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Chapter 5

Multiple Choice

Multiple Choice

This activity contains 34 questions.

	The Micro Company's bond makes a $30 interest payment to its holder every six months and currently trades in the market at $980. Micro's annual coupon rate is   5.83% 6% 6.12% 6.78%

	The Delta Company's bond makes a $25 interest payment to its holder every six months and currently trades in the market at $965. The current yield on Delta's bond is   5 % 5.05 % 5.18 % 6.12%

	A bond with a bullet maturity   Pays both interest and principal every six months. Pays its principal in two installments. Matures in less than one year. Pays its principal in a lump sum at maturity.

	Bond issues with a sinking fund   have coupon payments that gradually decline over time. make periodic payment of the issue's principal over the life of the bonds. Often retire outstanding bonds using a lottery. Both Answers 2 and 3 are correct

	The Jester Company's bonds make a semiannual coupon payment of $37.50 and mature in exactly 12 years from today. If current market required returns on bonds of similar risk and maturity are 6.8 %, at what price should these bonds trade?   $996.35 $1,000 $1,056.80 $1,085.50

	The King Company's bonds make a semiannual coupon payment of $20 and mature in exactly 7 years from today. If the current market required return on bonds of similar risk and maturity is 5.75 %, at what price should these bonds trade?   $900.31 $925.41 $966.90 $987.52

	The Haynes Company's bonds are selling today in the market for $887.32. The annual coupon rate on the bonds is 6.5% and they mature in exactly 13 years. What yield to maturity do these bonds offer?   6.5% 7.2% 7.6% 7.9%

	The Clark Company's bonds are selling today in the market for $1132.41. The annual coupon rate on the bonds is 9% and they mature in exactly 11 years. What yield to maturity do these bonds offer?   7.23% 7.56% 8.34% 9%

	The Beck Company has a zero-coupon bond issue outstanding that currently sells for $287.85 and pays $1,000 at maturity. If the bonds have exactly 17 years until maturity, what yield to maturity do they offer?   6.96% 7.46% 7.85% 7.99%

	The Hebert Company has a zero coupon bond issue outstanding that currently sells for $789.50 and pays $1,000 at maturity. If the bonds have exactly 3 years until maturity, what yield to maturity do they offer?   6.82% 7.34% 8.04% 9.36%

	Compared to bonds with shorter maturities, bonds with longer maturities   Have smaller interest rate risk. Have greater interest rate risk Have the same interest rate risk. None of the above.

	Interest rate risk is based on   The amount that a bond's coupon changes as market interest rates change. The amount that a bond's price changes as market interest rates change The amount that a bond's liquidity changes as market interest rates change The amount that a bond's par value changes as market interest rates change

	As the required return on a bond increases, the bond's price   decreases increases Stays the same Cannot be determined.

	A reason that a bond's price might not converge to its par value at maturity is   That the bond currently sells at a premium. That the bond currently sells at a discount That the bond issuer defaults on the principal repayment. Either Answer 1 or 2

	The Ryan Company has a bond issue maturing in 12 years with a coupon rate of 7% that is protected from a call for five years from today. After that time, the bonds can be called at a price of $1,080. The bond currently sells for $1,145.75. What is its yield to call?   4.72% 4.96% 5.09% 5.32%

	The Sigma Company has a bond issue maturing in 15 years that has a coupon rate of 8% and is protected from a call for four years from today. After that time, the bonds can be called at a price of $1,100. The bond currently sells for $1,178.72. What is its yield to call?   5.27% 5.55% 6.16% 7.48%

	The firm's ________ have the most risky claim on the firm's earnings.   bondholders Preferred stockholders common stockholders Both the preferred and common stockholders have equally risky claims.

	The Elco Company has preferred stock outstanding that pays a $1.75 dividend every quarter. Elco must redeem the preferred stock at its par value of $100 in 25 years. The preferred stock currently trades at $98.70 per share. If you bought some shares today, what would be your yield to maturity?   5.85% 6.32% 7.11% 8.19%

	The Bell Company has preferred stock outstanding that pays a $2.00 dividend every quarter. Bell must redeem the preferred stock at its par value of $100 in 15 years. The preferred stock currently trades at $102.25 per share. If you bought some shares today, what would be your yield to maturity?   7.35% 7.75% 8.13% 8.87%

	The Eagle Company has preferred stock outstanding that pays a $2.25 dividend every quarter. Eagle must redeem the preferred stock at its par value of $100 in 17 years. The required return on the Eagle shares is 8.5 %. What price would you be willing to pay to buy the Eagle preferred shares today?   $100 $102.83 $104.47 $105.82

	The Lee Company's perpetual preferred stock pays a $.75 per share quarterly dividend and currently sells for $38.45. Its APR required return is   7. 2% 7.4% 7.6% 7.8%

	The Wood Company's dividend is expected to grow at a rate of 8% over the foreseeable future. Currently the firm pays $1.20 per share annually in dividends. If the required return on Wood shares is 11%, what is a fair price for the shares?   $38.70 $43.20 $45.63 $48.72

	The Standard Company's dividend is expected to grow at a rate of 5% over the foreseeable future. Currently the firm pays $2.80 per share annually in dividends. If the required return on Standard shares is 10%, what is a fair price for the shares?   $52.25 $55.30 $58.80 $59.50

	Due to increased competition, the Jensen Company's long-term growth is expected to be negative, -6%. Jensen's most recent dividend was $2.56. If the required return on Jensen's common shares is 14%, what is a fair price for the shares today?   $10.78 $11.41 $12.03 $33.92

	Last year the Green Company paid a dividend of $1.84 that is expected to grow at a rate of 7% annually. The Green Company's common shares currently sell for $43.72. What capitalization rate is implied for Green's common stock?.   4.5% 7% 8.5% 11.5%

	Last year the Walden Company paid a dividend of $2.28 that is expected to grow at a rate of 4% annually. The Walden Company's common shares currently sell for $65.85. What capitalization rate is implied for Walden's common stock?.   7.6% 8.2% 9.7% 10.1%

	Last year the Wilson Company paid a dividend of $3.12 that is expected to grow at a rate of 5% annually. The Wilson Company's common shares currently sell for $72.80. What is the expected dividend yield on Wilson's common stock?   3.8% 4.5% 8.4% 9.5%

	Last year the Miller Company paid a dividend of $1.48 that is expected to grow at a rate of 8% annually. The Miller Company's common shares currently sell for $27.48. What is the expected capital gains yield on Miller's common stock?   5.8% 6.6% 8% 13.8%

	Shares of the Tipton Company currently sell for $26.91. Analysts forecast that Tipton will earn $3.45 per share next year and also estimate the capitalization rate to be 12%. What is Tipton's estimated NPVGO?   $1.62 $1.78 $1.84 $1.96

	Shares of the Baker Company currently sell for $42.56. Analysts forecast that Baker will earn $5.36 per share next year and also estimate the capitalization rate to be 11%. What is Baker's estimated NPVGO?   $4.42 $6.17 $8.85 $9.23

	The Fox Company's bonds have an annual coupon rate of 7%. The most recent semiannual coupon payment was made 57 days ago (assume that interest payments are made every 182 days). The bond is selling today for $1,031.35. If you buy the bond today, how much will you have to pay for it (excluding transactions costs)?   $1,031.35 $1,042.31 $1075.54 $1,082.21

	The Eastern Company's bonds have an annual coupon rate of 6%. The most recent semiannual coupon payment was made 167 days ago (assume that interest payments are made every 182 days). The bond is selling today for $982.41. If you buy the bond today, how much will you have to pay for it (excluding transactions costs)?   $982.41 $993.70 $1,009.94 $1,025.82

	The Glass Company's bonds have an annual coupon rate of 6.4% and currently sell for $1,033.87. If the required return on the bonds is 6%, how many years remain until the bonds mature?   5 years 6 years 9 years 12 years

	The Hargrove Company's bonds have an annual coupon rate of 7.8% and currently sell for $989.44. If the required return on the bonds is 8%, how many years remain until the bonds mature?   2 years 7 years 8 years 15 years

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