1. When you refer to a bond's coupon, you are referring to which one of the following?
A. Difference between the purchase price and the face value
B. Annual interest divided by the current bond price
C. Difference between the bid and ask price
D. Annual interest payment
E. Principal amount of the bond
2. What is the principal amount of a bond that is repaid at the end of the loan term called?
3. Which one of the following terms refers to a bond's rate of return that is required by the market place?
A. Coupon rate
B. Yield to maturity
C. Dirty yield
D. Call yield
E. Discount rate
4. A call provision grants the bond issuer the:
A. right to contact each bondholder to determine if he or she would like to extend the term of his or her bonds.
B. option to exchange the bonds for equity securities.
C. right to automatically extend the bond's maturity date.
D. right to repurchase the bonds on the open market prior to maturity.
E. option of repurchasing the bonds prior to maturity at a pre-specified price.
5. Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected?
A. Interest rate risk premium
B. Inflation premium
C. Liquidity premium
D. Taxability premium
E. Default risk premium
6. The term structure of interest rates is affected by which of the following?
I. interest rate risk premium
II. real rate of interest
III. default risk premium
IV. inflation premium
7. A $1,000 face value bond is currently quoted at 101.2. The bond pays semiannual payments of $27.50 each and matures in 6 years. What is the coupon rate?
8. Best Lodging has $1,000 face value bonds outstanding. These bonds pay interest semiannually, mature in 5 years, and have a 6 percent coupon. The current price is quoted at 101. What is the yield to maturity?
9. Last year, you earned a rate of return of 11.29 percent on your bond investments. During that time, the inflation rate was 4.6 percent. What was your real rate of return?
10. 10. When a bond's yield to maturity is less than the bond's coupon rate, the bond:
A. had to be recently issued.
B. is selling at a premium.
C. has reached its maturity date.
D. is priced at par.
E. is selling at a discount
11. What is the name given to the model that computes the present value of a stock by dividing next year's annual dividend amount by the difference between the discount rate and the rate of change in the annual dividend amount?
12. . The price of a stock at year 4 can be expressed as:
A. D0 / (R + G4).
B. D0 ? (1 + R)5.
C. D1 ? (1 + R)5.
D. D4/(R-g).
E. D5/(R-g).
13. The dividend growth model can be used to value the stock of firms which pay which type of dividends?
14. Kate owns a stock with a market price of $31 per share. This stock pays a constant annual dividend of $0.60 per share. If the price of the stock suddenly increases to $36 a share, you would expect the:
I. dividend yield to increase.
II. dividend yield to decrease.
III. capital gains yield to increase.
IV. capital gains yield to decrease
15. The Pancake House pays a constant annual dividend of $1.25 per share. How much are you willing to pay for one share if you require a 15 percent rate of return?
16. Delphin's Marina is expected to pay an annual dividend of $0.58 next year. The stock is selling for $8.53 a share and has a total return of 12 percent. What is the dividend growth rate?
17. Delfino's expects to pay an annual dividend of $1.50 per share next year. What is the anticipated dividend for year 5 if the firm increases its dividend by 2 percent annually?
18. 20. Which one of the following will increase the current value of a stock?
A. Decrease in the dividend growth rate
B. Increase in the required return
C. Increase in the market rate of return
D. Decrease in the expected dividend for next year
E. Increase in the capital gains yield