Sample_Questions-chapter8-9 - Sample Questions Chapter 8...

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Sample Questions – Chapter 8 and chapter 9 1. A bond that makes no coupon payments and is initially priced at a deep discount is called a _____ bond. e a. Treasury b. municipal c. floating-rate d. junk e. zero coupon 2. An asset characterized by cash flows that increase at a constant rate forever is called a: a a. growing perpetuity. b. growing annuity. c. common annuity. d. perpetuity due. e. preferred stock. 3. A bond with a 7% coupon that pays interest semi-annually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each. d a. $1,007; $70 b. $1,070; $35 c. $1,070; $70 d. $1,000; $35 e. $1,000; $70 4. All else constant, a bond will sell at _____ when the yield to maturity is _____ the coupon rate. e a. a premium; higher than b. a premium; equal to c. at par; higher than d. at par; less than e. a discount; higher than 5. American Fortunes is preparing a bond offering with an 8% coupon rate. The bonds will be repaid in 10 years. The company plans to issue the bonds at par value and pay interest semiannually. Given this, which of the following statements are correct? e I. The initial selling price of each bond will be $1,000. II. After the bonds have been outstanding for 1 year, you should use 9 as the number of compounding periods when calculating the market value of the bond. III. Each interest payment per bond will be $40. IV. The yield to maturity when the bonds are first issued is 8%. a. I and II only b. II and III only c. II, III, and IV only d. I, II, and III only e. I, III, and IV only 6. The yield to maturity is: e a. the rate that equates the price of the bond with the discounted cash flows. b. the expected rate to be earned if held to maturity. 1
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c. the rate that is used to determine the market price of the bond. d. equal to the current yield for bonds priced at par. e. All of the above. 7. One basis point is equal to: a a. .01%. b. .10%. c. 1.0%. d. 10%. e. 100%. 8. The constant dividend growth model: d I. assumes that dividends increase at a constant rate forever. II. can be used to compute a stock price at any point of time. III. states that the market price of a stock is only affected by the amount of the dividend. IV.
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This note was uploaded on 03/18/2011 for the course FIN 615 taught by Professor Yan during the Spring '11 term at New York Institute of Technology-Westbury.

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Sample_Questions-chapter8-9 - Sample Questions Chapter 8...

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