FIN 4200 HW 2

$5.95

Citrus Support is a young start-up company that is currently retaining all of its earnings. The company plans to pay a $2 per share dividend in Year 7 and increase that dividend by 2.2 percent per year thereafter. What is the current share price if the required return is 16 percent?

4.25%

The market has an expected rate of return of 6.50 percent. A long-term government bond is expected to yield 3.4 percent and a U.S. Treasury bill is expected to yield 2.25 percent. The inflation rate is 2.15 percent. What is the market risk premium?

risk-free rate

To calculate the expected risk premium on a stock, one must subtract the ________ from the stock's expected return.

time to maturity

A Treasury yield curve plots Treasury interest rates relative to:

7.34%

A bond has a par value of $1,000, a current yield of 7.43 percent, and semiannual coupon payments. The bond is quoted at 98.83. What is the coupon rate of the bond?

Reducing the number of stocks held in her stock portfolio

An investor wants to reduce the unsystematic risk in her portfolio. Which of the following actions is least likely to do so?

risk premium

If a security is fairly priced, its ________ divided by its beta will equal the slope of the security market line.

$5.48

The Red Bud Company pays a constant dividend of $3.10 a share. The company announced today that it will continue to do this for another 2 years after which time they will discontinue paying dividends permanently. What is one share of this stock worth today if the required rate of return is 8.7 percent?

It can be less than the weighted average of the standard deviations of the individual securities held in that portfolio.

Which of the following statements is true of a portfolio's standard deviation?

Coupon rate = Current yield = Yield to maturity

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