Question 1

Gerhardt Transportation Company has a semi-annual bond outstanding with a par value of $5,000,000. The bond is trading for $5,071,818.801. If there are 7 years to maturity, and investors generally require a 5.50% annual return, what is the annual interest payment for this bond? (Round to the nearest whole dollar).

Group of answer choices

$575,000

$237,950

$287,500

$475,600

$137,850

Flag question: Question 2

Paragon Telecommunications Corp. issued a bond 7 years ago. It has a par value of $1,000 and a coupon interest rate of 7.75% with annual interest payments. Currently, investors require an 8.25% return, and the current price is $953.942290. What was the original maturity for this bond?

Group of answer choices

15 years

10 years

12 years

25 years

14 years

Flag question: Question 3

The difference between the coupon interest rate on a fixed-rate bond and the yield to maturity for a bond is: ___.

Group of answer choices

the coupon interest rate for a bond is actually the same thing as the yield to maturity for a bond.

the coupon interest rate for a bond is the legally-defined unchanging contractual interest rate for a bond; the yield to maturity for a bond defines what is the fixed-dollar annual interest payment for a bond.

the coupon interest rate for a bond is the legally-defined maximum investment return permitted for a bond; the yield to maturity is an investors required return for a bond that pays no cash interest payments (i.e., a zero coupon bond).

the coupon interest rate for a bond is the legally-defined unchanging contractual interest rate for a bond and determines what the annual dollar interest payment is for a bond; the yield to maturity for a bond is the current market rate of return required by prospective investors in the bond and can change frequently over time.

Flag question: Question 4

Based on the historical long-term patterns of investment returns and risks for different classes of financial instruments as displayed in the textbook, _____.

Group of answer choices

investors in common stocks in the U.S. usually receive higher returns every year than investors in debt instruments.

investors in debt instruments usually receive positive returns in more years than common stock investors, but common stock investors always have years with very large returns.

it is more likely to consistently earn a higher investment return with a smaller portfolio of common stocks from the same industry than with a larger portfolio of different common stocks.

investors who want higher returns must be willing to accept higher risks; investors who are unwilling to accept higher risks must expect lower investment returns.

Flag question: Question 5

MNO Inc. (MNO) common stock is expected to earn a 14.50% average annual return over the next few years, and its standard deviation is expected to be 23.67%. ABC Corp. (ABC) common stock is expected to achieve a 22.00% annual return over the next few years, and its standard deviation is expected to be 31.25%. Using the Coefficient of Variation statistic, which of these two investments appears to be more favorable based on this information and why?

Group of answer choices

MNO, because it represents less risk in proportion to its expected return.

ABC, because it represents less risk in proportion to its expected return.

ABC, because it has a higher expected return even if it has higher risk.

MNO, because it has a lower standard deviation.

Both MNO and ABC represent comparable risk-return investments.