Question

QUESTION 7

A 10-year bond pays an annual coupon, its YTM is 8%, and it currently trades at a premium. Which of the following statements is CORRECT?

		The bond’s coupon rate is less than 8%
		The bond’s coupon rate is more than 8%
		The bond’s coupon rate is equal to 8%
		The bond’s current yield is less than 8%.
		The bond’s current yield is equal to 8%

QUESTION 10

If a stock's dividend is expected to grow at a constant rate of 6% a year, which of the following statements is CORRECT?

		The stock's dividend yield is 6%.
		The expected return on the stock is 6% a year.
		The stock's required return must be equal to or less than 6%.
		The price of the stock is expected to decline in the future.
		The stock's price one year from now is expected to be 6% above the current price.

Answer 1

Answer:- The bond’s coupon rate is more than 8%

Explanation:- The following can be summarized with respect to bonds:-

• If a bond’s coupon rate YTM, then the bond is selling at a discount.
• If a bond’s coupon rate YTM, then the bond is selling at a premium.
• If a bond’s coupon rate YTM, then the bond is selling at par.

So, here  YTM is 8% and it currently trades at a premium, so the bond’s coupon rate is more than 8%

Answer:- The stock's price one year from now is expected to be 6% above the current price.

Explanation:- If a stock's dividend is expected to grow at a constant rate of 6% a year then, one year from now its stock's price is expected to be 6% above the current price.