Reference no: EM132068332

First part is Multiple choice questions and Part B is math work shown answers...

1. When the discount rate decreases; the price of the fixed rate coupon bond _________.

A. No change.

B. Increase.

C. Decrease.

2. The lower the default risk, the _____ the credit rating for bonds.

A. Higher

B. Lower

C. No change

3. If a bond has an 8 % coupon (annual payments) rate, a 4-year maturity, and similar bonds are selling for an 11 % yield, what is the price of the bond?

A. $1,000.00

B. $ 910.35

C. $ 906.93

D. $ 880.22

4. A stock purchased at $50 at the beginning of the year paid $10 in dividends and was sold for a net price of $52 at the end of the year.  The total annual return is

A. 20 percent

B. 24 percent

C. 28 percent

D. 30 percent

5. what is the estimated value of a stock, which just paid a $10 dividend, expects dividends to grow at 10%, and requires a 20% return?

A. $100

B. $110

C. $120

D. $121

6. ABC Corporation is selling an IPO of stock.  They expect to pay the new shares equivalent of $4 dividend per share and expect the stock to be priced at $50 in three years.  The market required rate of return is estimated to be 20%.  What is value of the stock today?

A. $24.64

B. $37.36

C. $45.72

D. $50.00

7. Box Co. is selling an IPO of stock.  They expect to pay the new shares equivalent of $9 dividend per share and expect the stock to be priced at $120 in four years.  The market required rate of return is estimated to be 18 per cent.  What is value of the stock today?

A. $73.92

B. $79.50

C. $86.10

D. $120.00

8. What is the estimated value of a stock, which paid a $10 dividend D₀last year, expects dividends to grow at 5%, and requires a 20% return?

A. $66.67

B. $70.00

C. $73.50

D. $80.00

9. A stock, currently trading at $100 expects to pay an $11 dividend this year.  The dividends and stock price has been growing at 7 per cent for 10 years.  What is the expected total return on the stock this year?

A. 11%                        

B. 17 %

C. 18 %

D. 21%

10. The expected acquisition of a firm typically results in _______ in the target's stock price.

A. An increase

B. A decrease

C. No change

D. None of these

11. The efficient market hypothesis____________. 

A. Implies that security prices properly reflect information available to investors
B. Has little empirical validity
C. Implies that active traders will find it difficult to outperform a buy-and-hold strategy
D. B and C
E. A and C

Part II Problem Solving

1. You are interested in buying a $1,000 par value bond with 20 years to maturity and a 8% coupon rate that is paid semiannually. How much should you be willing to pay for the bond if the required rate of return (discount rate) is 10%?

 2. If a semiannualbond with a face value of $1,000 has an8% annual coupon rate and a 10-year maturity. The current price of the bond is approximate $933.55. What's the annual yield-to-maturity on this bond?

3. On the issue date, you bought a 30-year maturity, 8% semi-annual coupon bond. The bond then sold at YTM of 7%. Now, five years later, the similar bond sells at YTM of 6%. If you hold the bond now, what is your realized rate of return for the 5 year holding period?

4. Briefly describe the efficient market theory and list some evidences for the theory and some evidences against the theory.

5. Todd Co. just paid dividends of $2.00 (D₀) per share.  These dividends are expected to grow at an 18% rate for the next three years and at a 6% rate thereafter (forever).  What is the value of the stock if the appropriate discount rate is 12%?