FIN 311 - Practice Exam 2

There is __________ relation between interest rates and bond prices.

Which of the following relationships hold for premium bonds?

For a given change in a bond’s YTM, the __________ the term to maturity of the bond, the greater the magnitude of the change in the bond’s price.

Suppose you buy a 10 percent coupon, 20-year bond making annual coupon payments today when it’s first issued. If interest rates suddenly rise to 12 percent, what happens to the value of your bond? What’s the price of the bond now?

Suppose an Austrian company issues a bond with a par value of €1,000, 25 years to maturity, and a coupon rate of 6.4 percent paid annually. If the bond sells for 94.56 percent of its par value, the yield to maturity of this bond is closest to

The semiannual coupon, 12-year bonds of SWR Corp are selling at par and have an effective annual yield of 12.9336 percent. What is the amount of each interest payment if the face value of the bonds is $1,000?

Which of the following is not a determinant of bond yields

Suppose stock is expected to pay a $1.50 dividend every quarter and the required return is 10% per year, compounded quarterly. What is the price of the stock?

The Jackson–Timberlake Wardrobe Co. Will pay a dividend of $1.90 per share on its stock next year. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. Investors require a return of 11 percent on the company's stock. The stock valuation of Jackson–Timberlake Wardrobe Co. Is similar to the valuation of:

The Jackson–Timberlake Wardrobe Co. Will pay a dividend of $1.90 per share on its stock next year. The dividends are expected to grow at a constant rate of 5 percent per year indefinitely. Investors require a return of 11 percent on the company's stock. What will the stock price of Jackson–Timberlake Wardrobe Co. Be in five years (i.e., find out P5)?

Suppose a firm’s stock is selling for $10.50. It just paid a $1 dividend, and dividends are expected to grow at a constant rate of 5% per year. What is the dividend yield?

Which of the following considers decisions about a firm’s investments?

The internal rate of return (IRR) is

For mutually exclusive investments, the best decision rule is

Suppose an investment will cost $50,000 initially and will generate the following Cash flows: Year 1: 70,000; Year 2: 50,000; Year 3: -70,000. If the required rate is 11%, you should:

You are considering investing in Acme, Inc. Suppose, Acme is currently undergoing expansion and is not expected to pay any dividends in the next 5 years. After that it will start paying dividends. The first dividend will be $1 at the end of year 6 and you expect it to grow at 8 percent for the following 6 years. After that, dividends will grow at a constant rate of 0.5 percent forever. If the required return for Acme’s common stock is 16 percent, what is a share worth today?

Consider a 30-year bond that pays coupons annually at 7%, except in years 5, 10, 15, 20, 25, and 30 (i.e., no coupon payments in those years). If the appropriate discount rate is 9% per year, what is the price of the bond?