QUESTION 28

Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, 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 premium.

Maturity risk premium

Liquidity risk premium.

5 points

QUESTION 29

John purchased 100 shares of Google common stock today. This transaction occurs in the:

Primary market.

Secondary market.

Credit market.

Money market.

5 points

QUESTION 30

An increase in a firm's expected growth rate would normally cause its required rate of return to

increase.

decrease.

remain constant.

possibly increase, possibly decrease, or possibly have no effect.

5 points

QUESTION 31

What's the future value of the initial $200 deposit after 5 years? We assume current interest rate is = 12%, compounded annually. ______

$365.2

$363.3

$352.5

$396.8

5 points

QUESTION 32

What's the present value of $200 due in 5 years? We assume current interest rate is = 12%, compounded monthly. ______

$122.1

$113.5

$110.1

$107.3

5 points

QUESTION 33

A stock has the following probability distribution: If economy is good (the probability is 20%), its expected stock return is 20%; if economy is on average (the probability is 60%), its expected stock return is 10%; if economy is bad (the probability is 20%), its expected return is -20%. Find the expected rate of return for the stock

4.0%

6.0%

10.0%

14.0%

5 points

QUESTION 34

Using the data from Question 33, find the standard deviation (risk) for the stock

11.49%

12.59%

13.56%

14.56%

5 points

QUESTION 35

Construct an amortization schedule for a $1,000, 5% annual rate loan with 3 equal payments. The first payment will be made at the end of the1st year. Find the required annual payments

$355.8

$367.2

$388.0

$390.7

5 points

QUESTION 36

Based on the information from Question 35, what's the ending balance of the amortized loan at the end of the first year

$0

$349.7

$388.3

$682.8

5 points

QUESTION 37

Based on the information from Question 35 and 36, calculate the total amount of interests you should pay for the amortized loan in three years.

$28.8

$55.4

$80.0

$101.6

5 points

QUESTION 38

Find the yield to maturity (YTM) for a 10-year, 10% annual coupon rate, $1,000 par value bond if the bond sells for $1,000 currently? We assume that interest is paid on this bond annually.

5.11%

6.91%

7.64%

10.0%

5 points

QUESTION 39

Using the information from Question 38, calculate the bond's current yield.

6.20%

6.57%

10.0%

8.21%

5 points

QUESTION 40

Using the information from Question 38 and 39, calculate the bond's capital gain yield.

-0.35%

-1.27%

0.35%

0.0%