Chris Whaley FI 302 Exam 2

Trials Inc. has issued 30-year $1,000 face value, 10% annual coupon bonds, with a yield to maturity of 9%. The annual interest payment for the bond is ______.

$100

Today Cody Copper Inc. will issue 20-year, zero-coupon bonds that are expected to have a yield to maturity of 3.6%. If you buy one bond today, how much will you owe in taxes after one year if your marginal tax rate is 35%.

$6.23

Sirius Cybernetics Corporation does not plan to issue a dividend for 18 years. On the 19th, the company plans issue a dividend of $2.70 and expects future dividends to grow by 1.9% each year thereafter., If you require a return of 8.9%, what is the maximum price you are willing to pay today for this stock?

$8.31

Which of the following provides the best description of common stock?

A claim on residual earnings after all other claim holders have been paid

Beta is ____

A shitty fraternity jk All of the above

Stocks differ from bonds because

All of the above

The measure of systematic risk is called _____

Beta

Let's say that you are looking to invest in two stocks A and B. Stock A has a beta of 1.64 and based on your best estimates is expected to have a return of 15%. Stock B has a beta of .64 and is expected to earn 19%. If the risk-free rate is currently 2% and the expected return on the market is 8%, which stock(s) should you invest in, if any?

Buy Stock A, Buy Stock B

______ means that the percentage increase in the dividend is the same each year.

Constant Growth

The ________ is the regular interest payment of the bond.

Coupon

When the _____ is less than the yield to maturity, the bond sells at a/the ______ the par value.

Coupon rate; discount to

The holder of preferred stock is entitled to a constant dividend ________

Every Period

As general interest rates rise, bond prices _____.

Fall

Which of the statements below is TRUE?

Investors want to maximize return and minimize risk

A beta of 1.0 is the beta of the _____, while a beta of 0.0 is the measure for ______

Market; risk-free security

Eight years ago North Central Positronics (NPC) issued twenty year 6.0% semi-annual coupon bonds each with a $1,000 face value. Since then, interest rates have generally fallen and the yield to maturity on the NPC bonds is now 4.5%. Give this information, what is the price today for a NPC bond?

N=24 I=3 PV=? FV=1000 PMT=0 PV=$1,138

Last year, the XYZ Corporation had issued 11.0% coupon (semi-annual) 30 year, AA-rated bonds with a face value of $1,000 to finance its business expansion. As of today, the market price of XYZ's bonds are $1,100. What is the current yield to maturity and how can the bonds be classified?

N=30 I= FV=1000 PV=1100 PMT=9.9%, so these are premium bonds

Dunder Mifflen just issued a 30-year annual bond with a par value of $1,000 and a coupon rate of 11.9%. The current yield-to-maturity is 9.0%. What is the intrinsic value of the bond and if the bond's current market price is $1,622, what should you do?

N=30 I=9 PV= PMT= FV=1000 1,622>1,298 1,298 so you buy the bond

Four years ago, Dinoco issued 15-year, 4.6% semi-annual coupon bonds that currently trade for $749. If each bond features a 6-year deferred call feature with a 2 coupon payment penalty in addition to face value ($1000), what is the yield-to-call?

N=4 I=3 PV=749 PMT=23 FV= 1000 (23.2) Yield-to-Call= 22.9%

Zero-Coupon Bonds are _______.

Priced at a deep discount

The ______ is the market of first sale in which companies first sell their authorized shares to the public

Primary Market

In ____, currents prices already reflect the price history and volume of the stock as well as all available public information.

Semi-strong form efficient markets

"Junk" Bonds are a street name for _____ grade bonds.

Speculative

_______ is risk that cannot be diversified away.

Systematic risk

A security with a beta of 0.7 indicates which of the following:

The security carries less risk than the market

which of the following investments is considered to be default risk-free?

Treasury Bills

In _____, current prices reflect the price history and trading volume of the stock. It is of no use to chart historical stock prices to predict future stock prices such that you can identify mispriced stocks and routinely outperform the market.

Weak-form efficient market

The appropriate rate to use to discount the cash flows of a bond in order to determine the current price is the _________.

Yield to maturity

The terms ______ and _____ mean the same thing.

diversifiable risk; unsystematic risk

A bond is a _____ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates in the future.

long-term debt