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Junk bonds must be bad investment and should be avoided
Which of the following statements is false about junk bonds?
The coupon rate for B must be higher because it is a premium bond while A is a discount bond.
A firm has two bonds outstanding. Bond A has 7 years to maturity and a current market price of $923. Bond B has 9 years to maturity and is selling at $1040. The yields to maturity of the two bonds are the same. Both bonds make semi-annual coupon payments. Which bond must have a higher coupon rate and why?
Stock 2
You would like to maximize the required rate of return of your investment. Stock 1 has a current price of $50 and a constant dividend of $5 (i.e., the dividend will not increase or decrease in the future). Stock 2 has a current price of $40 and will pay a dividend of $4 in one year. In addition, the dividend of stock 2 is expected to grow at a constant rate of 2% forever. Which option should you choose to maximize your required rate of return?
$59.47
The last dividend paid by the Brim Company was $3.50. Brim's dividend growth rate is expected to be a constant 20% for two years, after which dividends are expected to grow at a rate of 5% forever. Brim's required rate of return on common stock is 13%. At what price should Brim shares sell for currently?
3%
Market Enterprises would like to issue bonds at a par value of $1,000 per unit and needs to determine the approximate coupon rate it would need to pay investors. A firm with similar risk recently issued bonds, which currently have the following features: a 5% coupon rate, 10 years until maturity, and a current price of $1,170.50. At what coupon rate would Market Enterprises expect to issue bonds, assuming annual interest payments?
Please round to the closest answer.
Primary market
The _____ is the market of first sale in which companies first sell their authorized shares to the public.
$946.30 at 7.5% or $1,087.68 at 5%
Randy Harris is contemplating whether to add a bond to his portfolio. It is a semiannual, 6.5% bond with 7 years to maturity. He is concerned about the change in value due to interest rate fluctuations and would like to know the bond's value given various scenarios. At a yield to maturity of 7.5% or 5.0%, the bond's fair value is closest to…
The dividend growth rate is 0.64% and it will be higher if the stock price is 10% higher.
Emma would like to estimate the dividend growth rate of the company that she is working for. She gathered the following information: Current stock price is $43; the company just paid a dividend of $4 per share and investors require a rate of return of 10%. The dividends are expected to grow at a constant rate forever. She is also curious how dividend growth rate would be impacted if the price of the stock was 10% higher. What is she most likely going to find out?
$1.16
Biogenetics, Inc. plans to retain and reinvest all of their earnings for the next 30 years. Beginning in year 31, the firm will begin to pay a $30 per share dividend. The dividend will not subsequently change. Given a required return of 18%, what should the stock sell for today?
An indenture
The contract between bondholders and the issuing corporation that outlines the bond covenants and duties of the issuing corporation is called…
The yield to maturity
Investors consider which of the following to be the most important measure of bond returns?
5/10% = 50
The Jones Company has decided to undertake a large project. Consequently, there is a need for additional funds. The financial manager plans to issue preferred stock with a perpetual annual dividend of $5 per share. If the required return on this stock is currently 10 percent, what should be the stock's market value? |
bond is traded at a market price of less than $1,000.
Since coupon rate is less than the yield to maturity, the bond must be a discount bond.
A year ago a company issued a bond with a face value of $1,000 with an 8% coupon. Now the prevailing market yield is 10%. What happens to the bond? The:
moderate growth, "mature" company
The constant-growth dividend discount model would typically be most appropriate in valuing a stock of a…
45.45
How much should you pay for a share of stock that offers a constant-growth rate of 10%, requires a 16% rate of return, and is expected to sell for $50 one year from now? (round to the nearest cent).
3.52 years
In how many years will a bond mature, given its current price of $948, face value of $1,000, coupon of 8.5%, and required return of 10.3%? The bond makes coupon payments semi-annually.
