Finance 313 old exam number #3

Solve all 25 problems

Finance 313 Exam 3 \"Old\" Student: ___________________________________________________________________________ 1. Protective covenants: A. are primarily designed to protect the issuing corporation from unreasonable demands of bondholders. B. generally apply only to government bonds. C. are primarily designed to protect bondholders from future actions of the bond issuer. D. are limited to stating actions which a firm must take. E. only apply to bonds that have a deferred call provision. 2. A bond for which the registrar of the issuer records ownership and for which payments are made directly to the owner of record is said to be in: A. bearer form. B. debenture status. C. registered form. D. new-issue condition. E. collateral status. 3. Gerold's Travel Service just paid $1.79 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 3.2 percent. If you require a 10.5 percent rate of return, how much are you willing to pay to purchase one share of this stock? A. $25.31 B. $17.59 C. $24.08 D. $24.52 E. $20.64 4. Which one of the following correctly describes the effect of an increase in a bond's yield to maturity? A. coupon rate decreases B. coupon amount increases C. time to maturity increases D. bond's price decreases E. bond's price increases 5. The stated interest payment, in dollars, made on a bond each period is called the bond's: A. yield to maturity. B. coupon. C. maturity. D. coupon rate. E. face value. 6. The voting procedure where a shareholder grants authority to another individual to vote his or her shares is called _____ voting. A. cumulative B. democratic C. proxy D. deferred E. straight 7. A bond that pays interest annually yields a 6.875 percent rate of return. The inflation rate for the same period is 4.35 percent. What is the real rate of return on this bond? A. 2.53 percent B. 2.38 percent C. 2.61 percent D. 2.42 percent E. 2.64 percent 8. The inside quotes for a security are the: A. lowest bid quote and the highest asked quote. B. first posted bid and ask quotes of the trading day. C. averages of all the bid and ask quotes listed in the specialist's order book. D. price quotes which apply only on the floor of the exchange. E. highest bid quote and the lowest asked quote. 9. MicroTron is a new entrant into a rapidly growing industry. The firm is plans to increase its annual dividend by 25 percent a year for the next three years and then decreasing the growth rate to 6 percent per year. The company just paid an annual dividend of $0.80 per share. What is the current market price of one share of this stock if the required rate of return is 17 percent? A. $12.14 B. $12.94 C. $11.17 D. $14.27 E. $15.06 10. Westover Ridge offers a 9 percent coupon bond with semiannual payments and a yield to maturity of 11.68 percent. The bonds mature in 16 years. What is the market price per bond if the face value is $1,000? A. $807.86 B. $916.26 C. $1,322.88 D. $1,453.10 E. $863.08 11. Parts of the indenture limiting certain actions that might be taken during the term of the loan to protect the interests of the lender are called: A. protective covenants. B. trustee relationships. C. deferred call provisions. D. bond ratings. E. sinking funds provisions. 12. The Home Market has adopted a policy of increasing the annual dividend on their common stock at a constant rate of 3.75 percent annually. The firm is paying an annual dividend of $1.10 today. What will the dividend be five years from now? A. $1.37 B. $1.16 C. $1.45 D. $1.32 E. $1.27 13. The price a dealer is willing to pay for a security is called the: A. asked price. B. equilibrium price. C. auction price. D. bid-ask spread. E. bid price. 14. The underlying assumption of the dividend growth model is that a stock is worth: A. an amount computed as the next annual dividend divided by the market rate of return. B. the present value of the future cash flows which it generates. C. an amount computed as the next annual dividend divided by the required rate of return. D. the same amount as any other stock that pays the same current dividend and has the same required rate of return. E. the same amount to every investor regardless of the investor's desired rate of return. 15. A Treasury bond is quoted at a price of 105:21. What is the market price of this bond if the face value is $1,000? A. $1,065.60 B. $105.21 C. $1,052.10 D. $1,056.56 E. $106.56 16. The stream of customer buy and sell orders for securities is referred to as the: A. commission trail. B. bid-ask spread. C. trading volume. D. paper trail. E. order flow. 17. The market in which previously issued securities are traded among investors is called the _____ market. A. secondary B. auction C. primary D. over-the-counter E. dealer 18. Wesley-Townsend bonds have an 8.25 percent coupon and pay interest annually. The face value is $1,000 and the current market price is $1,004.60 per bond. The bonds mature in 17.5 years. What is the yield to maturity? A. 8.20 percent B. 8.45 percent C. 7.82 percent D. 7.97 percent E. 8.25 percent 19. Barkstone Candies bonds have a face value of $1,000 and a current market price of $1,047.20. The bonds have a 6 percent coupon rate. What is the current yield on these bonds? A. 2.53 percent B. 6.0 percent C. 2.86 percent D. 11.46 percent E. 5.73 percent 20. Can't Hold Me Back, Inc. is preparing to pay their first dividends. They are going to pay $1.00, $2.50, and $5.00 a share over the next three years, respectively. After that, the company has stated that the annual dividend will be $1.25 per share indefinitely. What is this stock worth to you per share if you demand a 7 percent rate of return? A. $7.20 B. $14.48 C. $18.88 D. $21.78 E. $25.06 21. You are purchasing a 30-year, zero coupon bond. The yield to maturity is 9.1 percent and the face value is $1,000. What is the current market price? A. $270.79 B. $2.20 C. $263.20 D. $73.33 E. $69.27 22. Preemptive rights refer to the right of shareholders to: A. share proportionately in dividends paid. B. share proportionately in any new stock issues sold. C. share proportionately in liquidated assets. D. vote at annual shareholder meetings. E. override the votes of other shareholders 23. The Good Life offers a common stock that pays an annual dividend of $2 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a 9 percent return on your equity investments? A. $22.22 B. $24.22 C. $31.14 D. $26.67 E. $28.57 24. The outstanding bonds of Frank's Welding provide a real rate of return of 2.87 percent. The current rate of inflation is 4.64 percent. What is the nominal rate of return on these bonds? A. 7.33 percent B. 7.46 percent C. 7.51 percent D. 7.64 percent E. 7.71 percent 25. It will cost $3,500 to acquire a small hot dog cart. Cart sales are expected to be $1,500 a year for three years. After the three years, the cart is expected to be worthless as that is the expected remaining life of the cart. What is the payback period? A. 1.11 years B. 1.33 years C. 2.11 years D. 2.33 years E. 3.11 years Solutions to Finance 313 old exam number #3 1. C 2. C 3. A 4. D 5. B 6. C 7. D 8. E 9. A 10. A 11. A 12. D 13. A 14. B 15. D 16. E 17. A 18. A 19. E 20. D 21. D 22. B 23. A 24. D 25. D