65) A 10-year zero-coupon bond that yields 6% is issued with a $1,000 par value. What is the
issuance price of the bond? Use time value of money table in Appendix B.
A) $558
B) $64
C) $614
D) $1,000
66) A 5-year zero-coupon bond was issued with a $1,000 par value to yield 8%. What is the
approximate market value of the bond? Use time value of money table in Appendix B.
A) $597
B) $681
C) $275
D) $482
67) Which of the following does NOT influence the yield to maturity for a security?
A) Required real rate of return
B) Risk free rate
C) Business risk
D) Historic yields
68) An increase in the riskiness of a particular security would NOT affect
A) the risk premium for that security.
B) the premium for expected inflation.
C) the total required return for the security.
D) investors’ willingness to buy the security.
69) If the inflation premium for a bond goes up, the sales price of the bond
A) is unaffected.
B) goes down.
C) goes up.
D) More information is needed for an answer.
70) If the yield to maturity on a bond is greater than the coupon rate, you can assume
A) interest rates have decreased.
B) the sales price is below par.
C) the sales price is above par.
D) risk premiums have decreased.
71) The risk premium is likely to be highest for
A) U.S. government bonds investment.
B) corporate bonds investment.
C) utility company stock investment.
D) either corporate bonds or utility company stock investments.
72) Which of the following is not considered a factor to influence the bondholders required rate
of return?
A) Risk premium
B) Other investments by the bondholder
C) Business risk
D) Financial risk
73) 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
A) risk premium.
B) inflation premium.
C) dividend yield.
D) discount rate.
74) The relationship between a bond’s sales price and the yield to maturity
A) changes at a constant level for each percentage change of yield to maturity.
B) is an inverse relationship.
C) is a linear relationship.
D) changes at a constant level for each percentage change of yield to maturity and is an inverse
relationship.
75) The longer the time to maturity
A) the greater the bond price increase from an increase in interest rates.
B) the less the bond price increase from an increase in interest rates.
C) the greater the bond price increase from a decrease in interest rates.
D) the less the bond price decrease from a decrease in interest rates.
76) A higher interest rate (discount rate) would
A) reduce the price of corporate bonds.
B) reduce the price of preferred stock.
C) reduce the price of common stock.
D) all of these options are true.
77) A bond pays 7% annual interest in semiannual payments for 10 years. The current yield on
similar bonds is 9%. To determine the market value of this bond, you must
A) find the interest factors (IFs) for 20 periods at 3.5%.
B) find the interest factors (IFs) for 10 periods at 7%.
C) find the interest factors (IFs) for 10 periods at 9%.
D) find the interest factors (IFs) for 20 periods at 4.5%.
78) 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. Use time value of money tables
in Appendix B and Appendix D.
A) Under $1,300
B) Exactly $1,000
C) Over $1,300
D) Not enough information is given to tell.
79) 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. Use time value of money tables
in Appendix B and Appendix D.
A) $693.25
B) $386.00
C) $3,390.85
D) $1,386.09
80) 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%?
A) $21.43
B) $30.00
C) $22.50
D) None of these options are correct
81) Which is a characteristic of the price of preferred stock?
A) Since preferred stock dividends are fixed, they are tax-deductible.
B) Because preferred stock has no maturity, the price analysis is similar to that of debt.
C) Preferred stock is valued as a perpetuity.
D) None of these options are true.
82) Preferred stock has all but which of the following characteristics?
A) No stated maturity.
B) A fixed dividend payment that carries a higher precedence than common stock dividends.
C) The same binding contractual obligation as debt.
D) Preferred lacks the full ownership privilege of common stock.
83) The price of preferred stock may react strongly to a change in Kp (required rate of return)
because
A) preferred stock may be cumulative.
B) preferred stock dividends have to be paid before common stock dividends.
C) there is no maturity date.
D) corporate recipients of preferred stock dividends may receive a partial tax exemption.
84) 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%?
A) $3.00
B) $37.50
C) $50.00
D) None of these options
85) Will an increase in inflation have a larger impact on the price of a bond or preferred stock?
A) The bond.
B) The preferred stock.
C) The impact will be the same.
D) Inflation doesn’t affect either the bond or the preferred stock price.
86) The value of a common stock is based on its
A) past performance.
B) historic dividends.
C) current earnings.
D) value of future benefits to the holder.
87) The dividend valuation model stresses the
A) importance of earnings per share.
B) importance of dividends and legal rules for maximum payment.
C) relationship of dividends to market prices.
D) relationship of dividends to earnings per share.
88) A common stock that pays a constant dividend can be valued as if it were
A) a corporate bond.
B) a stock paying a growing dividend.
C) preferred stock.
D) a discount bond.
89) The dividend on preferred stock is most similar to
A) a common stock with no growth in dividends.
B) a common stock with a constant growth in dividends.
C) a common stock with a variable growth in dividends.
D) a certificate of deposit.
90) Preferred stock valuation uses a constant dividend while common stock can receive
dividends based on fixed growth or dividends based on earnings. Why is this statement true?
A) Preferred stock receives just as much dividends as common stock.
B) Since not many companies use preferred stock, they just made the calculations easier.
C) Preferred stock receives dividends based on a set amount where common stock can receive
dividends either equal to preferred stock or based on earnings.
D) Common stock dividends usually grow faster than preferred stock dividends.