fin test 3

Supernormal growth is a growth rate that:

is unsustainable over the long term.

The current yield is defined as the annual interest on a bond divided by the:

market value

A decrease in which of the following will increase the current value of a stock according to the dividend growth model?

Discount rate

What is the model called that determines the market value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?

Constant-growth model

Allison just received the semiannual payment of $35 on a bond she owns. Which term refers to this payment?

Coupon

Jason's Paints just issued 20-year, 7.25 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms?

Debenture

Bert owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. What is the $1,000 called?

Face value

You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change. Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur?

Long-term; zero coupon

Who can access Level 3 of NASDAQ's information?

NASDAQ market makers

Which one of the following statements is correct?

Stocks can have negative growth rates.

A $1,000 par value corporate bond that pays $60 annually in interest was issued last year. Which one of these would apply to this bond today if the current price of the bond is $996.20?

The current yield exceeds the coupon rate

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called?

Voting by proxy

Which one of these equations applies to a bond that currently has a market price that exceeds par value?

Yield to maturity < Coupon rate

All else constant, a bond will sell at ________ when the coupon rate is ________ the yield to maturity

a discount; less than

A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond?

callable

A discount bond's coupon rate is equal to the annual interest divided by the:

face value

Which one of the following represents the capital gains yield as used in the dividend growth model?

g

When using the two-stage dividend growth model:

g1 can be greater than R.

A newly issued bond has a coupon rate of 7 percent and semiannual interest payments. The bonds are currently priced at par. The effective annual rate provided by these bonds must be:

greater than 7 percent.

As a bond's time to maturity increases, the bond's sensitivity to interest rate risk:

increases as a decreasing rate

A bond's principal is repaid on the ________ date

maturity

National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm's stock is:

priced the same as a $1 perpetuity

The dividend growth model:

requires the growth rate to be less than the required return