Finance Test 3 Terms

Assume the current market price of a bond exceeds its par value. Which one of these equations applies?

Yield to maturity < Coupon rate

Answer this question based 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 decrease in all stock values.

A bond that is payable to whomever has physical possession of the bond is said to be in:

bearer form

The dividend growth model:

requires the growth rate to be less than the required return

In response to a change in the market rate of interest, the price sensitivity of a bond increases as the:

coupon rate decreases and the time to maturity increases.

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

g

The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will:

grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely.

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

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?

Default risk

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.

a discount; less than