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Boomer Products, Inc. manufactures "no-inhale" cigarettes. As their target customers age and pass on, sales of the product are expected to decline. Thus, demographics suggest that earnings and dividends will decline at a rate of 5% annually forever. The firm just paid a dividend of $4; given a required rate of return is 10%, the price of the stock in 2 years will be: a. $22.86 b. $25.33 c. $68.59 d. $92.61 e. None of the above

a. 22.86

What would you pay today for a stock that is expected to make a $2 dividend in one year if the expected dividend growth rate is 5% forever and you require a 12% return on your investment? a. $28.57 b. $30.00 c. $30.57 d. $32.00 e. None of the above

a. 28.57

The ________ is the annual coupon payment divided by the current price of the bond, and is not always an accurate indicator. a. current yield b. yield to maturity c. bond discount rate d. coupon rate

a. current yield

A bond with an annual coupon of $100 originally sold at par for $1,000. The current market interest rate on this bond is 9%. Assuming no change in risk, this bond will sell at a and present the seller (who bought the bond at initial issuance) of the bond today with a capital . a. premium; gain b. discount; gain c. premium; loss d. discount; loss e. discount; neither loss or gain

a. premium; gain

Biogenetics, Inc. plans to retain and reinvest all of their earnings for the next 30 years. Beginning in year 31, the firm will begin to pay a $30 per share dividend. The dividend will not subsequently change. Given a required return of 18%, what should the stock sell for today? a. $ 0.21 b. $ 1.16 c. $ 1.37 d. $166.67 e. None of the above

b. 1.16

ABC Corporation's common stock dividend yield is 3.61%, it just paid a dividend of $2.75, and is expected to pay a dividend of $2.89 one year from now. Dividends are expected to grow at a constant rate indefinitely. What is the required rate of return on ABC stock? a. 8.5% b. 8.7% c. 8.9% d. Not enough information is provided e. None of the above

b. 8.7

The ________ is the market of first sale in which companies first sell their authorized shares to the public. a. initial market b. primary market c. secondary market d. over-the-counter market e. None of the above

b. primary market

Stocks are different from bonds because ________. a. stocks, unlike bonds, are major sources of funds b. stocks, unlike bonds, represent residual ownership c. stocks, unlike bonds, give owners legal claims to payments d. bonds, unlike stocks, represent voting ownership e. None of the above

b. stocks, unlike bonds, represent residual ownership

J&J Manufacturing just issued a bond with a $1,000 face value and a coupon rate of 8%. If the bond has a life of 20 years, pays annual coupons, and the yield to maturity is 7.5%, what will the bond sell for? a. $950.91 b. $580.15 c. $1,050.97 d. $1,051.38 e. None of the above

c. 1050.97

Suppose that sales and profits of Oly Enterprises are growing at a rate of 30% per year. At the end of four years, the growth rate will drop to a steady 6%. At the end of year 5, Oly will issue its first dividend in the amount of $3 per share. If the required return is 15%, what is the value of a share of stock? Assume dividends grow at the same rate as earnings after year 4. a. $11.67 b. $16.57 c. $19.06 d. $33.33 e. None of the above

c. 19.06

The stock of MTY Golf World currently sells for $89.92 per share. The firm has a constant dividend growth rate of 6% and just paid a dividend of $5.09. If the required rate of return is 12%, what will the stock sell for one year from now? a. $ 84.83 b. $ 89.92 c. $ 95.32 d. $100.71 e. None of the above

c. 95.32

As the rating of a bond increases (for example, from A, to AA, to AAA), it generally means that a. the default risk increases and the required rate of return decreases. b. the default risk increase and the required rate of return increases. c. the default risk decreases and the required rate of return decreases. d. the default risk decreases, and the required rate of return increases. e. None of the above

c. the default risk decreases and the required rate of return decreases

Suppose that you have just purchased a share of stock for $40. The most recent dividend was $2 and dividends are expected to grow at a rate of 7% indefinitely. What must your required return be on the stock? a. 5.35% b. 7.00% c. 12.00% d. 12.35% e. None of the above

d. 12.35

As illustrated using the dividend growth model, the total return on a share of common stock is comprised of a _____________. a. capital gains yield and a dividend growth rate b. capital gains growth rate and a dividend growth rate c. dividend yield and the present dividend d. dividend yield and a capital gains yield e. None of the above

d. dividend yield and capital gains yield

A bond sold five weeks ago for $1,100. The bond is worth $1,150 in today's market. Assuming no changes in risk, which of the following is false? a. The bond has a larger premium today than it did five weeks ago. b. Interest rates must be lower now than they were five weeks ago. c. The bond's current yield has decreases from five weeks ago. d. The coupon payment of the bond must have decreased. e. None of the above

d. the coupon payment of the bond must have decreased

The rate of return required by investors in the market for owning a bond is called the: a. Coupon. b. Face value. c. Maturity. d. Yield to maturity. e. Coupon rate.

d. yield to maturity

On January 1, 2002, HomeSafe Cab Co. will issue new bonds to finance its expansion plans. Currently outstanding 8%, January 1, 2017 HomeSafe bonds are selling for $1,091.96. If interest is paid semiannually for both bonds, what must the coupon rate of the new bonds be in order for the issue to sell at par? a. 5.75% b. 6.00% c. 6.50% d. 6.75% e. 7.00%

e. 7

The market price of a bond is $1,236.94, it has 14 years to maturity, a $1,000 face value, and pays an annual coupon of $100 in semiannual installments. What is the yield to maturity? a. 3.18% b. 4.26% c. 5.37% d. 6.11% e. 7.27%

e. 7.27

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 ______________. I. the price of the stock today II. the dividend that is expected to be paid ten years from now III. the expected stock price five years from now a. I only b. I and II only c. I and III only d. II and III only e. I, II, and III

e. I, II, and III

Given no change in required returns, preferred stock prices will: a. Increase over time at a rate of r, where r is the required rate of return b. Decrease over time at a rate of r, where r is the required rate of return c. Increase over time at a rate equal to the dividend growth rate d. Decrease over time at a rate equal to the dividend growth rate e. None of the above

e. none of the above