Question 1 of 25

1.0 Points

The rate of return required by investors for owning a bond to its maturity is called the

A. coupon rate.
B. current yield.
C. par rate.
D. yield to maturity.

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Question 2 of 25

1.0 Points

Which of the following statements regarding bond terminologies is INCORRECT?

A. The written, legally binding agreement between the corporate borrower and the lender detailing the terms of a bond issue is called the indenture.
B. The unsecured long-term debts of a firm are commonly called debentures.
C. A special account that sets aside periodic payments for bond redemption is called a sinking fund.
D. An agreement giving the bond issuer the option to repurchase the bond at a specified price prior to maturity is called the zero provision.

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Question 3 of 25

1.0 Points

Which of the following statements regarding bond trading is INCORRECT?

A. The long-term bonds issued by the U.S. government are called Treasury Bills.
B. The long-term bonds issued by state and local governments in the United States are called municipal bonds.
C. A bond that makes no coupon payments (and thus is initially priced at a deep discount) is called a zero coupon bond.
D. The price a dealer is willing to pay for a security is called the bid price.

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Question 4 of 25

1.0 Points

Which bond would most likely possess the least degree of interest rate risk?

A. 8% coupon rate, 15 years to maturity
B. 10% coupon rate, 10 years to maturity
C. 12% coupon rate, 8 years to maturity
D. 8% coupon rate, 12 years to maturity

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Question 5 of 25

1.0 Points

What is the value of a bond that will pay a total of 50 semiannual coupons of $80 each over the remainder of its life? The yield to maturity is 12%, p.a. Note: B = C [{1 1/(1+y)^t}/y] + F /(1+y)^t. Be careful about specifying t and y for this semiannual bond.

A. $ 734.86
B. $ 942.26
C. $1,135.90
D. $1,315.24

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Question 6 of 25

1.0 Points

Dizzy Corporations 10-year semiannual bond bearing a coupon rate of 12% is currently selling for $950. Given this information, which of the following is the correct valuation equation for this bond? Note: PVIFA(r,t) = [{1-1/(1+r)^t}/r] and PVIF(r,t) = 1/(1+r)^t.

A. B = 120 [PVIFA(12%, 10)] + 1,000 [PVIF(12%, 10)]
B. $950 = 120 [PVIFA(r, 10)] + 1,000 [PVIF(r, 10)]
C. $950 = 60 [PVIFA(r/2, 20)] + 1,000 [PVIF(r/2, 20)]
D. B = 60 [PVIFA(6%, 20)] + 1,000 [PVIF(6%, 20)]

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Question 7 of 25

1.0 Points

To find the yield-to-maturity of the bond in Question #6 by trial and error, which of the following numbers should you pick as your first try?

A. 13%
B. 12%
C. 11%
D. Any number (like one of your favorite lotto numbers).

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Question 8 of 25

1.0 Points

George bought an investment one year ago and just calculated his return on investment. He found that his purchasing power has increased by 15% as a result of his investment. If the inflation over the period was 4%, his _______________. Note: (1+R) = (1+r)(1+h), but you dont need calculation here.

A. real return on investment is more than 15%
B. nominal return on investment is more than 15%
C. nominal return on investment is more than 15%
D. real return on investment is equal to 4%

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Question 9 of 25

1.0 Points

Which statement is INCORRECT given the following Treasury quotes?

Maturity Coupon Bid Asked Chg Asked Yld

5/15/2030 6.250 150.7188 150.7500 .8906 2.713

A. This bonds coupon rate is 6.25%.
B. The ask(ed) price is $1,507.188.
C. The dealer is willing to sell this bond to you for 150.750% of par.
D. This bonds ask price rose by $8.906 (i.e., eight dollars and 90+ cents) from the previous trading day.

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Question 10 of 25

1.0 Points

Which of the following statements regarding stock trading is INCORRECT?

A. Stock that has priority for dividends and bankruptcy liquidation is called equity stock.
B. Proxy voting is the voting procedure where shareholders grant authority to another individual to vote their shares.
C. Capital gains yield is the rate at which the stock price is expected to appreciate.
D. The short alphabetic abbreviation for an exchange-listed stock by which the issue is identified in the market is called the stock's ticker symbol.

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Question 11 of 25

1.0 Points

What would you pay for a share of ABC Corporation stock today if the next dividend will be $3 per share, your required return on equity investments is 15%, and the stock is expected to be worth $90 one year from now? Hint: PV = FV/(1+r)^t

A. $78.26
B. $80.87
C. $82.56
D. $90.00

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Question 12 of 25

1.0 Points

A preferred stock that pays a constant dividend of $1.50 currently sells for $10.71. What is the required rate of return? Note: P₀ = D/R.

A. 10%
B. 12%
C. 13%
D. 14%

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Question 13 of 25

1.0 Points

A stock with a constant dividend growth rate of 5% is expected to make a $2 dividend in one year. If you require a 12% return on your investment, which of the following statements is INCORRECT? Note: P₀ = D₁/(Rg) or R = (D₁/P₀) + g.

A. The current stock price is $28.57.
B. The dividend yield is 7%.
C. The capital gains yield is 12%.
D. The stock price will grow at an annual 5%.

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Question 14 of 25

1.0 Points

McIver, Inc. currently pays a $2 annual dividend. Investors believe that dividends will grow at 20% next year, 12% for the following year, and 6% annually thereafter. The required return is 10%. What is the current price of the stock?

A. $54.90
B. $60.80
C. $63.27
D. $69.34

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Question 15 of 25

1.0 Points

Which statement is INCORRECT given the following stock quotes?

Prev Close 44.34 Days Range 43.45 44.37

Bid 44.01 x 1,200 Volume 908,587

Ask 44.02 x 400 P/E 17.26

Beta 2.4 EPS 2.55

Market Cap 10.11B Div & Yield 0.50 (1.10%)

A. At this point someone was willing to buy 1,200 shares of this stock for $44.01 a share.
B. The yield-to-maturity for this stock is 1.1%.
C. On this trading day so far 908,587 shares changed hands.
D. The total value of this companys stock is (about) $10,110 million.

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Question 16 of 25

1.0 Points

Which of the following indicates that a project is expected to create value for its owners?

A. Profitability index less than 1.0
B. Payback period greater than the requirement
C. Positive net present value
D. Required rate of return greater than the projects IRR

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Question 17 of 25

1.0 Points

Which of the following statements regarding capital budgeting criteria is INCORRECT?

A. The net present value profile shows how the NPV of an investment is affected by the discount rate.
B. When the selection of one project eliminates the option of selecting the other project, the two projects are called mutually exclusive.
C. The net present value rule is generally considered to be the best capital budgeting rule.
D. The net present value is positive when the required return exceeds the internal rate of return.

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Question 18 of 25

1.0 Points

A project that provides a constant annual cash flow of $1,930 for eight years costs $7,700 today. Calculate the NPV at an 8% discount rate. Note: NPV = sum of the present values of all (positive and negative) cash flows

A. $3,391.01
B. $2,370.52
C. $1,930.00
D. -$5,770.00

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Question 19 of 25

1.0 Points

Which one of the following defines the internal rate of return (IRR) for a project?

A. Discount rate that creates a zero cash flow from assets
B. Discount rate that results in a zero net present value for the project
C. Discount rate that results in a net present value equal to the project's initial cost
D. Rate of return required by the project's investors

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Question 20 of 25

1.0 Points

Given the NPV profile shown in the attachment, which is the correct statement?

Question 20 NPV Profile.docx

12 KB

A. The X-axis (?) should be labeled IRR.
B. According to the IRR rule this project is acceptable unambiguously.
C. According to the NPV rule this project is acceptable at a 10% discount rate.
D. This project is an efficient project.

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Question 21 of 25

1.0 Points

Which of the following statements regarding the efficient market hypothesis (EMH) is incorrect?

A. An efficient market is a perfect market where you can make large profits.
B. If the market is efficient in its strong form, it reflects all available, public and private, information.
C. The semi-strong form efficiency means that market prices reflect all publicly available information.
D. A market that only reflects the past price and volume information is a weak-form efficient market.

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Question 22 of 25

1.0 Points

Which of the following assets likely has the highest level of risk (therefore the highest expected return)?

A. Long-term corporate bonds
B. US Treasury bills
C. Long-term government bonds
D. Common stock of the small companies listed on NYSE

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Question 23 of 25

1.0 Points

An investor earned the following historical returns for the last four years: 30%, 40%, 15%, and 7%. Which is incorrect? Remember, the historical variance is the sum of the squared deviations divided by (n-1): ² = (R_i R)]²/(n-1), where R is the average return.

A. The simple average return is 8%.
B. The variance is 0.08393.
C. The standard deviation is 28.97%.
D. You cant determine the variance since you have no probabilities.

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Question 24 of 25

1.0 Points

Which of the following statements regarding dollar returns and percentage returns is incorrect?

A. If you purchased a 6% bond at par ($1,000) and one year later sold it for $1,050 after receiving the coupons, your dollar return is $110.
B. Your percentage return in A) is 11%.
C. If you purchased a stock for $50 and one year later sold it for $55 after receiving $5 of dividends, your dollar return is $10.
D. Your percentage return in C) is 10%.

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Question 25 of 25

1.0 Points

The rate of return on which of the following securities is generally considered a risk-free rate?

A. U.S. Treasury Bill
B. Long-term corporate bonds
C. Large company stocks
D. Long-term government bonds