a. 5. Acme, Inc. has a beta of 1.2 and a standard deviation of returns of 18%. Coyote, Inc. has a beta of 1.8 and a standard deviation of returns of 18%. If the market risk premium increases, then the required return on Coyote stock will increase more than the required return on Acme stock b. the required returns on Acme stock and Coyote stock will both increase by the same amount c. the required returns on Acme stock and Coyote stock will remain the same d. the required return on Acme stock will increase more than the required return on Coyote stock 6. Sue and Maria are both considering buying a corporate bond with a coupon rate of 8%, a face value of $1,000, and a maturity date of January 1, 2035. Which of the following statements is most correct? a. Because both Sue and Maria will receive the same cash flows if they each buy a bond, they both must assign the same value to the bond. b. If Sue decides to buy the bond, then Maria will also decide to buy the bond, if markets are efficient. c. Sue and Maria will only buy the bonds if the bonds are rated BBB or above. d. Sue may determine a different value for a bond than Maria because each investor may have a different level of risk aversion, and hence a different required return. 7. Myrtle's Turtles, Inc. has two bonds outstanding. Both bonds mature in 10 years, have a face value of $1,000, and have a yield to maturity of 8%. One bond is a zero coupon bond and the other bond has a coupon rate of 8%. Which of the following statements is true? a. Both bonds must sell for the same price if markets are in equilibrium. b. The zero coupon bond must have a higher price because of its greater capital gain potential. c. The zero coupon bond must sell for a lower price than the bond with an 8% coupon rate. d. All rational investors will prefer the 8% bond because it pays more interest. 8. In 2011 Carolina Agricultural Supplies, Inc. issued bonds with an 8 percent coupon rate and a $1,000 face value. The bonds mature on October 1, 2036. If an investor purchased one of these bonds on October 1, 2021, determine the yield to maturity if the investor paid $1,050 for the bond. a. 8.5% b. the yield to maturity is $950 ($1,000 interest less $50 capital loss) c. the yield to maturity must be greater than 8% because the price paid for the bond exceeds the face value d. 7.44% 9. A Bill's BBQ House, Inc. bond has a coupon rate of 9%, a yield to maturity of 11.1%, a face value of $1,000, and a market price of $850. Therefore, the annual interest payment is: a. $90 b. $109 c. $76.50 d. $111 a. 5. Acme, Inc. has a beta of 1.2 and a standard deviation of returns of 18%. Coyote, Inc. has a beta of 1.8 and a standard deviation of returns of 18%. If the market risk premium increases, then the required return on Coyote stock will increase more than the required return on Acme stock b. the required returns on Acme stock and Coyote stock will both increase by the same amount c. the required returns on Acme stock and Coyote stock will remain the same d. the required return on Acme stock will increase more than the required return on Coyote stock 6. Sue and Maria are both considering buying a corporate bond with a coupon rate of 8%, a face value of $1,000, and a maturity date of January 1, 2035. Which of the following statements is most correct? a. Because both Sue and Maria will receive the same cash flows if they each buy a bond, they both must assign the same value to the bond. b. If Sue decides to buy the bond, then Maria will also decide to buy the bond, if markets are efficient. c. Sue and Maria will only buy the bonds if the bonds are rated BBB or above. d. Sue may determine a different value for a bond than Maria because each investor may have a different level of risk aversion, and hence a different required return. 7. Myrtle's Turtles, Inc. has two bonds outstanding. Both bonds mature in 10 years, have a face value of $1,000, and have a yield to maturity of 8%. One bond is a zero coupon bond and the other bond has a coupon rate of 8%. Which of the following statements is true? a. Both bonds must sell for the same price if markets are in equilibrium. b. The zero coupon bond must have a higher price because of its greater capital gain potential. c. The zero coupon bond must sell for a lower price than the bond with an 8% coupon rate. d. All rational investors will prefer the 8% bond because it pays more interest. 8. In 2011 Carolina Agricultural Supplies, Inc. issued bonds with an 8 percent coupon rate and a $1,000 face value. The bonds mature on October 1, 2036. If an investor purchased one of these bonds on October 1, 2021, determine the yield to maturity if the investor paid $1,050 for the bond. a. 8.5% b. the yield to maturity is $950 ($1,000 interest less $50 capital loss) c. the yield to maturity must be greater than 8% because the price paid for the bond exceeds the face value d. 7.44% 9. A Bill's BBQ House, Inc. bond has a coupon rate of 9%, a yield to maturity of 11.1%, a face value of $1,000, and a market price of $850. Therefore, the annual interest payment is: a. $90 b. $109 c. $76.50 d. $111