29. Would a depositor prefer an annual percentage interest rate (APR) of 8% with monthly compounding or an APR of 8.5% with semiannual compounding? (Hint: use 4 decimal places for your calculations.) A. 8.0% with monthly compounding. B. 8.5% with semiannual compounding. C. The depositor would be indifferent between the two accounts. D. The time period must be known to select the preferred account. E. None of the above. 30. How much would an investor lose how much would the price change from a year earlier) if she purchased a 30-year zero-coupon bond with a $1,000 par value and 10% yield to maturity, only to see market interest rates increase to 12 percent one year later? (Hint: use 4 decimal places for your calculations.) A. $39.92 B. $29.92 C. $23.93 D. $25.66 E. None of the above. 31. With regard to bonds, which of the following statements is(are) cor- rect? A. The prices of long-term bonds are more sensitive to changes in in- terest rates than prices of short-term bonds. B. As market interest rates increase, values of bonds decrease. C. The coupon yield is the coupon payment divided by the bond's cur- rent market price. D. Bonds may involve both default risk and interest rate risk. E. All of the above statements are correct. 7 32. What happens to the coupon rate of a bond that pays $80 annually in interest if interest rates change from 9% to 10%? A. The coupon rate increases to 10%. B. The coupon rate remains at 9%. C. The coupon rate remains at 8%. D. The coupon rate decreases to 8%. E. None of the above. 33. Which of the following is correct for a bond investor whose bond offers a 5% current yield and a 8% yield to maturity? A. The promised yield is not likely to materialize. B. The bond has a high default premium. C. The bond is selling at a discount to par value. D. The security must be a Canada bond. E. All of the above. 34. What causes bonds to sell for a premium compared to face value? A. The bonds have high ratings. B. The bonds have a long period until maturity. C. The bonds have a higher coupon rate than market interest rate. D. The bonds are of speculative grade. E. None of the above. 35. Suppose that a one-year, risk-free, zero-coupon bond with a $100,000 face value has an market price of $96,618.36. If you purchased this bond and held it to maturity, what is the yield-to-maturity on your bond? (Hint: use 4 decimal places for your calculations.) A. 1.50% B. 3.49% C. 4.49% D. 5.20% E. None of the above. 8 36. When the yield curve is upward-sloping then: A. Short-maturity bonds offer high coupon rates. B. Short-maturity bonds yield less than long-maturity bonds. C. Long-maturity bonds are priced above par value. D. Long-maturity bonds increase in price when interest rates increase. E. None of the above. 37. Suppose that you buy a 1-year maturity bond for $1,000 that will pay you $1,000 plus a coupon payment of $40 at the end of the year. What real rate of return will you earn if the inflation rate is 6%? A. 1.89% B. 1.45% C. 2.00% D. 2.89% E. None of the above. 38. Which of the following is correct? A. Preferred shares are often priced as perpetuities. B. Common shares are often priced as growing perpetuities. C. Bonds are often priced as a mixed stream present value. D. All of the above. E. None of the above. 39. Which of the following best characterizes the difference between growth stocks and income stocks? A. Growth stocks do not pay dividends. B. Income stocks offer higher rates of return. C. Income stocks are seasoned issues. D. Growth stocks have greater present value of growth opportunities (PVGO). E. None of the above. 40. Investors are willing to purchase stocks having high P/E ratios because: A. They expect these shares to sell for a lower price. B. They expect these shares to offer higher dividend payments. C. These shares are accompanied by guaranteed earnings. D. They expect these shares to have greater growth opportunities. E. None of the above. 41. Stocks that have the same expected risk should: A. Offer the same dividend payment. B. Have the same sustainable growth rate. C. Have the same price. D. Have the same expected rate of return. E. None of the above. 42. Suppose furniture manufacturer Herman Miller Inc. has earnings per share of $1.38, a payout ratio of 25% and expected earnings growth rate of 6%. If the average P/E of comparable stocks is 21.3, estimate a share price for Herman Miller using the P/E as a valuation multiple. (Hint: use 2 decimal places for your calculations.) A. $26.39. B. $27.66. C. $28.52. D. $29.39 E. None of the above