PracticeExam2 - Business Finance 620 Practice Exam 2 _ 1....

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1 Business Finance 620 Practice Exam 2 ____ 1. If the market yield on comparable debt is 5.405%, how much should an investor expect to pay for an A-rated corporate bond with a 6.145% annual coupon, nine years to maturity and a $1,000 par value? A. $1,000 B. $984 C. $1,016 D. $1,052 ____ 2. Which of the following statements concerning CAPM is correct? A. According to the CAPM, the expected return on a security is proportional to the security’s market value. B. The Security Market Line provides a standard for determining how much return an investor should expect for shouldering a security’s systematic risk. C. According to the CAPM, the expected return on a security is proportional to the market risk premium. D. Securities that plot below the Security Market Line are more attractive from the standpoint of risk and return than those that plot above the line. ____ 3. An investor buys a six-year A-rated corporate bond when its current yield exceeds its coupon rate, and sells it three years later, when its coupon rate equals its current yield. Which of the following statements concerning this transaction is correct? A. The investor sold the bond at par. B. The investor bought the bond at a premium to par. C. The investor realized a capital loss on the bond sale. D. The investor sold the bond at a discount to par. ____ 4. Stocks that have the same expected risk should have: A. the same annual dividend payment. B. the same market price. C. the same expected return. D. the same sustainable growth rate. ____ 5. Branson Manufacturing plans to pay the following dividends: > $2.35 one year from today > $2.90 two years from today > $3.40 three years from today After the third year, the board has committed the company to long-term annual dividend growth of 5%. Investors seek a 13% return on the stock. How much should you be willing to pay for a share of Branson stock today? A. $28.93 B. $25.26 C. $30.93 D. $37.64
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Business Finance 620 Practice Exam 2 2 ____ 6. Which of the following statements describes the basic principle behind the CAPM? A. A stock's unique risk should be proportional to its market risk.
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This note was uploaded on 03/10/2012 for the course BUS-FIN 620 taught by Professor Busfin620 during the Spring '12 term at Ohio State.

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PracticeExam2 - Business Finance 620 Practice Exam 2 _ 1....

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