section 2 finance

The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as:

.05/(1 − t*) = .07.

Kim Squared preferred stock pays a constant $5.10 dividend every year. What is the required return if the stock price is $43.73 per share?

11.66

Fazekas Companies is preparing to pay annual dividends of $1.48, $1.60, and $1.75 per share over the next three years, respectively. After that, the annual dividend will be $1.90 per share indefinitely. What is this stock worth to you per share if you require a return of 14.6 percent?

12.32

Moody Properties is going to reduce its annual dividend by 10 percent a year for the next two years. After that, it will maintain a constant dividend of $2 per share. Last year, the company paid an annual dividend of $3 per share. What is the market value of this stock if the required return is 13.7 percent?

15.55

What is the future value of $1,000 invested for 15 years at a rate of 5%?

2079

Grace is retiring today and has $300,000 in her retirement savings. She expects to earn 8.5 percent per year compounded monthly. How much can she withdraw from her retirement savings each month if she plans to spend her last penny 17 years from now? Multiple Choice $18,793.23 $25,500.00 $2,784.88 $33,993.59 $2,832.80

2784.88

Jensen Shipping has 38,400 shares outstanding and uses cumulative voting. The firm grants one vote for each share of common stock. What is the minimum number of votes required to obtain a seat on the board of directors if there are three open seats?

38,400 / (3+1)+1 = 9601

What is the present value of $1,000 to be received in 12 years invested at a rate of 8%?

397

Schwartz Imports just paid an annual dividend of $2.69 per share and is expected to increase that amount by 5.2 percent per year. If you are planning to buy 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 12.6 percent at the time of your purchase?

40.23 or 38.24

Elevation Systems, Incorporated, expects its dividends to grow at 25 percent per year for the next seven years before levelling off to a constant 3 percent growth rate. The required return is 11 percent. What is the current stock price if the annual dividend per share that was just paid was $1.05?

43.21

Franklin Corporation has an opportunity to purchase bonds at a rate of 11%. They are in the 34% tax bracket. What is the after tax yield on these bonds?

7.26

How would a decrease in the interest rate effect the future value of a lump sum, single amount problem (all other variables remain the same)?

Decrease the future value.

Treasury issues are:

Exempt from state income taxes but, not federal income taxes.

The Fisher Effect has all of the following components, except:

Expected Rate of Return, E

The variables in a future value of a lump sum problem include:

Future Value Correct Time period

The features of Municipal bonds make them attractive to high income, _________ bracket investors.

High-tax

Which one of the following best describes Nasdaq? Multiple Choice Largest U.S. stock market in terms of dollar trading volume Market where dealers buy at the asked price Market where the designated market makers are located at posts Computer network of securities dealers Market with three physical trading floors

Largest U.S. stock market in terms of dollar trading volume

Coronel Corporation wants to issue new 20-year bonds. The company currently has 8.5 percent bonds on the market that sell for $994, make semiannual payments, and mature in seven years. What should the coupon rate be on the new bonds if the firm wants to sell them at par?

N=14 PV=-994 PMT=42.50 (.085*1000)/2 FV=1000 YTM=2(4.308%) YTM=8.62%

Which loan type requires the borrower to repay a single lump sum payment at some time in the future with interest?

Pure Discount

Viveros Foods has an investment-grade bond issue outstanding that pays $30 semiannual interest payments. The bonds sell at par and are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal to the comparable Treasury rate plus .50 percent. Which one of the following correctly describes this bond?

The bond has a "make whole" call price.

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

a discount; less than

a note

an unsecured bond with an initial maturity of 10 years or less.

Which one of the following compounding periods will yield the lowest effective annual rate given a stated future value at Year 5 and an annual percentage rate of 10 percent? Multiple Choice Annual Semi-annual Monthly Daily Continuous

annual

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

The collar of a floating-rate bond refers to the minimum and maximum:

coupon rates

Callable bonds generally

have a sinking fund provision.

The actual interest rate on a loan that is compounded monthly but expressed as an annual rate is referred to as the _____ rate.

effective annual

Municipal bonds are taxable for federal, state and local taxes.

false

The variables in a present value of a lump sum problem include all of the following, except:

free cash flows

Which loan type requires calls for the borrower to pay interest each period and to repay the entire principal at some point in the future? Multiple Choice Interest-only Monthly Amortized Annual Amortized Incorrect Future Principal Pure Discount

interest only

Last year, Lagunes Outdoor issued $1 million in unsecured, noncallable debt. This debt pays an annual interest payment of $55 and matures six years from now. The face value is $1,000 and the market price is $1,020. Which one of these terms correctly describes a feature of this debt?

note

The average time for a trade on the NYSE Arca is best defined as less than:

one second

A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market?

over the counter

The variable that you are solving for in a present value of a lump sum problem is:

present value

A deferred call provision:

prohibits the bond issuer from redeeming callable bonds prior to a specified date.