Question
1. You look up a corporate bond on the internet and find the yield to maturity to be 6%? You are currently holding a municipal
1. You look up a corporate bond on the internet and find the yield to maturity to be 6%? You are currently holding a municipal bond paying 4.5% annually. The inflation rate is 5% and you are in the 25% tax bracket. Which bond do you prefer?
a. the corporate bond
b. the municipal bond
c. both bonds are equivalent and real expected return is positive
d. both bonds are equivalent and real expected return is negative
2. If I want to estimate fair value of a dividend paying stock using Yahoo! Finance for my stock report, I should?
a. look up the dividend history of my stock on Yahoo!
b. estimate the annual growth rate and next periods dividend
c. check financial statements to make sure the company hasnt cancelled their dividend
d. apply the constant growth formula (Div1/(r-g))
e. none of the above
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