1. A bond currently sells for $1,000 and has a par of $1,000. It was issued two years ago and had a maturity of 10 years. The coupon rate is 6% and the interest payments are made semiannually. What is its YTM? Show your work.

2. A particular bond has 8 years to maturity. It has a face value of $1,000. It has a YTM of 7% and the coupons are paid semiannually at a 9% annual rate. What does the bond currently sell for? Show your work.

3. If Company A and Company B are in the same industry and use the same production method, and Company As asset turnover is higher than that of Company B, then all else equal, we can conclude that

Company A is more efficient than Company B.

Company A has a lower dollar amount of assets than Company B.

Company A has higher sales than Company B.

Company A has a lower ROE than Company B.

4. By evaluating cost and benefits using competitive market prices, we can determine whether a decision will make the firm and its investors wealthier. This central concept is called:

the Law of One Price.

the Present Value.

the Valuation Principle.

the Internal Rate of Return.

5. Which of the following statements is FALSE?

The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond.

The bond certificate indicates the amounts and dates of all payments to be made.

The only cash payments that the investor will receive from a zero coupon bond are the interest payments that are paid up until the maturity date.

Usually, the face value of a bond is repaid at maturity.

6. Which of the following statements is FALSE?

We should use the general dividend discount model to value the stock of a firm with rapid or changing growth.

As firms mature, their growth slows to rates more typical of established companies.

The dividend discount model values the stock based on a forecast of the future dividends paid to shareholders.

The simplest forecast for the firms future dividends states that they will grow at a constant rate, g, forever.