Financial Management Quiz IV Mark the correct answer Time: 10 mins 1.

. A bond sold five weeks ago for $1,100. The bond is worth $1,050 in today's market. Assuming no changes in risk, which of the following is true?

o The bond's current yield (coupon divided by price) has increased from five weeks ago. o The bond must be within one year of maturity. o Interest rates must be lower now than they were five weeks ago. o The face value of the bond must be $1,100. o The coupon payment of the bond must have increased.
2. Your broker offers you the opportunity to purchase a bond with coupon payments of $90 per year and a face value of $1000. If the yield to maturity on similar bonds is 8%, this bond should:

o Sell for the same price as similar bonds regardless of maturity. o Sell at a discount. o Sell at a premium. o Sell for either a premium or a discount but it's impossible to tell which. o Sell for par value.
3. Suppose you read that a bond with a face value of $1,000 and a coupon of $80 per year has a current yield of exactly 8%. How many years remain until maturity? I. Greater than 20 years II. Greater than 10 years but less than 20 III. Less than 10 years

o I only o II only o III only o I, II, or III may be correct

o Cannot be computed since price is not given

4. A bond with a face value of $1,000 has annual coupon payments of $100 and was issued 7 years ago. The bond currently sells for $1,000 and has 8 years remaining to maturity. This bond's ____________must be 10%. I. Yield to maturity II. Current yield [coupon divided by price] III. Coupon rate

o I, II and III o I and II only o III only o II and III only o I only
5. Dividends on the common stock of Stable Inc. are expected to grow at a constant rate forever. If you are told Stable's most recent dividend paid, its dividend growth rate, and a discount rate, you can compute. I. the price today II. the price five years from now III. the dividend that is expected to be paid ten years from now

o I, II and III o I and II only o I and III only o II and III only o I only
6. ABC Corporation's common stock dividend yield (next expected dividend divided by current price) is 2.1%, it just paid a dividend of $1, and is expected to pay a dividend of $1.07 one year from now. Dividends are expected to grow at a constant rate indefinitely. What is the required rate of return on ABC stock?

o 9.0%

o 10.6% o 9.3% o 9.1% o 11.2%