FINA 320
If dividends on a common stock are expected to grow at a constant rate forever, and if you are told the most recent dividend paid, the dividend growth rate, and the appropriate discount rate today, you can calculate __________
1. The price of the stock today 2. The dividend that is expected to be paid 10 years from now 3. The expected stock price five years from now
Which of the following statements is true:
2. An increase in the dividend growth rate will increase a stocks market value, all else the same
The coupon rate of a bond equals:
A percentage of its face value
The restrictive covenant's of a bond indenture are intended to protect the interest of __________
Bondholders
The restrictive covenants of a bond indenture are intended to protect the interest of ___________
Bondholders
Which of the following is fixed (cannot change) for the life of a given bond
Coupon rate
Bond rating, ranging from AAA to C, measures a bond's ___________
Default risk
As illustrated using the dividend growth model, the total return on a share of common stock is comprised of a _____________
Dividend yield and a capital gains yield
The current yield of a bond can be calculated by:
Dividing the annual coupon payments by the price
Dividend model suggests that ___________ determine the value of a financial asset to which the owner is entitled while holding the asset
Future cashflows
Which of the following statements is NOT true?
If a stock has a required rate of return R= 12%, and it's Dividend grows at a constant rate of 5%, this implies that stocks dividend yield is 5%.
A bond sold five weeks ago for $1100. The bond is worth $1150 in today's market. Assuming no changes in risk, which of the following is true?
Interest rates must be lower now than they were five weeks ago
If a bond is priced at par value, then:
It's coupon rate equals its yield to maturity
Stock A and stock B have the same .... constant rate of 10%, and B 5%
None of the statements above are correct
Most US corporate and government bonds choose to make __________ coupon payments
Semi annual
Stocks are different from bonds because ____________
Stocks, unlike bonds, represent residual ownership
As the rating of a bond increases (for example from A, to AA, to AAA) it generally means that:
The default risk decreases and the required rate of return decreases
Which of the following statements regarding bond pricing is true?
The lower the yield to maturity, the more valuable the bond is
Value of a common stock does not directly depend on __________
The maturity date of common stock
If two constant growth stocks have the same required rate of return and the same price, which of the following statements is most correct?
The stock with the higher dividend yield will have a lower dividend growth rate
The discount rate that makes the present value of a bond's payment equal to its price is termed as:
Yield to maturity
A bond that makes no coupon payments (and dust is initially priced at a deep discount per value) is called a ________ bond
Zero coupon bond