Fin 300 test two

For the implicit interest what three steps must you take to get to the answer?

1.Find r using tvm 2. use bond value equation given 3. subtract price - just sold for price

YGTB, Inc., currently has an EPS of $1.40 and an earnings growth rate of 7 percent. If the benchmark PE ratio is 31, what is the target share price five years from now?

60.87 . $1.40(1 + .07)5, P5 = Benchmark PE ratio × EPS5 P5 = 31($1.96) P5 = $60.87

An agent who arranges a transaction between a buyer and a seller of equity securities is called a: Broker. Floor trader. Capitalist. Principal. Dealer.

Broker

A floor broker on the NYSE does which one of the following? A. Supervises the commission brokers of a specific financial firm. B. Trades for his or her personal inventory. C. Executes orders on behalf of a commission broker. D. Maintains an inventory and assumes the role of a market maker. E. Is charged with maintaining a liquid, orderly market.

C. Executes orders on behalf of a commission broker.

A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market? A. Auction. B. Private. C. Over-the-counter. D. Regional. E. Insider.

C. Over-the-counter.

A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a: A. Floor trader. B. Floor post. C. designated market maker. D. Floor broker. E. Commission broker.

C. designated market maker.

A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a(n): A. Floor trader. B. Dealer. C.Specialist. D. Executor. E. Commission broker.

Commission broker.

Which one of the following rights is never directly granted to all shareholders of a publicly held corporation? A. Electing the board of directors. B. Receiving a distribution of company profits. C. Voting either for or against a proposed merger or acquisition. D. Determining the amount of the dividend to be paid per share. E. Having first chance to purchase any new equity shares that may be offered.

D. Determining the amount of the dividend to be paid per share.

The secondary market is best defined by which one of the following? A. Market in which subordinated shares are issued and resold. B. Market conducted solely by brokers. C. Market dominated by dealers. D. Market where outstanding shares of stock are resold. E. Market where warrants are offered and sold.

D. Market where outstanding shares of stock are resold.

The bond market requires a return of 9.8 percent on the five-year bonds issued by JW Industries. The 9.8 percent is referred to as which one of the following? a)Coupon rate. b)Face rate. c)Call rate. d)Yield to maturity. e)Current yield.

D. Yield to Maturity

Which one of the following represents the capital gains yield as used in the dividend growth model? A. D1 B. D1 / P0 C. P0 D. g E. g / P0

D. g

dividend yield equation for stoke

D1/ Po

An agent who maintains an inventory from which he or she buys and sells securities is called a: Broker. Trader. Capitalist. Principal. Dealer.

Dealer

The next dividend payment by Halestorm, Inc., will be $1.64 per share. The dividends are anticipated to maintain a growth rate of 8 percent forever. The stock currently sells for $31 per share.

Dividend yield = D1 / P0 Dividend yield = $1.64 / $31Dividend yield = .0529, or 5.29% Capital gains yield = 8%

Which one of the following statements is correct? a) The risk-free rate represents the change in purchasing power. b) Any return greater than the inflation rate represents the risk premium. c) Historical real rates of return must be positive. d) Nominal rates exceed real rates by the amount of the risk-free rate. e) The real rate must be less than the nominal rate given a positive rate of inflation.

E) The real rate must be less than the nominal rate given a positive rate of inflation.

Antiques R Us is a mature manufacturing firm. The company just paid a $15 dividend, but management expects to reduce the payout by 11 percent per year indefinitely. If you require a 19 percent return on this stock, what will you pay for a share today? a.$44.06 b.$44.94 c.$166.88 d.$50.00 e.$44.50

E. 44.50 P0 = D0 (1 + g) / (R- g) P0 = $15(1 - .11) / [(.19 - (- .11)] P0 = $44.50

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? A. Alternative voting. B. Cumulative voting. C. Straight voting. D. Indenture voting. E. Voting by proxy.

E. Voting Proxy

YGTB, Inc., currently has an EPS of $1.50 and an earnings growth rate of 6.5 percent. If the benchmark PE ratio is 20, what is the target share price five years from now?

EPS5 = EPS0(1 + g)^5 EPS5 = $1.50(1 + .065)^5 EPS5 = $2.06 P5 = Benchmark PE ratio × EPS5 P5 = $41.10

Rate/ Yield to Maturity is what on the calculator

I%

Antiques R Us is a mature manufacturing firm. The company just paid a $9 dividend, but management expects to reduce the payout by 5 percent per year indefinitely. Required : If you require an 13 percent return on this stock, what will you pay for a share today?

P0 = D0 (1 + g) / (R - g) P0 = $9(1 - .05) / [(.13 - (- .05)] P0 = $47.50

Coupon Rate is what on the calculator?

PMT

Selling price is what on the calculator?

PV

Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities? Senior bond. Debenture. Warrant. Common stock. Preferred stock.

Preferred Stock

Emst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets? Private. Auction. Tertiary. Secondary. Primary.

Primary

You purchase a bond with an invoice price of $1,319. The bond has a coupon rate of 6.25 percent, a face value of $1,000, and there are two months to the next semiannual coupon date. What is the clean price of this bond? a) $1,298.17 b) $1,352.17 c) $1,314.14 d) $1,408.12 e) $1,283.50

a) $1,298.17 must know formulas for accured interest and clean price

You purchase a bond with an invoice price of $1,319. The bond has a coupon rate of 6.25 percent, a face value of $1,000, and there are two months to the next semiannual coupon date. What is the clean price of this bond? a) $1,298.17 b) $1,352.17 c) $1,314.14 d) $1,408.12 e) $1,283.50

a) $1,298.17 must memorize equation

The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as: a) .05/(1-t*)=.07. b) .05-(1-t*)=.07. c) .07 + (1 - t*) = .05. d) .05 × (1 - t*) = .07. e) .05 × (1 + t*) = .07.

a) .05/(1-t*)=.07.

Bonds issued by the U.S. government: a) Are considered to be free of interest rate risk. b) Generally have higher coupons than comparable bonds issued by a corporation. c) Are considered to be free of default risk. d) Pay interest that is exempt from federal income taxes. e) Are called "munis."

a) Are considered to be free of interest rate risk.

Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond's interest or principal payments as expected? a) Default risk. b) Taxability. c) Liquidity. d) Inflation. e) Interest rate risk.

a) Default risk.

Real rates are defined as nominal rates that have been adjusted for which of the following? a) Inflation. b) Default risk. c) Accrued interest. d) Interest rate risk.

a) Inflation.

The current dividend yield on CJ's common stock is 1.89 percent. The company just paid a $1.23 annual dividend and announced plans to pay $1.27 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock? a.5.14 b.5.82 c.6.08 d. 6.39 e. .6.75

a.5.14 must memorize equation

World Travel has 7 percent, semiannual, coupon bonds outstanding with a current market price of $1,023.46, a par value of $1,000, and a yield to maturity of 6.72 percent. How many years is it until these bonds mature? a) 12.26 years b) 12.53 years c) 18.49 years d) 24.37 years e) 25.05 years

b) 12.53 years use tvm

U. S. Treasury bonds: a) Are highly illiquid. b) Are quoted as a percentage of par. c) Are quoted at the dirty price. d) Pay interest that is federally tax-exempt. e) Must be held until maturity.

b) Are quoted as a percentage of par.

A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond? a) Par value. b) Callable. c) Senior. d) Subordinated. e) Unsecured.

b) Callable.

A sinking fund is managed by a trustee for which one of the following purposes? a) Paying bond interest payments. b) Early bond redemption. c) Converting bonds into equity securities. d) Paying preferred dividends. e) Reducing bond coupon rates.

b) Early bond redemption.

A 3.25 percent Treasury bond is quoted at a price of 101.16. The bond pays interest semiannually. What is the current yield? a) 3.06 percent b) 3.17 percent c) 3.21 percent d) 3.33 percent e) 3.38 percent

c) 3.21 percent yield to maturity formula

A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called the: a) Dirty price. b) Redemption value. c) Call premium. d) Original-issue discount. e) Redemption discount.

c) Call premium.

A bond is QUOTED at a price of $1,011. This price is referred to as the: a) Call price. b) Face value. c) Clean price. d) Dirty price. e) Maturity price.

c) Clean price.

Which one of the following risk premiums compensates for the inability to easily resell a bond prior to maturity? a) Default risk. b) Taxability. c) Liquidity. d) Inflation. e) Interest rate risk.

c) Liquidity.

The pure time value of money is known as the: a) Liquidity effect. b) Fisher effect. c) Term structure of interest rates. d) Inflation factor. e) Interest rate factor.

c) Term structure of interest rates.

A premium bond that pays $60 in interest annually matures in seven years. The bond was originally issued three years ago at par. Which one of the following statements is accurate in respect to this bond today? a) The face value of the bond today is greater than it was when the bond was issued. b) The bond is worth less today than when it was issued. c) The yield-to-maturity is less than the coupon rate. d) The coupon rate is greater than the current yield. e) The yield-to-maturity equals the current yield.

c) The yield-to-maturity is less than the coupon rate.

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity. a) a premium; less than b) a premium; equal to c) a discount; less than d) a discount; higher than

c) a discount; less than

A bond that is payable to whomever has physical possession of the bond is said to be in: a)New-issue condition. b)Registered form. c)Bearer form. d)Debenture status. e)Collateral status.

c)Bearer form.

A Treasury bond is quoted at a price of 101.6533 with a current yield of 6.276 percent. What is the coupon rate on a $10,000 bond? a) 7.20 percent b) 6.48 percent c) 6.41 percent d) 6.38 percent e) 6.27 percent

d) 6.38 percent must memorize formula for coupon rate

The 7 percent bonds issued by Modern Kitchens pay interest semiannually, mature in eight years, and have a $1,000 face value. Currently, the bonds sell for $1,032. What is the yield to maturity? a) 6.87 percent b) 6.92 percent c) 6.08 percent d) 6.48 percent e) 7.20 percent

d) 6.48 percent use tvm

The taxability risk premium compensates bondholders for which one of the following? a) Yield decreases in response to market changes. b) Lack of coupon payments. c) Possibility of default. d) A bond's unfavorable tax status. e) Decrease in a municipality's credit rating.

d) A bond's unfavorable tax status.

Capital Gains yield or percentage increase is the same as what?

growth rate

A note is generally defined as: a) A secured bond with an initial maturity of 10 years or more. b) A secured bond that initially matures in less than 10 years. c) Any bond secured by a blanket mortgage. d) An unsecured bond with an initial maturity of 10 years or less. e) Any bond maturing in 10 years or more.

d) An unsecured bond with an initial maturity of 10 years or less.

A newly issued bond has a 7 percent coupon with semiannual interest payments. The bonds are currently priced at par. The effective annual rate provided by these bonds must be: a) 3.5 percent. b) Greater than 3.5 percent but less than 7 percent. c) 7 percent. d) Greater than 7 percent. e) Less than 3.5 percent.

d) Greater than 7 percent.

Currently, a firm has an EPS of $2.54 and a benchmark PE of 16.4. Earnings are expected to grow 3.8 percent annually. What is the estimated current stock price? a.43.24 b.$42.89 c.$46.08 d.$41.66 e.$48.09

d.$41.66 P0 = $2.54 × 16.4 = $41.66

Kaiser Industries has bonds on the market making annual payments, with 14 years to maturity, a par value of $1,000, and selling for $1,382.01. At this price, the bonds yield 7.5 percent. What is the coupon rate? a) 8.00 percent b) 8.50 percent c) 9.00 percent d) 10.50 percent e) 12.00 percent

e) 12.00 percent use tvm and divide 120/1000 to get %

Global Exporters wants to raise $29.6 million to expand its business. To accomplish this, it plans to sell 20-year, $1,000 face value, zero coupon bonds. The bonds will be priced to yield 7.75 percent. What is the minimum number of bonds it must sell to raise the money it needs? Assume semiannual compounding. a) 110,411 b) 139,800 c) 154,907 d) 126,029 e) 135,436

e) 135,436 First step use tvm to find pv Second step wants to raise/pv= number of bonds that need to be sold

New Homes has a bond issue with a coupon rate of 5.5 percent that matures in 8.5 years. The bonds have a par value of $1,000 and a market price of $972. Interest is paid semiannually. What is the yield to maturity? a) 6.36 percent b) 6.42 percent c) 5.61 percent d) 5.74 percent e) 5.92 percent

e) 5.92 percent use tvm

Protective covenants: a) Apply to short-term debt issues but not to long-term debt issues. b) Only apply to privately issued bonds. c) Are a feature found only in government-issued bond indentures. d) Only apply to bonds that have a deferred call provision. e) Are primarily designed to protect bondholders.

e) Are primarily designed to protect bondholders.

Callable bonds generally: a) Grant the bondholder the option to call the bond any time after the deferment period. b) Are callable at par as soon as the call-protection period ends. c) Are called when market interest rates increase. d) Are called within the first three years after issuance. e) Have a sinking fund provision.

e) Have a sinking fund provision.

Which bond would you generally expect to have the highest yield? a) Risk-free Treasury bond b) Non-taxable, highly-liquid bond c) Long-term, high-quality, tax-free bond d) Short-term, inflation-adjusted bond e) Long-term, taxable junk bond

e) Long-term, taxable junk bond

A Treasury yield curve plots Treasury interest rates relative to which one of the following? a) Market rates. b) Comparable corporate bond rates. c) The risk-free rate. d) Inflation. e) Maturity.

e) Maturity.

Interest rates that include an inflation premium are referred to as: a) Annual percentage rates. b) Stripped rates. c) Effective annual rates. d) Real rates. e) Nominal rates.

e) Nominal rates.

The items included in an indenture that limit certain actions of the issuer in order to protect a bondholder's interests are referred to as the: a) Trustee relationships. b) Bylaws. c) Legal bounds. d) Trust deed. e) Protective covenants.

e) Protective covenants.

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? a)Note. b)Discounted. c)Zero-coupon. d)Callable. e)Debenture.

e)Debenture.

Sew 'N More just paid an annual dividend of $1.42 a share. The firm plans to pay annual dividends of $1.45, $1.50, and $1.53 over the next 3 years, respectively. After that time, the dividends will be held constant at $1.60 per share. What is this stock worth today at a discount rate of 9 percent? a. $17.08 b. $16.30 c. $16.67 d. $16.79 e. $17.50

e. $17.50 formula 2

To find the nominal or real rate look at what formula?

fisher effect