Q&A Hero

Q: What is the value of an MDI $2.67 perpetual preferred stock to an investor who requires a 7% annual rate of return? Assume the par value is $60.00. a. $85.71 b. $38.14 c. $59.33 d. $60.00

Q: Determine the value of a LASKA 6.25% cumulative preferred stock, series D, par value $75 to an investor who requires a 9.5% rate of return on a security with this risk. a. $65.79 b. $49.34 c. $75.00 d. $114.00

Q: What is the required rate of return to the investor who is willing to purchase a Duke Power preferred stock with a $8.70 dividend, a par value of $100, and a current market price of $87? a. 10.7% b. 8.7% c. 9.4% d. 10.0%

Q: What is the rate of return on a preferred stock that has a par value of $50, a market price of $46.50, and a dividend of $4.10? a. 8.20% b. 11.34% c. 8.82% d. 12.20%

Q: An Allied Northern preferred stock pays a $3.84 annual dividend. What is the value of the stock to an investor who requires a 9.5 percent return? a. $40.42 b. $42.67 c. $38.40 d. $36.48

Q: Assume that the dividend on Central Power Company's $3.25 preferred stock issue is paid annually at the end of the year. Determine the value of this preferred stock to an investor who requires a 12 percent rate of return. a. $3.25 b. $39 c. $12 d. $27.08

Q: Phillips Industries common stock currently sells for $50 and is expected to pay a dividend of $3.00 next year. Determine the implied growth rate for Phillips Industries dividends assuming that an investor's required rate of return on this stock is 14%.a. 6%b. 8%c. 14%d. 20%

Q: If the stock of Sun Computers is selling for $34 and the current dividend is $0.48, what is the implied constant growth rate of dividends to an investor who requires a 14% rate of return? a. 12.54% b. 12.41% c. 14.00% d. 15.41%

Q: The stock of Music City is selling for $37.50 and pays a current annual dividend of $1.10. What is the implied growth rate of dividends for this firm (assume dividends are expected to grow at a constant rate) if an investor's required rate of return is 14 percent? a. 11.07% b. 14.0% c. 11.4% d. 10.75%

Q: What is the rate of return to an investor in the stock of Bajo, Inc. if the current dividend of $0.80 is not expected to change in the foreseeable future? The current price of Bajo is $13.25. a. 6.04% b. 8.0% c. 24.15% d. 10.6%

Q: Wilshire Company's earnings and common stock dividends have been growing at an annual rate of 4 percent over the past several years. The firm currently (t = 0) pays an annual dividend of $4.00. Assuming that Wilshire's common stock dividends continue growing at the past rate for the foreseeable future, determine the value of the company's common stock to an investor who requires a 13 percent rate of return on these securities. a. $44.44 b. $36.81 c. $46.22 d. $54.00

Q: During the past 8 years, Wellington Company's common stock dividends have grown from $2.00 to $3.19. Estimate the compound annual dividend growth rate over the 8 year period. a. 59.5% b. 6% c. 12% d. 7.3%

Q: Assume that the dividend ($3.25) on Central Power Company's common stock issue is paid annually at the end of the year. This dividend is not expected to increase for the foreseeable future. Determine the value of this stock to an investor who requires a 12 percent rate of return. a. $3.25 b. $39 c. $12 d. $27.08

Q: Over the past 7 years the dividends of Sunshine Mining have grown from $0.24 to the current level of $.53. What is the approximate annual compound growth rate of Sunshine's dividends? a. 20.8% b. 12.0% c. 9.5% d. 10.0%

Q: Assume Zero-Sum Enterprise pays an annual dividend of $1.40 per share and that neither earnings nor dividends are expected to grow in the future. What is the value of Zero-Sum's stock to an investor who requires a 14 percent rate of return? a. $14.00 b. $10.00 c. $20.00 d. 0

Q: Zero-Sum Enterprise expects to pay an annual dividend of $0.48 next year. Dividends and earnings have been growing at a compound annual rate of 8 percent and are expected to continue growing at that rate. What is an investor's required rate of return on Zero-Sum if the current price is $12? a. 12.3% b. 12.0% c. 10.0% d. 10.3

Q: Fast Wheels, Inc. expects to pay an annual dividend of $0.72 next year. Dividends have been growing at a compound annual rate of 6 percent and are expected to continue growing at that rate. What is the value of a share of stock of Fast Wheels to an investor who requires a 14 percent rate of return? a. $9.00 b. $5.14 c. $9.54 d. $14.40

Q: The current price of Zebar is $32.00 and the current dividend is $.60. What is an investor's required rate of return on Zebar if dividends are expected to grow perpetually at a compound annual rate of 8 percent? a. 9.88% b. 11.38% c. 18.75% d. 10.03%

Q: What is the value of a share of stock of HOV Inc. to an investor who requires a 12 percent rate of return if HOV's current dividend is $1.20? Assume earnings and dividends are expected to grow at a compound annual rate of 7 percent. a. $24.00 b. $18.34 c. $25.68 d. $70.00

Q: Which of the following features (if any) of preferred stock provides the investor with a measure of protection against inflation? a. adjustable dividend rate b. cumulative feature c. call feature d. none of these are correct

Q: The principal disadvantage of preferred stock financing is a. its high after-tax cost as compared with long-term debt b. the decrease in the firm's degree of financial leverage c. the required payment of dividends d. the reduction in control

Q: Preferred stock has a priority over common stock with regard to the company's a. assets b. voting rights c. dividends d. both assets and dividends

Q: Rank in ascending order (lowest to highest) the relative risk associated with holding the preferred stock, common stock and bonds of a firm: a. preferred stock, bonds, common stock b. bonds, common stock, preferred stock c. common stock, preferred stock, bonds d. bonds, preferred stock, common stock

Q: Which of the following statements concerning preferred stocks is (are) true? a. Preferred stockholders have a prior claim on the income and assets of the firm as compared to the claims of lenders. b. Preferred stock dividends per share are normally increased as the earnings of the firm increase. c. Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems. d. none of these are correct

Q: In the constant growth dividend valuation model, it is assumed that the ____. a. dividend growth rate exceeds the required rate of return b. firm's future dividend payments are expected to grow at a constant rate forever c. dividend growth rate equals the required rate of return d. none of these answers is correct

Q: In the constant growth dividend valuation model, the required rate of return on a common stock is equal to the sum of the ____. a. capital gains yield and cost of capital b. present value yield and dividend yield c. cost of capital and dividend yield d. capital gains yield and dividend yield

Q: The rights of stockholders to share equally on a per share basis in any distributions of corporate earnings is known as ____. a. preemptive rights b. voting rights c. asset rights d. dividend rights

Q: When evaluating a firm based on price/earnings multiples, the evaluator must determine the price/earnings multiple for a. the general market b. the S&P 500 c. firms in the same industry d. small capitalization firms

Q: If competition in an industry increases, the future growth potential should a. decrease b. increase c. not be affected d. be negative

Q: If the general level of interest rates in the economy moves up, then investors will require a ____ rate of return on securities, and, in general, stock prices should ____, ceteris paribus. a. lower, decline b. higher, increase c. higher, decline d. lower, increase

Q: The constant growth dividend valuation model does not hold when a. ke is greater than g b. dividends are growing faster than 4 percent c. g is greater than ke d. the current dividend is known

Q: The returns investors receive from holding common stocks may be in two forms. They are a. cash dividend payments and capital gains b. future earnings and treasury stock c. stock splits and stock dividends d. cash dividends and stock dividends

Q: Dillinger, Inc. is planning to raise additional capital for expansion by selling 500,000 common shares at $16 each. The existing stockholders' equity section of their balance sheet is shown below. What will the retained earnings figure be immediately after the sale of the new equity?Common stock; $1 par value; authorized, 3,000,000 shares; issued and outstanding, 3,000,000 shares$ 3,000,000Additional paid-in capital6,500,000Retained earnings4,752,000Total stockholders' equity$14,252,000a. $12,252,000b. $14,000,000c. $4,752,000d. $3,500,000

Q: A common stock's book value is calculated a. as a multiple of the stock's price / earning ratio b. on the basis of income statement ratios c. on the basis of balance sheet figures d. on the value of income statement figures

Q: Stockholders' equity equals a. both preferred stock and common equity b. total claims c. additional paid-in capital plus capital surplus d. total liabilities and total surplus

Q: One of the assumptions of the constant growth dividend valuation model is that a. the investor's required rate of return is equal to the expected dividend yield. b. the required rate of return is greater than the dividend growth rate. c. the required rate of return increases at a constant rate. d. the dividend rate (in dollars) will remain constant.

Q: In the valuation of common stock, the simple annuity and perpetuity formulas used in the valuation of bonds and preferred stock are not generally applicable because: a. Investors buy common stock for much different reasons than they buy bonds or preferred stock. b. Returns accruing to common stock should never be capitalized (discounted) in order to determine a price. c. Unlike bonds and preferred stock, common-stock is a short term investment. d. Common stock dividends are normally expected to grow over time, rather than being constant as are payments on most bonds and most preferred stock.

Q: Many preferred stocks are treated as ____ in determining their values. a. Fixed assets b. Perpetuities c. Convertible securities d. Constant growth securities

Q: The valuation of common stock is considerably more complicated than the valuation of bonds or preferred stocks because: a. The returns can take two forms, i.e. annual cash payments and price appreciation b. Common stock dividends are normally expected to grow and not remain constant c. The returns from common stocks are generally larger and more certain than the returns from bonds and preferred stocks d. a and b only

Q: In the constant-growth dividend valuation model, the required rate of return on a common stock can be shown to be equal to the sum of the dividend yield plus: a. Yield-to-maturity b. Cost of capital c. Present value yield d. Price appreciation yield

Q: In the constant-growth dividend valuation model, the required rate of return must be ____ the dividend growth rate in order for the formula price to be meaningful. a. less than b. equal to c. greater than d. proportional to

Q: A change in the market price of an asset will occur as a result of changes in: a. investors' required rates of return b. investors' expected returns from the asset c. book value of the asset d. a and b only

Q: The book value of an asset represents a. the market value b. the discounted cash flow value c. the historic acquisition cost of the asset d. stockholders' acquisition value

Q: Common stockholders have a number of general rights, including all of the following except: a. voting rights b. management rights c. asset rights d. dividend rights

Q: The market value of common stock is primarily based on a. the firm's future earnings b. book value c. total assets d. retained earnings

Q: The book value per share of common stock is calculated by dividing ____ by the number of shares outstanding a. market value of common stock b. total assets c. total stockholders' equity plus preferred stock d. total common stockholders' equity

Q: Stockholders' equity includes all of the following except: a. Common stock at par b. Treasury stock c. Contributed capital in excess of par d. Retained earnings

Q: Which of the following is not a characteristic of common stock: a. it has no maturity date b. it is considered a permanent form of long-term financing c. it has claims on assets prior to those of preferred stock d. it is a residual form of ownership

Q: What is the yield to maturity of an RJR bond with 10 years to maturity, and a coupon of 15%? The current price of this bond is $1,109. Assume interest is paid annually. a. 12.0% b. 12.5% c. 13.0% d. 13.5%

Q: WPI has a bond issue outstanding that has a coupon rate of 10%, and a current yield of 11%. The yield to maturity on this bond is 12%. What is the market price of the WPI bond if it pays interest semi-annually and has 10 years to mature? a. $ 940.90 b. $1020.75 c. $1000.00 d. $ 885.50

Q: Grace Corp. has a zero-coupon bond outstanding that matures in 15 years. This bond is selling for $327.50 today and will pay $1,000 at maturity. What is the yield to maturity to the investor who buys the bond and holds it until maturity?a. 7.73%b. 9.33%c. 9.23%d. 9.77%

Q: What is the yield to maturity of a TVA bond that has a 9 1/2 percent coupon, pays interest semi-annually, has 12 years to maturity, and sells for $871.50? a. 11.3% b. 11.5% c. 11.8% d. 12.1%

Q: CUP Company 8% bonds are currently selling for $950. These bonds (par value of $1,000) mature in one year and pay interest annually. Determine the yield to maturity (to the nearest tenth of 1 percent) on this bond issue. a. 13.7% b. 13.0% c. 13.3% d. 5.0%

Q: How many semiannual interest payments remain on a bond that is selling for $917.25? The coupon rate of the bond is 8 percent, interest is payable semiannually, and the current market rate of return on a similar risk bond is 10 percent. a. 5 b. 10 c. 11 d. 7

Q: An EAL bond has a coupon rate of 16 percent, pays interest semiannually, and matures in 15 years. If the bond is selling for $968.82, what is its yield to maturity? a. 8.3% b. 16.1% c. 16.6% d. 5.17%

Q: The current required rate of return on a bond issued by Who LTD is 11 percent. "Who" has a bond issue outstanding that pays interest semiannually, is selling for $845 and matures in 8 years. What is the coupon rate on the outstanding bond? a. 4.00% b. 8.00% c. 10.68% d. 6.05%

Q: An Exxon bond carries an 8 percent coupon, pays interest semiannually, and has 10 years to maturity. If this bond is currently selling for $925, what is the exact yield to maturity(to the nearest tenth of 1 percent)? a. 9.2% b. 8.8% c. 9.8% d. 10.2%

Q: National Medical has a zero coupon bond outstanding that sells for $242.60 and has 15 years to maturity. What is the yield to maturity on the bond to the nearest tenth of one percent? a. 10.5% b. 9.1% c. 9.9% d. 11.0%

Q: UOP, a petroleum processing technology firm, issued a 10% coupon, 20 year to maturity first mortgage bond five years ago. If the current market rate of debt for UOP is 8%, at what price should this bond sell? Assume a par value of $1,000, and pays interest semi-annually. a. $1,170.00 b. $999.65 c. $1,095.60 d. $1,172.60

Q: What is the issue price of a zero coupon bond with 15 years to maturity if it is sold to yield 7.55%? a. $250.00 b. $362.31 c. $335.62 d. $1000.00

Q: At what price will Gohm have to sell a 10-year zero coupon bond that will yield 8.75% if held to maturity. a. $453 b. $875.00 c. $87.50 d. $432

Q: RJR issued a 10-year, 16% bond in 1999 that was callable at $1,100 in 5 years. In 2004 (today) the required return on bonds of this risk was 11%. The bonds pay interest semi-annually. What would you be willing to pay for one of these bonds today if you believe the bond will be called today? a. $1188 b. $832.25 c. $1,100 d. $1,000

Q: King World zero coupon bonds were issued in 1994 at $124. These bonds will mature in 2014. What will these bonds sell for in 2004 if the required rate of return in 2004 is 9.5%? a. $352 b. $404 c. $413 d. $163

Q: Zimmer, Inc. issued zero coupon bonds that sold for $190 and are due in 15 years. Determine the yield to maturity (to the nearest tenth of 1 percent) if you purchased the bond at the issue price. a. 19.0% b. 11.4% c. 10.9% d. 11.7%

Q: Rascal Corporation bonds have a 10.60% coupon and a maturity value of $1,000. The bonds, which pay interest semi-annually, will mature in 15 years, but the firm has the option to call the bond in 10 years at a premium of 106. You believe that Rascal will call the bonds in 10 years. If you require a pre-tax return of 9.5% on bonds of this risk, how much would you pay for one of these bonds today? a. $1,000 b. $1,094 c. $1,034 d. $1,058

Q: Baywa has an outstanding bond that has a coupon rate of 8.3%. What is the market price of this bond if it pays interest semi-annually, has 15 years to maturity, and the current required rate of return is 9% on bonds of similar quality? a. $943 b. $1059 c. $954 d. $1,000

Q: Mid-States Utility Company sold a 10-year note with a 7 7/8% coupon and a par value of $1,000. If the note sold at a discount for $930, what was the implied yield-to-maturity to the nearest tenth of one percent? Assume interest is paid semiannually. a. 8.5% b. 8.7% c. 9.1% d. 9.4%

Q: ICX Company has an issue of perpetual bonds (par value to $1,000) that pays 5% annual interest. Determine the yield (to the nearest tenth of 1 percent) if the bonds are currently selling for $625. a. 5.0% b. 8.0% c. 3.1% d. 6.25%

Q: Determine the yield to maturity (to the nearest tenth of 1 percent) of an 8-year zero coupon bond ($1,000 par value) that is currently selling for $521. a. 6.0% b. 11.5% c. 7.9% d. 8.5%

Q: What is the value of a PacTen bond with a 10 percent coupon that matures in 15 years? Assume the current market rate for this bond is 16 percent and that interest is paid semiannually. a. $661.90 b. $1,227.78 c. $1,000 d. $875.51

Q: What is the market value of a zero coupon bond with 5 years to maturity? The bond was originally sold with a yield to maturity equal to 11 percent, but the market rate today is 9 percent. a. $593 b. $650 c. $621 d. $495

Q: What is the value of a Northern Pacific bond with an 11 percent coupon, maturing in 15 years? Assume the market rate for this bond is 14 percent and that the interest is paid semiannually. a. $1,000 b. $790.74 c. $813.50 d. $915.10

Q: Determine the yield-to-call (to nearest 0.1 of a percent) of an LTV bond with a 14 percent coupon, that pays interest semiannually. The bond can be called in 7 years, has a call premium of $140, and is currently selling for $1154. a. 12.0% b. 16.2% c. 12.7% d. 5.7%

Q: What is the value of an Orion bond that has a 10 percent coupon, pays interest semiannually, and has 10 years to maturity, if the required rate of return is 12 percent? a. $1,200 b. $885.50 c. $895.27 d. $735.26

Q: Determine the yield to maturity to the nearest tenth of 1 percent of a zero coupon bond with 8 years to maturity that is currently selling for $404. a. 11.3% b. 12.3% c. 11.7% d. 12.0%

Q: A Dow Chemical bond carries a 9 percent coupon, pays interest semiannually, and has 10 years to maturity. What is the bond's yield to maturity if the bond is selling for $937.75? a. 8.0% b. 10.0% c. 9.0% d. 8.4%

Q: Five years ago, the City of Baltimore sold at par a $1,000 bond with a coupon rate of 8 percent and 20 years to maturity. If this bond pays interest semiannually, what is the value of this bond to an investor who requires an 8 percent rate of return? a. $607.72 b. $692.00 c. $1,000 d. cannot be determined from the information given

Q: Marko needs to raise capital through a zero-coupon bond debt offering. If the bonds will have 12 years to maturity and the rate of return on a bond in Marko's risk class is 11 percent, what will be the selling price of the bond? a. $302.50 b. $335.50 c. $269.50 d. $286.00

Q: A refrigerator manufacturer, Zero King, issued a zero coupon bond with 10 years to maturity. What is the yield-to-maturity of this bond if it is sold for $352? a. 12.2% b. 10% c. 11% d. 9%

Q: What is the value of a $1000 par value Consul perpetual bond with a 6 percent coupon rate if the required rate of return is 9 percent? a. $1,000 b. $666.67 c. $333.33 d. $540.00