Question

SHOW YOUR FULL WORK THANKS 1. Consider two bonds, A and B. Both bonds presently are...

SHOW YOUR FULL WORK THANKS

1. Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in five years, while bond B will mature in six years. If the yields to maturity on the two bonds change from 12% to 10%,

A. both bonds will increase in value, but bond A will increase more than bond B.

B. both bonds will increase in value, but bond B will increase more than bond A.

C. both bonds will decrease in value, but bond A will decrease more than bond B.

D. both bonds will decrease in value, but bond B will decrease more than bond A.

E. None of the options are correct.

2. Each of two stocks, A and B, are expected to pay a dividend of $5 in the upcoming year. The expected growth rate of dividends is 10% for both stocks. You require a rate of return of 11% on stock A and a return of 20% on stock B. The intrinsic value of stock A

A. will be greater than the intrinsic value of stock B.

B. will be the same as the intrinsic value of stock B.

C. will be less than the intrinsic value of stock B.

D. cannot be calculated without knowing the market rate of return.

3.

You can be sure that a bond will sell at a premium to par when _________.

A.

its coupon rate is greater than its yield to maturity

B.

its coupon rate is less than its yield to maturity

C.

its coupon rate is equal to its yield to maturity

D.

its coupon rate is less than its conversion value

4.

The current market price of a share of Disney stock is $60. If a call option on this stock has a strike price of $65, the call

A. is out of the money.

B. is in the money.

C. can be exercised profitably.

D. is out of the money and can be exercised profitably.

E. is in the money and can be exercised profitably.

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Homework Answers

Answer #1
ans 1
Correct answer is option -
B. both bonds will increase in value, but bond B will increase more than bond A.
Exp: Higher the maturity higher will be volatility
ans 2 Correct answer is option -
will be greater than the intrinsic value of stock B.
Higher the required rate lower will be the price
ans 3 Correct answer is option -
c)
its coupon rate is equal to its yield to maturity
ans 4 Correct answer is option -
D. is out of the money and can be exercised profitably.
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