1. (TCO 3) Given an interest rate of zero percent, the future value of a lump sum invested today will always: (Points : 3) remain constant, regardless of the investment time period. decrease if the investment time period is shortened. decrease if the investment time period is lengthened. be equal to $0. be greater than the initial investment amount. 2. (TCO 3) The difference between an ordinary annuity and an annuity due is the: (Points : 3) number of payments to be made amount to be paid each time the timing of the payments frequency of the payments interest rate applied to the first payment 3. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 11 percent? Assume annual payments. (Points : 3) $1080 $1085 $925 $1000 4. (TCO 6 and 8) Which one of the following statements is correct? (Points : 3) Bond issuers maintain a listing of bondholders when bonds are issued in bearer form. An indenture, is a contract between a corporation and its shareholders. Collateralized bonds are called debentures. The description of any property used to secure a bond issue is included in the bond indenture. 5. (TCO 3) Bonds issued by Blue Sky Airlines have a face value of $1,000 and currently sell for $1,080. The annual coupon payments are $125. If the bonds have 20 years until maturity, what is the approximate YTM of the bonds? (Points : 3) 10.50% 11.50% 11.75% 12% 6. (TCO 3) Bean Coffee issued preferred stock many years ago. It carries a dividend of $8 per share, fixed. As time has passed, yields have decreased from the original eight percent (at the time of issuance) to six percent. What was the original issue price? Hint: Yield is the same as required rate of return. (Points : 3) $100 $400 $7.40 $86.40 None of the above 7. (TCO 3) Intelligence Research, Inc. will pay a common stock dividend of $1.60 at the end of the year. The required rate of return by common stockholders is 13 percent. The firm has a constant growth rate of 7.5 percent. What is the current price of the stock? (Points : 3) $23 $32 $27 $29 8. (TCO 3) Royal Electric paid a $2 dividend last year. The dividend is expected to grow at a constant rate of five percent over the next three years. Common stockholders require a 12 percent return. What are the values of the dividends for years 1, 2 and 3, respectively? (Points : 3) $2, $2.10 and $2.205 $2, $2.205 and $2.315 $2.10, $2.205, and $2.315 $2.10, $2.205 and $2.456 9. (TCO 6) The market where one shareholder sells shares to another shareholder is called the _____ market. (Points : 3) primary main secondary principal dealer 10. (TCO 6) A member of the NYSE who trades on the floor of the exchange for his or her personal account is called a(n): (Points : 3) specialist. independent broker. floor trader. stand-alone agent. dealer. 11. (TCO 6) The annual interest on a bond divided by the bond's market price is called the: (Points : 3) yield to maturity. yield to call. total yield. required yield. current yield. 12. (TCO 6) A call provision in a bond agreement grants the issuer the right to: (Points : 3) repurchase the bonds prior to maturity at a pre-specified price. replace the bonds with equity securities. repurchase the bonds, after maturity at a pre-specified price. change the coupon rate, provided the bondholders are notified in advance. buy back the bonds on the open market prior to maturity. 13. (TCO 8) Which of the following is true regarding bonds? (Points : 3) Bonds do not carry default risk. Bonds are sensitive to changes in the interest rates. Moody