Question
17. Suppose you are evaluating two annuities. They are identical in every way, except that one is an ordinary annuity and one is an annuity
17. Suppose you are evaluating two annuities. They are identical in every way, except that one is an ordinary annuity and one is an annuity due. Assuming an interest rate of 10%, which of the following is true?
A. The ordinary annuity must have a higher present value than the annuity due
B. The annuity due must have the same present value as the ordinary annuity
C. The ordinary annuity must have lower payments than the annuity due
D. The two annuities will differ in present value by the amount of the rate of return
E. The annuity due will be larger than the regular annuity by an amount equal to the present value of the last annuity payment
18. A bond with an annual coupon of $100 originally sold at par for $1,000. The current market interest rate on this bond is 11%. Assuming no change in risk, this bond would sell at a _________ in order to compensate ______________.
A. premium; the purchaser for the above market coupon rate
B. discount; the purchaser for the below market coupon rate
C. premium; the seller for the above market coupon rate
D. discount; the seller for the above market coupon rate
E. discount; the issuer for the higher cost of borrowing
19. As illustrated using the dividend growth model, the total return on a share of common stock is comprised of a
A. capital gains yield and a dividend growth rate
B. capital gains growth rate and a dividend growth rate
C. dividend payout ratio and a required rate of return
D. dividend yield and a capital gains yield
E. dividend yield and the present dividend
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