. What is the principal amount of a bond that is repaid at the end of the loan term called? . Coupon . Market price Accrued price 5. Dirty price E. Face value -. The current yield on a bond is equal to the annual interest divided by the: A. issue price. . maturity value. C. face amount. D. current market price. current par value. . A real rate of return is defined as a rate that has been adjusted for which one of the following? A. Inflation 3. Interest rate risk C. Taxes D. Liquidity E. Default risk All else held constant, the present value of a bond increases when the: coupon rate decreases. 3. yield to maturity decreases. C. current yield increases. D. time to maturity of a premium bond decreases. . time to maturity of a zero coupon bond increases. 1.12 . A bond has a $1,000 face value, a market price of $1,045, and pays interest payments of $74.50 ever ear. What is the coupon rate? P1+5) 1 - + ) + ( +(-(+) .. 6.76 percent =. 7.00 percent E. 7.12 percent p. 7.45 percent -. 8.14 percent Ca. - A corporate bond pays 6.65 percent interest. How much would a municipal bond have to pay to be quivalent to this on an after tax basis if you are in the 25 marginal percent tax bracket? 8.31 percent Furth =. 6.28 percent C. 4.99 percent D. 7.75 percent C. 8.87 percent - 1- 7. The dividend yield is defined as: the last annual dividend divided by the current market price per share. B. the last annual dividend divided by the current book value share. per C. next year's expected dividend divided by the current market price per share. D. next year's expected dividend divided by the current book value per share. the E. next year's expected dividend divided par value per share. 8. Which one of the following types of securities has the lowest priority in a bankruptcy proceeding? A. Convertible bond B, Senior debt C. Common stock D. Preferred stock E. Straight bond 9. The dividend yield on a stock will increase if the: A. dividend growth rate decreases. B. stock price decreases. C. capital gains rate decreases. D. stock price increases. E. tax rate on dividends increases. 10. Triad common stock is selling for $27.80 a share and has a dividend yield of 4 percent. What is the dividend amount? 27.80-46 A. $.31 B. $.78 C$1.11 D. $3.49 E. $4.25 11. The Glass Ceiling paid an annual dividend of $1.5 per share last year and just announced that future dividends will increase by 1.2 percent annually. What is the amount of the expected dividend in Year 6? A. $1.43 B. $1.75 C. $1.46 XD. $1.77 E. $1.61 C. $5.00 D. $8.62 E. $9.52 115(1+1,296) 4.571.24 12. Breakfast Hut pays a constant annual dividend of $1.25 per share. How much are you willing to pay for one share if you require a rate of return of 14.5 percent? X $1.55 B. $3.75 1125+14.54 - 2- C II. Both Bond X and Bond Y have 6.0 percent coupons, make semiannual payments, and are priced at par value. Bond X has 2 years to maturity, whereas Bond Y has 18 years to maturity. Both bonds have a par value of 1,000. (1) If interest rates suddenly rise by 1 percent, what is the percentage change in the price of these bonds? (2) If rates were to suddenly fall by 1 percent instead, what would be the percentage change in the price of these bonds? (3) What does the differential change in the price of these bonds tell you about the interest rate risk of longer-term bonds? (18 points) 6.0 coupons 35 2005, 36 351499,98 X t The Price goes down X -14 Semiannual payments = 2 Bond 2 YTM Bond Y 18TM Par velue 1000 11 I change diff. 3 2 -6.14 [1-(1 + + 7 m)-{] YTM 2 f 1000 face valve (1 + YTM) { 2 III. One year ago, the Klipek Company issued 15-year bonds at par. The bonds have a coupon rate of 4.5 percent and pay interest annually. Today, the market rate of interest on these bonds is 6.3 percent. (1) How does today's price of this bond compare to the issue price? (2) What is the expected bond price one year from now if interest rate remains at current level? (3) What is the current yield now and the expected capital gains yield over next year? (4) What is the expected one-year holding period return? (16 points) 15 year bond - 1x 4.59 6,39 (1+r)(1th) 11.07 3 4 108 IV. You are considering investment in the common stock of Cowher Corp. The stock is expected to pay a dividend of $3.20 per share at the end of the year (i.e. D = $3.20). The required rate of return for the stock is 12 percent. The stock's dividend is expected to grow at some constant rate, g. The stock currently sells for $80 a share. Assuming the market is in equilibrium, what does the market believe the stock price will be at the end of year? (In other words, what is P?) (12 points) $3,20 persher 12 840 a Share 3.20 "(1-1+1268) 120d ya (1+178) = + 80 10,58 126 78,16 + 71,43 11.12 V. Village East expects to pay an annual dividend of $2.00 per share next year, and $2.40 per share for the following year. After that, the company plans to increase the dividend by 5.0 percent annually. What is this stock's current value at a discount rate of 12.5 percent? (18 points) PV-PMT {[I-E(1++] =} + {U[1] -18