3010 practice exam2.F03.wpracprobs

3010 practice - CORPORATE FINANCE PRACTICE EXAM 2 Name Section Time:f3 Multiple Choice 1 Which of the following events would make it more likely

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CORPORATE FINANCE PRACTICE EXAM 2 Name: Section Time:f3 Multiple Choice 1. Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds? a. A reduction in market interest rates. b. The company's bonds are downgraded. c. An increase in the call premium. d. Answers a and b are correct. e. Answers a, b, and c are correct. 2. All of the following may serve to reduce the coupon rate that would otherwise be required on a bond issued at par, except a a. Sinking fund. b. Restrictive covenant. c. Call provision. d. Change in rating from Aa to Aaa. e. None of the above (all may reduce the required coupon rate). 3. Which of the following about sinking funds is most correct? a. Sinking fund provisions do not require companies to retire their debt; they only establish “targets” for the company to reduce its debt over time. b. Sinking fund provisions sometimes work to the detriment of bondholders – particularly if interest rates have declined over time. c. If interest rates have increased since the time a company issues bonds with a sinking fund provision, the company is more likely to retire the bonds by buying them back in the open market, as opposed to calling them in at the sinking fund call price. d. Statements a and b are correct. e. Statements b and c are correct. 4. A 10-year bond has a 10 percent annual coupon and a yield to maturity of 12 percent. The bond can be called in 5 years at a call price of $1,050 and the bond’s face value is $1,000. Which of the following statements is most correct? a. The bond’s current yield is greater than 10 percent. 1
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b. The bond’s yield to call is less than 12 percent. c. The bond is selling at a price below par. d. Both answers a and c are correct. e. None of the above answers is correct. 5. If the expected rate of return on a stock exceeds the required rate, a. The stock is experiencing supernormal growth. b. The stock should be sold. c. The company is probably not trying to maximize price per share. d. The stock is a good buy. e. Dividends are not being declared. 6. Which of the following statements regarding constant growth stock valuation is most correct? a. Assume that the required rate of return on a given stock is 12%. If the stock’s dividend is growing at a constant rate of 4%, its expected dividend yield is 4% as well. b. The expected capital gain yield on a stock is equal to the expected return less the dividend yield. c.
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This note was uploaded on 06/13/2010 for the course FINANCE FI515 taught by Professor Fi during the Spring '09 term at Keller Graduate School of Management.

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3010 practice - CORPORATE FINANCE PRACTICE EXAM 2 Name Section Time:f3 Multiple Choice 1 Which of the following events would make it more likely

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