FIN350 Quiz 2 Friday
First Name___________ Last Name __________ Version A
YTM=CGY+CY
EVA = NOPAT – (After tax cost of capital) (Capital)
1. Both interest and dividends paid
by a corporation are deductible operating expenses, hence
they both decrease the firm's taxes. True or false?
a.True
b. False
2. In corporate finance, ______
_is a measure of a company's financial performance by
deducting (after tax) cost of capital from its NOPAT(net operating profit after tax).
A)
MVA
B)
earning value added
C)
economic value added
D)
most valued asset
3. Assume that the market interest rate does not change, which of the following is correct
regarding a bond’s price if the bond is zerocoupon bond? The bond price will___
.
(Hint: Is the price of a zerocoupon bond below par or above par?)
A) decline over time, reaching par value at maturity.
B)
increase over time, reaching par value at maturity.
C) be less than the face value at maturity.
D) double the face value at maturity.
4. How much would an investor expect to pay for a $1,000 par value bond with a 5% annual
coupon that matures in 5 years if the interest rate is 8%?
A)
$844.41
B)
$961.10
C)
$1,082.00
D)
$1,129.88
E)
$880.22
5. What is the current yield of a bond with a 6% coupon, 7 year’s maturity, and a price of $980?
A)
7.14%
B)
6.12%
C) 6%
D) 5%
E)
5.05%
6. If the Treasury yield curve is downward sloping, what is the yield to maturity on a 13year
Treasury bond, relative to that on a 2year Treasury note?
a.
The yields on the two bonds are equal.
b.
The yield on a 13year Treasury bond will always be higher than the yield on a 2
year Treasury note.
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It is impossible to tell without knowing the coupon rates of the bonds.
d.
The yield on the 13 year Treasury bond is less than the yield on a 2year
Treasury note.
e.
It is impossible to tell without knowing the relative default risks of the
two Treasury bonds.
7. What is the value of a 10year, 12% semiannual
coupon bond, if
nominal annual discount rate r
d
= 10%? (12% coupon rate is based on
annual coupon payments. Bond face value is $1000.)
a.
$1034.72
b.
$843.27
c.
$1271.81
d.
$1122.89
e.
$1124.62
8. In a liquidation process, priority of claims should be paid in the following order:
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 Spring '07
 Chen
 Finance, Cost Of Capital, Interest

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