## Description

Question 1 If you expect NoDiv Corporation to sell for $75 per share in three years while paying no dividends along the way, if your required rate of return is 16% per year, how much is the stock worth today? $42.68 $48.05 $51.10 $74.64 Question 2 A compound annuity involves depositing or investing a single sum of money and allowing it to compound for a certain number of years. True False Question 3 A mortgage bond is secured by a lien on real property. True False Question 4 Perpetuity is an investment that continues forever but pays a different dollar amount each year. True False Question 5 The required rate of return for an asset is equal to the risk-free rate plus a risk premium. True False Question 6 The T-bill return is used in the CAPM model as the risk free rate. True False Question 7 The present value of a future sum of money increases as the number of years before the payment is received increases. True False Question 8 Yanti Corp. preferred stock has a 5% stated dividend percentage, and a $100 par value. What is the value of the stock if your required rate of return is 6% per year? $83.33 $100 $120 $3,000 Question 9 Which of the following statements is true? The value of a bond is inversely related to changes in investors’ present required rate of return. If interest rates decrease, the value of a bond will decrease. If interest rates increase, the value of a bond will increase. None of the above. Question 10 If a bond sells for its par value, the coupon interest rate and yield to maturity are equal. True False Question 11 The restrictive provisions contained in the bond indenture protect the common stockholders. True False Question 12 Which of the following is the slope of the security market line? security market line one it varies depending on risk beta Question 13 The expected rate of return on a share of common stock whose dividends are growing at a constant rate (g) is which of the following, where D1 is the next dividend and Vc is the current value of the stock? (D1 + g)/Vc D1/Vc D1/g none of the above Question 14 The value of a bond investment, which provides fixed interest payments, will increase when discounted at a 12% rate rather than at a 7% rate. True False Question 15 The Elvisalive Corporation, makers of Elvis memorabilia, has a beta of 2.75. The return on the market portfolio is 14% and the risk free rate is 4%. According to CAPM, what is the required rate of return on Elvisalive stock? 27.5% 31.5% 11% 10% Question 16 Cumulative preferred stock: requires dividends in arrears to be carried over into the next period has a right to vote cumulatively has a claim to dividends before bonds all of the above Question 17 The present value of an annuity increases as the discount rate increases. True False Question 18 Hughen Industries’ common stock has an expected return of 12.4% and a beta of 1.2. If the expected risk free return is 4%, what is the expected return for the market? 7.0% 8.4% 10.6% 11.0% Question 19 The less risky the bond (or the higher the bond rating) the lower the yield to maturity on the bond, all other things being equal. True False Question 20 The present value interest factor is the inverse of the future value interest factor. True False Question 21 The expected cash flow of an investment takes the condition of the economy into consideration. True False Question 22

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