QUESTION 1
1. In
the U.S. the principal value of a bond is most commonly:
A. $100.
B. $1,000.
C. $500.
D. $10,000.
E. $5,000.
1 points
QUESTION 2
1. A
bond with a face value of $1,000 that sells for $1,000 in the market is called
a _____ bond.
A. zero
coupon
B. par
value
C. floating
rate
D. discount
E. premium
1 points
QUESTION 3
1. 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.
A. $1,000;
$30
B. $1,060;
$30
C. $1,060;
$60
D. $1,006;
$60
E. $1,000;
$60
2 points
QUESTION 4
1. The
market price of a bond increases when the:
A. coupon
rate decreases.
B. discount
rate decreases.
C. face
value decreases.
D. par
value decreases.
E. coupon
is paid annually rather than semiannually.
1 points
QUESTION 5
1. The
rate of return required by investors in the market for owning a bond is called
the:
A. coupon.
B. face
value.
C. maturity.
D. coupon
rate.
E. yield
to maturity.
1 points
QUESTION 6
1. A
bond is listed in a newspaper at a bid of 105.4844. This quote should be
interpreted to mean:
A. you
can sell that bond at a price equal to 105.4844 percent of face value.
B. you
can buy that bond at a price equal to 105.4844 percent of face value.
C. the
bond will pay annual interest payments of $105.4844 per $1,000 of face value.
D. the
bond will pay semiannual interest payments of $105.4844 per $1,000 of face
value.
E. the
bond dealer is willing to sell that bond for a price equal to 105.4844 percent
of par.
1 points
QUESTION 7
1. Bonds
that grant the issuer the right to extinguish the debt prior to maturity are
referred to as which type of bond?
A. callable
bond
B. covenant
bond
C. subordinated
bond
D. put
bond
E. debenture
1 points
QUESTION 8
1. Chocolate
and More offers a bond with a coupon rate of 6 percent, semiannual payments,
and a yield to maturity of 7.73 percent. The bonds mature in 9 years. What is
the market price of a $1,000 face value bond?
A. $889.29
B. $901.86
C. $963.88
D. $924.26
E. $1,008.16
2 points
QUESTION 9
1. Consider
a bond with a coupon rate of 8 percent that pays semiannual interest and
matures in eight years. The market rate of return on bonds of this risk is
currently 11 percent. What is the current value of a $1,000 face value bond?
A. $929.17
B. $843.07
C. $893.30
D. $830.58
E. $854.08
1 points
QUESTION 10
1. A
12-year, 5 percent coupon bond pays interest annually. The bond has a face
value of $1,000. What is the percentage change in the price of this bond if the
market yield rises to 6 percent from the current level of 5.5 percent?
A. 4.45%
B. -2.38%
C. 1.13%
D. -4.26%
E. -5.28%
2 points
QUESTION 11
1. A
bond has a coupon rate of 8.2 percent, a $1,000 par value, matures in 11.5
years, has a yield to maturity of 7.67 percent, and pays interest annually.
What is the current yield?
A. 8.21%
B. 8.52%
C. 7.89%
D. 8.43%
E. 7.67%
1 points
QUESTION 12
1. A
grant of authority allowing someone else to vote shares of stock that you own
is called:
A. a
general right of execution.
B. a
restricted conveyance.
C. a
share authority grant (SAG).
D. a
proxy.
E. a
power of attorney.
1 points
QUESTION 13
1. The
underlying assumption of the dividend growth model is that a stock is worth:
A. the
present value of the future income that the stock is expected to generate.
B. the
same amount as any other stock that pays the same current dividend and has the
same required rate of return.
C. an
amount computed as the next annual dividend divided by the market rate of
return.
D. an
amount computed as the next annual dividend divided by the required rate of
return.
E. the
same amount to every investor regardless of their desired rate of return.
2 points
QUESTION 14
1. You
have decided to purchase shares of GHC but need an expected 12 percent rate of
return to compensate for the perceived risk of such ownership. What is the
maximum price you should pay per share if the company pays a constant $2.70
annual dividend per share?
A. $32.67
B. $23.04
C. $21.59
D. $22.50
E. $34.29
1 points
QUESTION 15
1. A
stock had a total return of 9.62 percent last year. The dividend amount was
$0.70 a share which equated to a dividend yield of 2.39 percent. Assuming that
the stock increases its dividend by a constant percent per year, what is the
dividend growth rate?
A. 7.06%
B. 7.23%
C. 2.48%
D. 5.48%
E. 4.03%
1 points
QUESTION 16
1. ABC
owns 15 percent of XYZ Corporation. What tax benefit does ABC derive from this
situation?
A. Seventy
percent of the dividends paid by XYZ to ABC is exempt from income taxes.
B. ABC
can exclude 30 percent of any XYZ dividends received from its taxable income.
C. ABC
receives no tax benefit but XYZ is only taxed on 30 percent of its net income.
D. ABC
benefits because it is able to treat any XYZ dividends it receives as interest
income.
E. All
dividend income ABC receives from XYZ is tax-exempt.
1 points
QUESTION 17
1. All
else constant, a bond will sell at _____ when the yield to maturity is _____
the coupon rate.
A. a
premium; greater than
B. at
par; greater than
C. a
premium; equal to
D. a
discount; greater than
E. at
par; less than
2 points
QUESTION 18
1. Aspens
is preparing a bond offering with a coupon rate of 5.5 percent. The bonds will
be repaid in 10 years. The company plans to issue the bonds at par value and
pay interest semiannually. Which one of the following statements is correct?
A. The
bonds will pay 19 interest payments and one principal payment.
B. The
bonds will pay ten equal coupon payments.
C. At
maturity, the bonds will pay a final payment of $1,055.
D. The
bonds will initially sell at a discount.
E. At
issuance, the bond’s yield to maturity is 5.5 percent.
1 points
QUESTION 19
1. Different
classes of stock usually are issued to:
A. extract
perquisites from one class of shareholders without the other class of
shareholders knowing.
B. distinguish
the time periods in which the various shares were issued.
C. fool
investors.
D. reduce
the firm’s dividend obligation.
E. allow
a certain group to maintain ownership control while reducing that group’s
equity position.
1 points
QUESTION 20
1. Martin’s
Yachts is expected to pay annual dividends of $1.40, $1.75, and $2.00 a share
over the next three years, respectively. After that, the dividend is expected
to remain constant at $2.00 per share indefinitely. What is the current value
per share at a discount rate of 14 percent?
A. $13.08
B. $12.22
C. $12.82
D. $13.57
E. $13.39
1 points
QUESTION 21
1. Mason’s
has a 5-year, 8 percent annual coupon bond with a $1,000 par value. Dixon’s has
a 10-year, 8 percent annual coupon bond with a $1,000 par value. Both bonds
currently have a yield to maturity of 8 percent. Which one of the following
statements is correct if the market rate decreases to 7 percent?
A. Mason’s
bond will increase in value by 4.10 percent and Dixon’s bond will increase in
value by 7.02 percent.
B. Mason’s
bond will decrease in value by 4.10 percent and Dixon’s bond will decrease in
value by 7.02 percent.
C. Both
bonds will increase in value by 4.10 percent.
D. Mason’s
bond will increase in value by 7.02 percent and Dixon’s bond will increase in
value by 4.10 percent.
E. Dixon’s
bond will increase in value by 6.87 percent.
2 points
QUESTION 22
1. New
Corp. last paid a $1.50 per share annual dividend. The company is planning on
paying $1.62, $1.68, $1.75, and $1.80 a share over the next four years,
respectively. After that the dividend will be a constant $2.25 per share per
year. What is the market price of this stock if the market rate of return is 15
percent?
A. $15.00
B. $9.09
C. $12.48
D. $13.33
E. $13.44
2 points
QUESTION 23
1. 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?
A. 4.47%
B. 8.93%
C. 8.45%
D. 9.16%
E. 8.67%
2 points
QUESTION 24
1. Rosina
purchased a 15-year bond at par value when it was initially issued. The bond
has a coupon rate of 7 percent and matures 13 years from now. If the current
market rate for this type and quality of bond is 7.5 percent, then Rosina
should expect:
A. the
bond issuer to increase the amount of all future interest payments.
B. the
yield to maturity to remain constant due to the fixed coupon rate.
C. to
realize a capital loss if she sold the bond at today’s market price.
D. today’s
market price to exceed the face value of the bond.
E. the
current yield today to be less than 7 percent.
1 points
QUESTION 25
1. Rosita’s
announced that its next annual dividend will be $1.65 a share and all future
dividends will increase by 2.5 percent annually. What is the maximum amount you
should pay to purchase a share of this stock if you require a 12 percent rate
of return?
A. $16.94
B. $13.75
C. $15.46
D. $17.37
E. $17.80
1 points
QUESTION 26
1. S&P
Enterprises will pay an annual dividend of $2.08 a share on its common stock
next year. Last week, the company paid a dividend of $2.00 a share. The company
adheres to a constant rate of growth dividend policy. What will one share of
S&P common stock be worth ten years from now if the applicable discount
rate is 8 percent?
A. $83.25
B. $71.16
C. $76.97
D. $74.01
E. $80.05
1 points
QUESTION 27
1. The
Lo Sun Corporation offers a bond with a current market price of $1,029.75, a
coupon rate of 8 percent, and a yield to maturity of 7.52 percent. The face
value is $1,000. Interest is paid semiannually. How many years is it until this
bond matures?
A. 17
years
B. 8.0
years
C. 9.0
years
D. 16
years
E. 8.5
years
2 points
QUESTION 28
1. The
Merriweather Co. just announced that it will pay a dividend next year of $1.60.
The company will then increase its dividend by 10 percent per year for two
years after which it will maintain a constant 2 percent dividend growth rate.
What is one share worth today at a required rate of return of 14 percent?
A. $15.17
B. $23.14
C. $24.79
D. $16.46
E. $23.95
2 points
QUESTION 29
1. 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.
A. inflation
B. interest
rate risk
C. taxability
D. liquidity
E. default
risk
1 points
QUESTION 30
1. The
bonds issued by Manson & Son bear a coupon of 6 percent, payable
semiannually. The bond matures in 15 years and has a $1,000 face value.
Currently, the bond sells at par. What is the yield to maturity?
A. 6.17%
B. 6.00%
C. 6.09%
D. 5.87%
E. 5.97%
1 points
QUESTION 31
1. Upland
Motors recently paid a $1.48 per share annual dividend. Dividends are expected
to increase by 2.5 percent annually. What is one share of this stock worth
today if the appropriate discount rate is 14 percent?
A. $12.25
B. $13.19
C. $14.16
D. $12.87
E. $13.04
1 points
QUESTION 32
1. Westover’s
has an outstanding bond with a coupon rate of 5.5 percent that matures in 12
years. The bond pays interest semiannually. What is the market price of a
$1,000 face value bond if the yield to maturity is 7.13 percent?
A. $870.01
B. $905.92
C. $934.59
D. $880.86
E. $947.87
1 points
QUESTION 33
1. When
shareholders are granted preemptive rights, they obtain the right:
A. to
resell their shares to the issuer at any time at a predetermined price.
B. of
first refusal for their proportionate percentage of new shares offered.
C. to
elect members to the board of directors.
D. to
receive dividends prior to any preferred shareholders.
E. to
share proportionally in regular and liquidating dividends.
1 points
QUESTION 34
1. Which
one of the following statements about preferred stock is true?
A. If
preferred dividends are cumulative, then preferred dividends not paid in a
particular year will be carried forward to the next year.
B. Preferred
stock usually has no stated liquidating value.
C. Unlike
dividends paid on common stock, dividends paid on preferred stock are a
tax-deductible expense.
D. Dividends
on preferred stock payable during the next twelve months are considered to be a
corporate liability.
E. There
is no significant difference in the voting rights granted to preferred and
common shareholders.
2 points
QUESTION 35
1. Assume
that all interest rates in the economy decline from 10% to 9%. Which of the
following bonds would have the largest percentage increase in price?
A. A
1-year bond with a 15% coupon.
B. A
10-year zero coupon bond.
C. A
10-year bond with a 10% coupon.
D. An
8-year bond with a 9% coupon.
E. A
3-year bond with a 10% coupon.
1 points
QUESTION 36
1. Jerome
Corporation’s bonds have 15 years to maturity, an 8.75% coupon paid
semiannually, and a $1,000 par value. The bond has a 6.50% yield to maturity,
but it can be called in 6 years at a price of $1,050. What is the bond’s yield
to call?
A. 5.54%
B. 5.27%
C. 5.01%
D. 5.81%
E. 6.10%
2 points
QUESTION 37
1. Currently,
Bruner Inc.’s bonds sell for $1,250. They pay a $120 annual coupon, have a
15-year maturity, and a $1,000 par value, but they can be called in 5 years at
$1,050. Assume that no costs other than the call premium would be incurred to
call and refund the bonds, and also assume that the yield curve is horizontal,
that is, rates are expected to remain at current levels on into the future.
What is the difference (in percentage points) between this bond’s yield to
maturity and its yield to call?
A. 2.80
B. 2.55
C. 3.09
D. 2.32
E. 2.11
