Bonds

1  The yield to maturity on a bond

Ais fixed in the indenture

Bis lower for higher risk bonds

Cis the required rate of return for bonds

Dis generally equal to the coupon interest rate

ENone of the options specified here

2A $1,000 par value 10-year bond with a 10 percent coupon rate recently sold for $900 The yield to maturity is:

A10 percent

Bgreater than 10 percent

Cless than 10 percent

Dcannot be determined

ENone of the options specified here

3The interest on corporate bonds in the United States is typically paid:

Asemiannaully

Bannually

Cquarterly

Dmonthly

ENone of the options specified here

4What is the current yield of a 9 year bond issued by Sarah Goldberg, Inc that pays a coupon rate of 20%per year, has a $1,000 par value, and is currently priced at $1,407? Round youranswer to the nearest whole percent and assume annual coupon paymen

A5%

B14%

C12%

D11%

ENone of the options specified here

5Benjamin Corp bonds pays an annual coupon rate of 10% on a face value of $1,000 If investors’ requiredrate of return is now 8% on these bonds, they will be priced at:

Apar value, which means market price equals face value

Ba premium over par value, which means market price will be higher than face value

Ca discount to par value, which means market price will be less than face value

Dcan be at a premium or disount from face value

ENone of the options specified here

6Stormy, Inc has issued a 12% coupon bond that is to mature in 9 years The bond had a$1,000 par value and interest is due to be paid semi-annually If your required rate of return is 10%, what price would you be willing to pay for the bond?

I$1000

II$1,11518

III$89344

IV1,11690

VNone of the options specified here

7Calculate the value of a bond issued by Tamika, Inc that is expected to mature in 13 years with a $1,000 face value The interest coupon rate is 8%, and the required rate of return is 10% Interest is paid annually

A$1,000

B$1,15808

C$85794

D$87711

ENone of the options specified here

8Victoria, Inc just issued $1,000 par 20-year bonds The bonds sold for $936 and pay interest annually Current yield on the bond is 15% What is the amount of the annual interest payment on the bonds?

A$14040

B$150

C$100

Dcannot be determined

ENone of the options specified here

9If market interest rates ______, bond prices _________

I increase; increase

II increase; decline

III decline; decline

IV decline; increase

AI and II only

BI and III only

CII and III only

DII and IV only

ENone of the options specified here

10A bond will sell at a discount (below par value) if:

Aif the required rate of return is less than the coupon rate of the bond

Bif the coupon rate of the bond is more than the required rate of return of the bond

Crequired rate of return equals coupon rate of the bond

Drequired rate of return is higher than the coupon rate of the bond

ENone of the options specified here

11Victoria Corp preferred stock pays $315 What is the value of the stock if your required rate of return is 85% (round your answer to the nearest $1, andassume no transaction costs)

A$33

B$23

C$27

D$37

ENone of the options specified here

12Preferred stock is similar to a bond in the following way:

Apreferred stock always contains a maturity date

Bboth investments provide a fixed income

Cboth contain a growth factor similar to common stock

Dboth of them are creditorship securities

ENone of the options specified here

13Cumulative preferred stock:

Arequires dividends in arrears to be carried over into the next period

B has a right to vote cumulatively

C has a claim to dividends after common stock

Dgenerally has the right to vote

ENone of the options specified here

14Hamidou, Inc expects its dividends to grow at a constant rate of 6% per year forever The company paid a dividend of $4 per share last year If stockholders require a rate of return of 12% per year, how much is the value of a share of common stock today?

A$3333

B$40

C$6667

D$7067

ENone of the options specified here

15Lei, Inc anticipates to pay a dividend of $2 per share next year Dividends are expected to grow at the constant rate of 5% per year forever If common stockholders require a rate of return of 15%, what should be the value common stock of Lei?

A$40

B$20

C$1333

D$25

ENone of the options specified here

Solution: