1. Assume that Brady Corp. has an issue of 18-year $1,000 par value bonds that pay 7% interest, annually. Further assume that today's required rate of return on these bonds is 5%. How much would these bonds sell for today? Round off to the nearest $1. (Points : 1)
2. What is the value of a bond that matures in 17 years, makes an annual coupon payment of $50, and has a par value of $1,000? Assume a required rate of return of 6%. (Points : 1)
3. What is the value of a preferred stock that pays a $4.50 dividend to an investor with a required rate of return of 10%? (Points : 1)
4. Investment A has an expected return of 15% per year, while investment B has an expected return of 12% per year. A rational investor will choose (Points : 1)
investment A because of the higher expected return.
investment B because a lower return means lower risk.
investment A if A and B are of equal risk.
investment A only if the standard deviation of returns for A is higher than the standard deviation of returns for B.
5. Department 65 has an issue of preferred stock that pays a dividend of $4.00. The preferred stockholders require a rate of return on this stock of 9%. At what price should the preferred stock sell for? Round off to the nearest $0.10. (Points : 1)
6. You determine that XYZ common stock has an expected return of 24%. XYZ has a Beta of 1.5. The risk-free rate is 5%, and the market expected return is 15%. Which of the following is most likely to happen? (Points : 1)
You and other investors will buy up XYZ stock and its price will rise.
You and other investors will sell XYZ stock and its return will fall.
You and other investors will buy up XYZ stock and its return will rise.
You and other investors will sell XYZ stock and its price will fall.
7. If you invest $750 every six months at 8 percent compounded semi-annually, how much would you accumulate at the end of 10 years? (Points : 1)
8. Stanley Corp. common stock has a required return of 17.5% and a beta of 1.75. If the expected risk free return is 3%, what is the expected return for the market based on the CAPM? (Points : 1)
9. How is preferred stock similar to bonds? (Points : 1)
Dividend payments to preferred shareholders (much like bond interest payments to bondholders) are tax deductible.
Investors can sue the firm if preferred dividend payments are not paid (much like bondholders can sue for non-payment of interest payments).
Preferred stockholders receive a dividend payment (much like interest payments to bondholders) that is usually fixed.
Preferred stock is not like bonds in any way.
10. A corporate bond has a coupon rate of 12%, a yield to maturity of 10.55%, a face value of $1,000, and a market price of $850. Therefore, the annual interest payment is (Points : 1)