midterm II, any assistance on the answer is appreciated.

CONTACT ME HERE NOW FOR HELP WITH YOUR FINANCE PROBLEM HERE IS MY EMAIL;devinortis@gmail.com I ACCEPT PAYMENTS VIA PAYPAL............................................... Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 8% is CORRECT? Exactly 8% of the first monthly payment represents interest. The monthly payments will decline over time. A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment. The total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity. The amount representing interest in the first payment would be higher if the nominal interest rate were 6% rather than 8%. Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant? Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will provide the higher future value if you leave your funds on deposit. The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity. A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20year mortgage. A bank loan's nominal interest rate will always be equal to or less than its effective annual rate. If an investment pays 10% interest, compounded annually, its effective annual rate will be less than 10%. JG Asset Services is recommending that you invest $1,500 in a 5-year certificate of deposit (CD) that pays 3.5% interest, compounded annually. How much will you have when the CD matures? $1,781.53 $1,870.61 $1,964.14 $2,062.34 $2,165.46 Your bank account pays a 5% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT? The periodic rate of interest is 5% and the effective rate of interest is also 5%. The periodic rate of interest is 1.25% and the effective rate of interest is 2.5%. The periodic rate of interest is 5% and the effective rate of interest is greater than 5%. The periodic rate of interest is 1.25% and the effective rate of interest is greater than 5%. The periodic rate of interest is 2.5% and the effective rate of interest is 5%. Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant? Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will provide the higher future value if you leave your funds on deposit. The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity. A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20year mortgage. A bank loan's nominal interest rate will always be equal to or greater than its effective annual rate. If an investment pays 10% interest, compounded quarterly, its effective annual rate will be greater than 10%. Which of the following statements is CORRECT? An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%. The present value of a 3-year, $150 annuity due will exceed the present value of a 3-year, $150 ordinary annuity. If a loan has a nominal annual rate of 8%, then the effective rate can never be greater than 8%. If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different. The proportion of the payment that goes toward interest on a fully amortized loan increases over time. Which of the following statements is CORRECT? An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%. The present value of a 3-year, $150 annuity due will exceed the present value of a 3-year, $150 ordinary annuity. If a loan has a nominal annual rate of 8%, then the effective rate can never be greater than 8%. If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different. The proportion of the payment that goes toward interest on a fully amortized loan increases over time. Assume that interest rates on 15-year noncallable Treasury and corporate bonds with different ratings are as follows: T-bond = 7.72% A = 9.64% AAA = 8.72% BBB = 10.18% The differences in rates among these issues were most probably caused primarily by: Tax effects. Default risk differences. Maturity risk differences. Inflation differences. Real risk-free rate differences. Which of the following statements is CORRECT? The time to maturity does not affect the change in the value of a bond in response to a given change in interest rates. You hold two bonds. One is a 10-year, zero coupon, bond and the other is a 10-year bond that pays a 6% annual coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the smaller percentage decline. The shorter the time to maturity, the greater the change in the value of a bond in response to a given change in interest rates. The longer the time to maturity, the smaller the change in the value of a bond in response to a given change in interest rates. You hold two bonds. One is a 10-year, zero coupon, issue and the other is a 10-year bond that pays a 6% annual coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the larger percentage decline. Which of the following statements is CORRECT? If a 10-year, $1,000 par, 10% coupon bond were issued at par, and if interest rates then dropped to the point where rd = YTM = 5%, we could be sure that the bond would sell at a premium above its $1,000 par value. Other things held constant, a corporation would rather issue noncallable bonds than callable bonds. Other things held constant, a callable bond would have a lower required rate of return than a noncallable bond. Reinvestment rate risk is worse from an investor's standpoint than interest rate price risk if the investor has a short investment time horizon. If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10% yield to maturity, and if interest rates then dropped to the point where rd = YTM = 5%, the bond would sell at a premium over its $1,000 par value. Which of the following statements is CORRECT? Long-term bonds have less interest rate price risk but more reinvestment rate risk than short-term bonds. If interest rates increase, all bond prices will increase, but the increase will be greater for bonds that have less interest rate risk. Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more interest rate price risk but less reinvestment rate risk. Long-term bonds have less interest rate price risk and also less reinvestment rate risk than short-term bonds. One advantage of a zero coupon Treasury bond is that no one who owns the bond has to pay any taxes on it until it matures or is sold. Which of the following statements is CORRECT? Liquidity premiums are generally higher on Treasury than corporate bonds. The maturity premiums embedded in the interest rates on U.S. Treasury securities are due primarily to the fact that the probability of default is higher on long-term bonds than on short-term bonds. Default risk premiums are generally lower on corporate than on Treasury bonds. Reinvestment rate risk is lower, other things held constant, on long-term than on short-term bonds. If the maturity risk premium were zero and interest rates were expected to decrease in the future, then the yield curve for U.S. Treasury securities would, other things held constant, have an upward slope. Which of the following statements is CORRECT? All else equal, long-term bonds have less interest rate price risk than short-term bonds. All else equal, low-coupon bonds have less interest rate price risk than high-coupon bonds. All else equal, short-term bonds have less reinvestment rate risk than long-term bonds. All else equal, long-term bonds have less reinvestment rate risk than short-term bonds. All else equal, high-coupon bonds have less reinvestment rate risk than low-coupon bonds. Recession, inflation, and high interest rates are economic events that are best characterized as being company-specific risk factors that can be diversified away. among the factors that are responsible for market risk. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. irrelevant except to governmental authorities like the Federal Reserve. systematic risk factors that can be diversified away. Stock A's beta is 1.7 and Stock B's beta is 0.7. Which of the following statements must be true, assuming the CAPM is correct. In equilibrium, the expected return on Stock B will be greater than that on Stock A. When held in isolation, Stock A has more risk than Stock B. Stock B would be a more desirable addition to a portfolio than A. In equilibrium, the expected return on Stock A will be greater than that on B. Stock A would be a more desirable addition to a portfolio then Stock B. Which of the following statements is CORRECT? Suppose the returns on two stocks are negatively correlated. One has a beta of 1.2 as determined in a regression analysis using data for the last 5 years, while the other has a beta of -0.6. The returns on the stock with the negative beta must have been negatively correlated with returns on most other stocks during that 5-year period. Suppose you are managing a stock portfolio, and you have information that leads you to believe the stock market is likely to be very strong in the immediate future. That is, you are convinced that the market is about to rise sharply. You should sell your high-beta stocks and buy low-beta stocks in order to take advantage of the expected market move. You think that investor sentiment is about to change, and investors are about to become more risk averse. This suggests that you should re-balance your portfolio to include more high-beta stocks. If the market risk premium remains constant, but the risk-free rate declines, then the required returns on low-beta stocks will rise while those on high-beta stocks will decline. Paid-in-Full Inc. is in the business of collecting past-due accounts for other companies, i.e., it is a collection agency. Paid-in-Full's revenues, profits, and stock price tend to rise during recessions. This suggests that Paid-in-Full Inc.'s beta should be quite high, say 2.0, because it does so much better than most other companies when the economy is weak. Which of the following statements is CORRECT? If an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks. Therefore, if a portfolio contained all publicly traded stocks, it would be essentially riskless. The required return on a firm's common stock is, in theory, determined solely by its market risk. If the market risk is known, and if that risk is expected to remain constant, then no other information is required to specify the firm's required return. Portfolio diversification reduces the variability of returns (as measured by the standard deviation) of each individual stock held in a portfolio. A security's beta measures its non-diversifiable, or market, risk relative to that of an average stock. A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only that one stock. Stock X has a beta of 0.7 and Stock Y has a beta of 1.7. Which of the following statements must be true, according to the CAPM? Stock Y's realized return during the coming year will be higher than Stock X's return. If the expected rate of inflation increases but the market risk premium is unchanged, the required returns on the two stocks should increase by the same amount. Stock Y's return has a higher standard deviation than Stock X. If the market risk premium declines, but the risk-free rate is unchanged, Stock X will have a larger decline in its required return than will Stock Y. If you invest $50,000 in Stock X and $50,000 in Stock Y, your 2-stock portfolio would have a beta significantly lower than 1.0, provided the returns on the two stocks are not perfectly correlated. How would the Security Market Line be affected, other things held constant, if the expected inflation rate decreases and investors also become more risk averse? The x-axis intercept would decline, and the slope would increase. The y-axis intercept would increase, and the slope would decline. The SML would be affected only if betas changed. Both the y-axis intercept and the slope would increase, leading to higher required returns. The y-axis intercept would decline, and the slope would increase. A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price? $23.11 $23.70 $24.31 $24.93 $25.57 You, in analyzing a stock, find that its expected return exceeds its required return. This suggests that you think the stock should be sold. the stock is a good buy. management is probably not trying to maximize the price per share. dividends are not likely to be declared. the stock is experiencing supernormal growth. Merrell Enterprises' stock has an expected return of 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT? The stock's dividend yield is 8%. The current dividend per share is $4.00. The stock price is expected to be $54 a share one year from now. The stock price is expected to be $57 a share one year from now. The stock's dividend yield is 7% Which of the following statements is CORRECT, assuming stocks are in equilibrium? Assume that the required return on a given stock is 13%. If the stock's dividend is growing at a constant rate of 5%, its expected dividend yield is 5% as well. A stock's dividend yield can never exceed its expected growth rate. A required condition for one to use the constant growth model is that the stock's expected growth rate exceeds its required rate of return. Other things held constant, the higher a company's beta coefficient, the lower its required rate of return. The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield. Which of the following statements is CORRECT? If a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%. The stock valuation model, P0 = D1/(rs g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time. The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years. Which of the following statements is CORRECT? Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the aftertax expected return on the common stock. The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock. One of the disadvantages to a corporation of owning preferred stock is that 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income earned on bonds would be tax free. One of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer. A major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights