1. Two investors are considering the purchase of Corporation LMQ bonds. The bonds are selling at their par value of $1,000 with a coupon rate of 9%. Investor A decides to buy the bonds and Investor B does not buy the bonds.

Select one:

a. The yield to maturity for Investor A must be higher than the yield to maturity for Investor B.

b. Investor B must have required return lower than the bond's yield to maturity.

c. Investor A must have a required return less than or equal to 9%.

d. Investor A must have a required return higher than the bond's yield to maturity.

2. Beaver Corporation stock is currently selling for $58.00. It is expected to pay a dividend of $5.00 at the end of the year. Dividends are expected to grow at a constant rate of 7.5% indefinitely. Compute the required rate of return on Beaver Corporation stock.

Select one:

a. 16.12%

b. 13.64%

c. 15.65%

d. 12.48%

3.

Dynamic Industries paid a dividend of $1.65 on its common stock yesterday. The dividends of Wallace Industries are expected to grow at 9% per year indefinitely. If the risk free rate is 3% and investors' risk premium on this stock is 8%, estimate the value of Wallace Industries stock 2 years from now.

Select one:

a. $106.84

b. $100.43

c. $91.81

d. $54.71

4.

LED Corp.'s common stock paid $2.50 in dividends last year (D₀). Dividends are expected to grow at a 12-percent annual rate forever. If LED's current market price is $40.00, and your required rate of return is 23 percent, should you purchase the stock?

Select one:

a. Yes, the stock is expected to return more than you require.

b. No, the percentage return on the stock is too high, thus it is too risky.

c. No, the stock is overpriced.

d. Not enough information is given.

5.

TellTrue Corporation has preferred stock which paid an annual dividend in 2009 of $5 per share. TellTrue also has common stock which paid a dividend in 2009 of $5. Which of the following statements is MOST correct concerning TellTrue stock?

Select one:

a. If the required return on the preferred stock is the same as the required return on the common stock, then the price of preferred stock should equal the price of the common stock if markets are efficient.

b. The price of the preferred stock is expected to be higher than the price of the common stock because the required return on preferred stock is higher than the required return on common stock.

c. The price of the preferred stock should equal the price of the common stock since the dividends are the same.

d. The price of the common stock could be higher than the price of the preferred stock if the common stock dividends are expected to grow in the future.

6.

Jackson Corp. common stock paid $2.50 in dividends last year (D₀). Dividends are expected to grow at a 12-percent annual rate forever. If Jackson's current market price is $40.00, what is the stock's expected rate of return (nearest .01 percent)?

Select one:

a. 18.25%

b. 5.50%

c. 19.00%

d. 11.00%