a bond with an 8 percent coupon rate that pays semiannual interest and matures in eight years. The current market rate of return on bonds of this risk is 11 percent. What is the current value of a $1,000 face value bond? $843. Otto Enterprises has a 15 - year bond issue outstanding with a coupon of 8 percent. The bond is currently priced at $923.60 and has a par value of $1,000. Interest is paid semiannually. What is the yield to maturity? 8.93% Which one of these applies to the dividend growth model of stock valuation? The growth rate must be less than the discount rate. The rate at which a stock's price is expected to appreciate (or depreciate) is called the yield. capital gains
Logistics paid an annual dividend of $2.20 last year and announced that all future dividends would be $2.25 a share indefinitely. If you are willing to pay $15.25 a share for this stock, what is your required rate of return? 14.75% Alpha Industries will pay $.35, $.50, and $.80 a share over the next three years, respectively. After then, the company has announced the annual dividend will be $1.25 a share forever. How much is this stock worth today at a discount rate of 13.45 percent? $7. The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the: risk premium The expected return on a portfolio is best described as average of the expected returns on the individual securities held in the portfolio. a weighted Risk that affects a large number of assets, each to a greater or lesser degree, is called risk. systematic The amount of systematic risk present in a particular risky asset, relative to the systematic risk present in an average risky asset, is called the particular asset's: beta coefficient
Capital market history indicates that a correct ordering of the average arithmetic mean return for asset classes, from lowest to highest, is: U.S. Treasury bills, government bonds, corporate bonds, large-company stocks. Eight months ago, you bought 400 shares of Winston stock at $46.40 a share. The firm pays a quarterly dividend of $1.05 a share. You just sold your stock for $48.30 a share. How much is your overall percent return on this investment? 8.62% Which of the following is an example of nondiversifiable risk? The highly respected chairperson of the Federal Reserve Bank resigns unexpectedly The market risk premium is calculated as: market rate of return minus the risk-free rate of return. You want to compile a $1,000 portfolio which will be invested in Stocks A and B plus a risk-free asset. Stock A has a beta of 1.2 and Stock B has a beta of.7. If you invest $ in Stock A and want a portfolio beta of.9, how much should you invest in Stock B? $771. Kali's Ski Resort, Inc. stock is quite cyclical. In a boom economy, the stock is expected to return 30 percent in comparison to 12 percent in a normal economy and a negative 20 percent in a recessionary period. The probability of a recession is 15 percent while there is a 30 percent chance of a boom economy. The remainder of the time, the economy will be at normal levels. What is the standard deviation of the returns? 15.83%
What is the cost of equity for a firm that has a beta of 1.2 if the risk-free rate of return is 2.9 percent and the expected market return is 11.4 percent? 13.1%
