Quiz_5_-_Ch._10

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University of Fredericton *

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5015

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Finance

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Jan 9, 2024

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Started on Saturday, 28 January 2023, 12:55 PM State Finished Completed on Saturday, 28 January 2023, 1:23 PM Time taken 28 mins 31 secs Grade 5.00 out of 10.00 ( 50 %) Question 1 Correct Mark 1.00 out of 1.00 Question text Valuation of financial assets requires knowledge of Select one: a. Future cash flows. b. Appropriate discount rate. c. Past asset performance. d. Future cash flows and appropriate discount rate. Feedback The correct answer is: Future cash flows and appropriate discount rate. Question 2 Correct Mark 1.00 out of 1.00 Question text The market allocates capital to companies based on Select one: a. Risk. b. Efficiency. c. Expected returns. d. All of the other answers are correct Feedback The correct answer is: All of the other answers are correct Question 3 Correct Mark 1.00 out of 1.00
Question text A 4 year bond pays 4% annual interest (paid semi annually). It currently sells for $872.25. What is the bond's yield to maturity? Select one: a. 4.00% b. 4.59% c. 6.06% d. 7.78% Feedback The correct answer is: 7.78% Nper= 4*2 P/Y=2 (seimannual) PV=-872.25 PMT = (0.04*1000)/2)=20 FV= 1000 Rate(NPer,Pmt,PV,FV,type,guess) = Rate(8,-20,872.25,-1000,0) = 7.78% Question 4 Correct Mark 1.00 out of 1.00 Question text The cost of capital for common stock is K e = (D 1 /P o ) + g. What are the assumptions of the model? Select one: a. Growth (g) is constant to infinity b. The price earnings ratio stays the same c. The firm must pay a dividend of at least a dollar for this formula to work. d. All of the answers are assumptions of the model Feedback The correct answer is: Growth (g) is constant to infinity Question 5 Incorrect
Mark 0.00 out of 1.00 Question text A bond which has a yield to maturity greater than its coupon interest rate will sell for a price Select one: a. Below par. b. At par. c. Above par. d. That is equal to the face value of the bond plus the value of all interest payments. Feedback The correct answer is: Below par. Question 6 Incorrect Mark 0.00 out of 1.00 Question text A 10-year bond pays 8% annual interest (paid semiannually). If similar bonds are currently yielding 5% annually, what is the market value of the bond? Select one: a. $1,000.00 b. $1,857.40 c. $1,233.84 d. $1,080.00 Feedback The correct answer is: $1,233.84 FV= assume $1000 Nper = 10 Rate = 5% Pmt = 8%*FV = 0.08*1000=$80 =PV(Rate/2,Nper*2,Pmt/2,PV,type) = PV(0.05/2,10*2,80/2,1000,0) = $1,233.84
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Question 7 Incorrect Mark 0.00 out of 1.00 Question text A 15-year zero-coupon bond was issued with a $1,000 par value and a yield to maturity of 8%. If similar bonds are currently yielding 8%, what is the market value of the bond? Select one: a. $239.39 b. $315.24 c. $800.00 d. $1,000.00 Feedback The correct answer is: $315.24 FV= $1000 Nper = 15 Rate = 8% Pmt = 0 (because it’s a zero-coupon) =PV(Rate,Nper,Pmt,PV,type) = PV(0.08,15,0,1000,0) = $315.24 Question 8 Incorrect Mark 0.00 out of 1.00 Question text An issue of common stock has just paid a dividend of $3.75. Its growth rate is 8%. What is its price if the markets rate of return is 16%? Select one: a. $25.01 b. $46.88 c. $50.63 d. $54.38 Feedback The correct answer is: $50.63
Price of share = Dividend*(1+g)/ke-g Price of share = $3.75*(1+8%) /(0.16-0.08) Price of share = $50.63 Question 9 Correct Mark 1.00 out of 1.00 Question text Which of the following financial assets is likely to have the highest required rate of return based on risk? Select one: a. Corporate bond b. Treasury bill c. Preferred share d. Common share Feedback The correct answer is: Common share Question 10 Incorrect Mark 0.00 out of 1.00 Question text An issue of preferred stock is paying an annual dividend of $5. The growth rate for the firm's common stock is 14%. What is the preferred stock price if the required rate of return is 11%? Select one: a. $45.45 b. $41.67 c. $35.71 d. None of the other answers are correct Feedback The correct answer is: $45.45 Pp= Dp/Ke = $5/0.11 = $45.45
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