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