Quiz 3

Slow Growth Company just paid an annual dividend of $1.65 a share. The firm expects to pay dividends forever and to increase the dividend by 3 percent annually. What is the expected value of this stock five years from now if the discount rate is 14%? $19.88 $17.91 $17.23 $18.25

$17.91

Great American Coal company just announced that it will pay an annual dividend of $3.60 a share one year from now. Two years from now, the company expects to pay a $28 a share liquidating dividend. After that, the company will cease operations. What is the current value per share at a discount rate of 12.5%? $24.28 $29.88 $25.32 $26.75

$25.32

An 8.5% coupon bond pays interest semiannually and has 11.5 years to maturity. The bond has a face value of $1,000 and a market value of $878.50. What is the yield to maturity? 8.78% 10.33% 6.75% 11.5%

10.33%

The price of a bond decreased by 1.45% in response to an increase in the yield to maturity from 7.2% to 7.6%. What is the bond's duration? 3.76 3.41 5.75 4.62

3.76

Which of the following indicates that a firm has good-quality earnings? Increasing P/BV ratio Increasing P/FCF ratio FCF is greater than EPS Increasing P/E ratio

FCF is greater than EPS

Which of the following will increase if the coupon rate for a bond increases? I. face value II. market value III. yield-to-maturity IV. current yield II and IV only II, III, and IV only II only I and IV only

II, III, and IV only

How will the price of a stock be affected if the dividend growth rate increases? No change Not information given to determine the answer Decrease Increase

Increase

You want to know the value of a firm's equity value in relation to the cost of that equity, which one of the following ratios will provide you with this information? P/E P/BV P/FCF P/S

P/BV

Given that two bonds have the same maturity, yield to maturity and different coupon rate, which of the following is true? The lower coupon bond will be sold for premium. The high coupon bond will have higher interest rate risk. The low coupon rate bond will have higher interest rate risk. The high coupon bond will be sold for premium.

The low coupon rate bond will have higher interest rate risk.

Which of the following is true concerning duration as YTM increases? decreases at a diminishing rate decreases at an increasing rate increases at an increasing rate increases at a diminishing rate

decreases at a diminishing rate