16. If Netflix Inc expects to issue a taxable bond that has a yield of 7% and the city of Roswell is issuing a municipal bond that has a yield of 5.6%. What tax bracket rate (1) must you be in to be indifferent (get the same return) between owning these two bonds? A) 12.5% B) 15.0% C) 20.0% D) 25.0% E) 50.0% 17. If the dividends are expected to grow at a constant rate forever then A. The YTM grows at the same rate as the growth rate in dividends B. The YTM is equal to the coupon rate The price of the stock grows at the same rate as its dividends The firm cannot determine its stock price Shareholders do not need to pay capital gains taxes on dividends earned 18. Diversification reduces risk because of the between assets. A) dividend yield B) risk premium C) risk-free rate D) negative covariance (correlation) between assets E) positive covariance (correlation) between assets ! 19. Jittery Joe's Coffee Shop just issued 8-year bonds at a coupon rate of 4.80 percent and they make semi-annual payments. If the YTM on these bonds is 4.4 percent, what is the current bond price? A) equal to $1,000 B) less than $1,000 C) greater than $1,000 D) 0.40% E) 0.48% 20. Suppose you have predicted the following returns for Apple Inc. stock in three possible states of nature. What is the Expected return? State Probability of State Apple Inc. Returns Boom 0.2 0.11 Normal 0.3 -0.07 Bust A) 22.0% B) 8.0% C) 2.1% D)19.9% E) 4.0% 0.04 21. A triple A rated (AAA) company will pay more to raise capital through bond issues in the market than a single A (A) rated company. A) True B) False 22. A callable bond held by an investor is more risky than a non-callable bond for the same company, all else the same. Thus, the interest rate is lower on the callable bond. A) True B) False