Week 3

Preference shares differ from ordinary shares because _

*A. They have preference over ordinary equity in the payment of dividends. B. They grant the holder the right to buy extra shares for a certain price. C. They always provide a higher dividend than ordinary equity.

The Walthers Company has a semi-annual coupon bond outstanding. An increase in the market rate of interest will have which one of the following effects on this bond?

A. Increase the coupon rate B. Decrease the coupon rate C. Increase the market price *D. Decrease the market price

Supernormal growth is a growth rate that

A. Is both positive and follows a year or more of negative growth B. Exceeds a firm's previous year's rate of growth C. Is generally constant for an infinite period of time *D. Is unsustainable over the long term E. Applies to a single, abnormal year

A zero coupon bond

A. Is sold at a large premium B. Can only be issued by the government *C. Has more interest rate risk than a comparable coupon bond

(Base your answer on the dividend growth model) If you expect the market rate of return to increase across the board on all equity securities, then you should also expect

A. An increase in all equity values B. All equity values to remain constant *C. A decrease in all equity values

A £100 face value bond can be redeemed early at the issuer's discretion for £103, plus any accrued interest. The additional £3 is called which one of the following

A. Call premium B. Redemption value C. Original-issue discount *D. Redemption discount

The current yield is defined as the annual interest on a bond divided by which one of the following?

A. Coupon B. Fave Value *C. Market price D. Call price