Question

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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.

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. | ||||||

Consider two bonds, A and B. Both bonds presently are selling at
their par value of $1,000. Each pays interest of $60 annually. Bond
A will mature in eight years, while bond B will mature in ten
years. If the yields to maturity on the two bonds change from 7% to
5%,
A.
both bonds will increase in value, but bond A will increase more
than bond B.
B.
both bonds will decrease in value, but bond B will decrease...

Consider these two bonds which are both newly issued and trading
at par.
Coupon Rate
Time Until Maturity
Bond A
7.5%
5 years
Bond B
7.5%
8 years
If the market interest rate unexpectedly changes from 9% to 11%,
then both bonds will ________________ in value, but bond ____ will
decrease more than bond _____.
decrease; A; B
decrease; B; A
increase; A; B
increase; B; A

Enron bonds mature in 12 years and have a coupon rate of 6.00%.
If the market rate of interest increases, then the:
A. Coupon rate will also increase.
B. Current yield will decrease.
C. Yield to maturity will be less than the coupon rate.
D. Market price of the bond will decrease.

a) You are considering two bonds. Bond A has a 6% annual coupon
while Bond B has a 5% annual coupon. Both bonds have a 7% yield to
maturity, and the YTM is expected to remain constant. Which of the
following statements is CORRECT?
a.
The price of Bond A will decrease over time, but the price of
Bond B will increase over time.
b.
The prices of both bonds will decrease over time, but the price
of Bond A...

Two bonds will mature in 15 years. One pays 8 percent interest
and the other is a zero coupon bond. If market interest rate goes
up, value of a zero coupon bond (in percent) will _____ than the
coupon bond:
a. increase more
b decrease less
c. increase less
d. decrease more
e. none of the above

All of the following are characteristics of preferred stock that
make it similar to bonds except:
a.
constant periodic payments.
b.
ahead of common stock with respect to dividends.
c.
no voting rights.
d.
periodic payment is tax deductible to the paying company.
e.
All of the above characteristics make preferred stock similar to
bonds.
'
The price of a stock today can be determined by:
a.
return on stock investment.
b.
its dividend.
c.
kP o= D 1+(P 1-P...

1.
In 1996, allegations were made against Moody’s that it was
issuing ratings on bonds it had not been hired to rate, in order to
pressure issuers to pay for their service.
The government conducted an inquiry, but charges of antitrust
violations were dropped. Even though no legal action was taken,
does an ethical issue exist?
2.
What is a bond indenture, and what are some of the important
features?
3.
DLQ Inc. bonds mature in 12 years and have...

Consider two Treasury bonds. Both of them have face value of
$1,000 and have four years to maturity, with
annual coupon payments. The first bond is a
zero-coupon bond and the second bond has 5% coupon rate. The yield
is 6% today. Which of the following statements about interest rate
risk and duration is false?
Group of answer choices
A. The duration of the zero-coupon bond is four years.
B. The duration of the 5%-coupon bond is larger than the...

1. If 9-year T-bonds have a yield of 2.9%, 9-year A-rated
corporate bonds yield 4.8%, the maturity risk premium on all 9-year
bonds is 1.2%, and A-rated corporate bonds have a 0.6% liquidity
premium versus a zero liquidity premium for T-bonds, what is the
default risk premium on the corporate bond?
2. You project that you will need $50,000 in 9 years to put a
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to save for...

Airnova Inc. has two types of bonds, Bond D and Bond F. Both
have 8 percent coupons, make semiannual payments, and are priced at
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maturity.
Airnova Inc. is considering four different types of stocks. They
each have a required return of 20 percent and a dividend of $3.75
for share. Stocks, A, B, and C are expected to maintain constant
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