Fin 3

The common stock of Salazar Insurance pays a constant annual dividend of $4.80 per share. What is one share of this stock worth at a discount rate of 13.3 percent?

$36.09

Which one of the following applies to the dividend growth model?

Even if the dividend amount and growth rate remain constant, the value of a stock can vary.

Which bond would you generally expect to have the highest yield?

Long-term, taxable junk bond

A forward PE is based on:

estimated future earnings.

Which one of the following represents the capital gains yield as used in the dividend growth model?

g

Supernormal growth is a growth rate that:

is unsustainable over the long term.

The current yield is defined as the annual interest on a bond divided by the:

market price.

Interest rates that include an inflation premium are referred to as:

nominal rates.

Municipal bonds:

pay interest that is free from federal taxation.

National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar per share long into the future. Given this, one share of the firm's stock is:

priced the same as a $1 perpetuity.

The bond market requires a return of 6.2 percent on the 15-year bonds issued by Mingwei Manufacturing. The 6.2 percent is referred to as the:

yield to maturity.

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

Common

Which one of the following relationships applies to a par value bond?

Coupon rate = Current yield = Yield to maturity

Which one of the following relationships is stated correctly?

Decreasing the time to maturity increases the price of a discount bond, all else constant.

A decrease in which of the following will increase the current value of a stock according to the dividend growth model?

Discount rate

Which one of the following statements is correct?

Stocks can have negative growth rates.

Buxbaum Corporation is preparing a bond offering with a coupon rate of 6 percent, paid semiannually, and a face value of $1,000. The bonds will mature in 10 years and will be sold at par. Given this, which one of the following statements is correct?

The bonds will sell at a premium if the market rate is 5.5 percent.

A bond that has only one payment, which occurs at maturity, defines which one of these types of bonds?

Zero coupon

Bonds issued by the U.S. government:

are considered to be free of default risk.