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Unformatted text preview: ch5 Student: _______________________________________________________________________________________ Multiple Choice Questions 1. A bond that makes no coupon payments and is initially priced at a deep discount is called a _____ bond. 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. growing perpetuity. B. growing annuity. C. common annuity. D. perpetuity due. E. preferred stock. 3. The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model. A. zero growth B. dividend growth C. capital pricing D. earnings capitalization E. differential growth 4. Next year's annual dividend divided by the current stock price is called the: A. yield to maturity. B. total yield. C. dividend yield. D. capital gains yield. E. earnings yield. 5. The rate at which a stock's price is expected to appreciate (or depreciate) is called the _____ yield. A. current B. total C. dividend D. capital gains E. earnings 6. A form of equity which receives no preferential treatment in either the payment of dividends or in bankruptcy distributions is called _____ stock. A. dual class B. cumulative C. deferred D. preferred E. common 7. Payments made by a corporation to its shareholders, in the form of either cash, stock or payments in kind, are called: A. retained earnings. B. net income. C. dividends. D. redistributions. E. infused equity. 8. 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. A. $1,007; $70 B. $1,070; $35 C. $1,070; $70 D. $1,000; $35 E. $1,000; $70 9. All else constant, a bond will sell at _____ when the yield to maturity is _____ the coupon rate. 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 10. All else constant, a coupon bond that is selling at a premium, must have: A. a coupon rate that is equal to the yield to maturity. B. a market price that is less than par value. C. semi-annual interest payments. D. a yield to maturity that is less than the coupon rate. E. a coupon rate that is less than the yield to maturity. 11. The market price of a bond is equal to the present value of the: A. face value minus the present value of the annuity payments. B. annuity payments plus the future value of the face amount. C. face value plus the present value of the annuity payments. D. face value plus the future value of the annuity payments. E. annuity payments minus the face value of the bond. 12. 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?...
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This note was uploaded on 12/21/2011 for the course NIKA 101 taught by Professor Temur during the Spring '11 term at Acton School of Business.

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ch5 - ch5 Student:

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