10–13
68. The risk premium is likely to be highest for
69. The return measure that an investor demands for giving up current use of funds, without adjusting for
purchasing power changes or the real rate of return, is the
70. The relationship between a bond’s sales price and the yield to maturity
71. The longer the time to maturity
72. A higher interest rate (discount rate) would
10–14
73. A bond pays 7% annual interest in semi-annual payments for 10 years. The current yield on similar
bonds is 9%. To determine the market value of this bond, you must
74. A 20-year bond pays 9% on a face value of $1,000. If similar bonds are currently yielding 6%, what is
the market value of the bond? Use annual analysis.
75. A 10-year bond pays 5% on a face value of $1,000. If similar bonds are currently yielding 10%, what is
the market value of the bond? Use annual analysis.
76. An issue of preferred stock is paying an annual dividend of $1.50. The growth rate for the firm’s
common stock is 5%. What is the preferred stock price if the required rate of return is 7%?
77. Which is a characteristic of the price of preferred stock?
78. Preferred stock has all but which of the following characteristics?
79. The price of preferred stock may react strongly to a change in Kp(required rate of return) because
80. The growth rate for the firm’s common stock is 7%. The firm’s preferred stock is paying an annual
dividend of $3. What is the preferred stock price if the required rate of return is 8%?
81. Will an increase in inflation have a larger impact on the price of a bond or preferred stock?
82. The value of a common stock is based on its
83. The dividend valuation model stresses the
84. A common stock that pays a constant dividend can be valued as if it were
85. The dividend on preferred stock is most similar to
86. Preferred stock valuation uses a constant dividend while common stock valuation uses either a
constant dividend growth or a variable dividend growth. Why is this statement true?
87. An issue of common stock’s most recent dividend is $1.75. Its growth rate is 5.7%. What is its price if
the market’s rate of return is 7.7%?
88. An issue of common stock is selling for $57.20. The year-end dividend is expected to be $2.32,
assuming a constant growth rate of 4%. What is the required rate of return?
10–18
89. An issue of common stock is expected to pay a dividend of $5.15 at the end of the year. Its growth rate
is equal to 6%. If the required rate of return is 10%, what is its current price?
90. If expected dividends grow at 7% and the appropriate discount rate is 9%, what is the value of a stock
with an expected dividend one year from now of $1.00?
91. Stock valuation models are dependent upon
92. If a company’s stock price (P0) goes up, and nothing else changes, Ke(the required rate of return)
should
10–19
93. An issue of common stock has just paid a dividend of $2.00. Its growth rate is equal to 4%. If the
required rate of return is 7%, what is its current price?
94. An issue of common stock is expected to pay a dividend of $3 at the end of the year. Its growth rate is
equal to 3%, and the current share price is $40. What is the required rate of return on the stock?
95. The Required Rate of Return for common stock is Ke = (D1/P0) + g What are the assumptions of the
model?
96. The required return by investors is directly influenced by all of the following except:
97. The required return by investors is important to financial managers except for which of the following
reasons?
98. The market allocates capital to firms based on all of the following except:
99. Market Enterprises would like to issue $1,000 bonds and needs to determine the approximate rate it
would need to pay investors. A firm with similar risk recently issued bonds with the following current
features: a 5% coupon rate, 10 years until maturity, and a current price of $1,170.50. At what rate would
Market Enterprises expect to issue bonds, assuming annual interest payments? Please round to the
closest answer. (Solve this problem using either Excel’s “Goal Seek” function, plug into tvm tables, or a
financial calculator.)
100. Star Corp. issued bonds two years ago with a 7% coupon rate. The bonds are currently trading for
$928 in the market. Which of the following most likely has occurred since the time of issue?
101. As a bond approaches its maturity date, its sales price approaches
102. Two years ago, Maple Enterprises issued 4%, 20-year bonds, and Temple Corp issued 4%, 10-year
bonds. Since their time of issue, interest rates have increased. Which of the following statements is true of
each firm’s bond prices in the market, assuming they have equal risk?
103. All of the following adjustments must be made when interest is paid semi-annually versus annually
EXCEPT:
104. Doug has been approached by his broker to purchase a $1,000 bond for $795. He believes the bond
should yield 8%. The bond pays a 5% annual coupon rate and has 10 years left until maturity. What should
Doug’s analysis of the bond indicate to him? Use annual analysis.
105. Which of the following regarding preferred stock is true?
106. Which of the following is an asset that is usually valued using time value of money?
10–23
Chapter 10 Test Bank – Static Summary
# of Questions
87
1
19
93
7
17
1
19
63
39
14
53
6
23
38
13
26
1
1
23
10
1
10
12
1
4
7
2
5
2
10
3
6
3
1
4