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BUSI 320 Read & Interact Chapter 10 Assignment solutions complete answers
BUSI 320 Read & Interact Chapter 10 Assignment solutions complete answers
A $20,000, 5 year bond has a stated rate of 6% and sells for $20,000. What is the yield to maturity?
Which of the following formulas is used to determine the required rate of return for preferred stock?
Higher risk investments potentially lead to higher potential return and lower potential loss.
Calculate the present value of the bond’s interest payments. The interest payments are $200 annually for 6 years at a discount rate of 6%. Use the formula method to calculate the present value.
The price of a bond is based on which cash flow(s)?
If the required rate of return increases as a result of inflation or increased risk, the growth rate of common stock will ________.
What is the present value of interest payment for $5,000, 10 year bond with a stated coupon rate of 12% and a market rate of 10%? (Round to the nearest whole dollar)
There is a strong ____ between the risk the investor takes and the return the investor demands.
M&M International paid a $4 dividend last year. The dividend is expected to grow at a constant rate of 5% over the next three years. The required rate of return is 10%. What is the price of the stock at the end of the first year?
Which of the following formulas is used to determine the required rate of return given a constant growth rate?
What is the present value of principal payment for $1,000, 5 year bond with a stated coupon rate of 8% and a market rate of 10%?
The longer the life of a financial asset
If the interest rate stated on the bond is equal to the yield to maturity (discount rate), the bonds will sell for
Preferred stock is a hybrid security because it
What is the present value of $1,000, 5 year bond with a stated coupon rate of 8% and a market rate of 10%?
Given the following information, what is the required rate of return for this investment?
If a company's P/E ratio is 12 and earnings per share of stock are $4, what is the market price of the stock?
What is the present value of interest payments for $1,000, 5 year bond with a stated coupon rate of 8% in a market rate of 10%?
The inability of a firm to hold its competitive position and maintain stability and growth in earnings is known as __________.
A $500,000, 10 year bond has a stated rate of 8% and sells for $520,000. What is the yield to maturity?
Types of risk(s) associated with the risk premium include ?
Which factor (s) would cause the bond to sell above par value (for a premium)?
An addition to the real rate of return required by investors to compensate for the effect of inflations is known as ___?
Factors that influence the price-earnings ratio include
Valuation concepts can be applied to
The ______ rate of return depends on the market's perceived level of risk associated with a security.
Historically, the real rate of return demanded by investors has been about ?
The value of a share of common stock may be interpreted as the
The price of a bond can be determined using a formula. Choose the terms that are involved in pricing a bond.
Cash flows are discounted at Y. What does y represent?
Match the risk premium with the appropriate investment
The price at which a bond sells for is equal to the present value of the
Which factor(s) would cause the bond to sell below par value (for a discount)?
If the required rate of return increases as a result of inflation or increased risk, the value of common stock will ________.
The price of a $500,000, 10 year bond with a stated rate of 10% compounding semiannually and a yield to maturity of 12% is $______________.
Which of the factors influence the bondholder's or investor's required rate of return?
Which of the following formulas is used to determine the price of common stock with constant growth in dividends?
A bond provides an ____________ which is a stream of interest payments of equal amounts of a period of time.
Which of the following formulas is used to determine the price of common stock? Assume that there is no growth in dividends.
What needs to be known to determine the current value of a financial asset?
Preferred stock has a constant annual dividend payment of $20 and a required rate of return of 5%. What is the price of the preferred stock?
Match the term on the left with the appropriate definition on the right
Preferred stock is referred to as a _____ because it has no maturity date.
The market allocates capital to companies based on
Preferred stock has a constant annual dividend payment of $20 and a price of $400. What is the required rate of return?
1.
A $1,000,000, 20 year bond has a stated rate of 10% and sells for $928,000. What is the yield to maturity?
3.
A $500,000, 10 year bond has a stated rate of 8% and sells for $520,000. What is the yield to maturity.
4.
A 10-year bond pays 6% annual interest in semi-annual payments. The current market yield to maturity is 4%. The appropriate interest factors should be in the tables under 2% for 20 periods.
6.
All of the following effect the price-earnings ratio except
7.
Assume a bond’s stated rate is 8% and the yield to maturity is 6%, will the bonds sell for par value, above par value, or below par value?
8.
By using different discount rates, the market allocates capital to companies based on their risk, efficiency, and expected returns.
9.
Calculate the present value of $5,000, 10 year bonds with a stated rate of 12% and a market rate of 10%. Round to the nearest whole dollar.
10.
Calculate the present value of the bonds principal payment for a $5,000, 10 year bond with a stated rate of 10% compounded annually, and a yield of 12%?
11.
Common stock has a constant annual dividend of $2.00 and a required rate of return of 8%. What is the price of the common stock?
12.
Common stock has a dividend of $2.00 at the end of the first year, a growth rate of 6%, and a price of $100. What is the required rate of return?
13.
Company A has a price-earnings ratio of 40 times and company B has a price earnings ratio of 50 times. If both companies have earnings per share of $5, which company's stock price is higher
14.
The cost of capital for common stock is ke= (D1/Po) + g. What are the assumptions of the model?
15.
Coupon rate
16.
The current price of stock is the future value of the present stream of dividends growing at a constant rate.
17.
Dividend are to stocks
18.
The dividend valuation model stresses the
19.
Doug has been approached by his broker to purchase a bond for $795. He believes the bond should yield 8%. The bond pays 5% annual coupon rate and has 12 years left until maturity. What should Doug's analysis of the bond indicate to him? Use Appendix B and Appendix D.
20.
The drawback of the future stock value procedure is that it does not consider dividend income.
21.
Even though the IRS tries to minimize occurrences, small business owners often intermingle business and personal expenses in order to minimize taxable income.
23.
The fact that small businesses are usually illiquid does not affect their valuation process
24.
Firms with bright expectations for the future, tend to trade at high P/E ratios.
25.
The further the yield to maturity of a bond moves away from the bond's coupon rate the greater the price-change effect will be
27.
a higher interest rate (discount rate) would
28.
High-risk corporate bonds are as risky as junk bonds.
29.
Historically the real rate of return has been 2 to 3%.
31.
If a company's stock price (Po) goes up, and nothing else changes, Ke (the required rate of return) should
33.
If the stated interest rate on the bond is 10%, what is the yield to maturity (discount rate) that will cause the bond to trade at par value?
35.
The inability of a firm to meet debt obligations as they come due is known as ____?
36.
An increase in inflation will cause a bond's required return to rise.
37.
An increase in the riskiness of a particular security would NOT affect
38.
In estimating the market value of a bond, the coupon rate should be used as the discount rate.
39.
inflation premium
40.
The inflation premium is based on past and current inflation levels.
41.
the longer the time to maturity
42.
The market allocates capital to firms based on all of the following except:
43.
The market determined required rate of return is also called the discount rate.
45.
Par value of a bond is $1,000 (in general)
49.
a premium associated with special risks associated with a given investment is known as _____
50.
The present value of the principal payment for a $10,000, 10 year bond with a coupon rate of 8% paid semiannually with a market rate of 10% is _____
55.
The price of preferred stock is determined by dividing the fixed dividend payment by the required rate of return.
56.
The price of preferred stock may react strongly to a change in kp because
57.
the rate of return the investor demands for giving up the current use of funds on a non-inflation adjusted basis is called
58.
real rate of return
59.
The return measure that an investor demands for giving up current use of funds, without adjusting for purchasing power changes or the real rate of return, is the
60.
risk-free rate of return
61.
Risk premium
62.
The risk premium is equal to the required yield to maturity minus both the real rate of return and the inflation premium.
63.
The risk premium is primarily concerned with business risk, financial risk, and inflation risk.
64.
Risk Premium to Investment matching
65.
The size of the inflation premium required by an investor is
66.
A stock that has a high required rate of return because of its risky nature will usually have a high P/E ratio.
67.
stock valuation models are dependent upon
69.
The total required real rate of return is equal to the real rate of return plus the inflation premium.
71.
The value of a common stock is based on its
73.
The value of stocks and bonds is based on the present value of the future
74.
The variable growth dividend model can be used for both constant and variable growth stocks
75.
The variable growth model is useful for firms in emerging industries.
77.
What is the present value of interest payments for $1,000, 5 year bond with a stated coupon rate of 8% and a market rate of 10%?
79.
What is the present value of the interest payments for $5,000, 10 year bond with a stated coupon rate of 12% and a market rate of 10%?
81.
When a bond trades at a discount to par, the yield to maturity on the bond will exceed the required return
82.
When inflation rises, bond prices fall.
83.
When inflation rises, preferred stock prices fall
84.
Which factors would cause the bond to sell above par value (for a premium)?
87.
Which of the following is not one of the components that makes up the required rate of return on a bond?
88.
Which of the following regarding preferred stock is true?
89.
Will an increase in inflation have a larger impact on the price of a bond or preferred stock?
90.
Yield to maturity
1.
A $1,000,000, 20 year bond has a stated rate of 10% and sells for $928,000. What is the yield to maturity?
2.
A $20,000, five year bond has a stated rate of 6% and sells for $20,000. What is the yield to maturity?
4.
An addition to the real rate of return required by investors to compensate for the effective inflations is known as
5.
Calculate the present value of $5,000, 10 year bond with a stated rate of 12% and a market rate of 10%? Round to the nearest whole dollar.
6.
Calculate the present value of the bonds principle payment for a $5,000, 10 year bond with a stated rate of 10%, compounded annually, and a yield of 12%? Round to the nearest whole dollar.
7.
Common stock has a constant annual dividend of $2 and a required rate of return of 8%. What is the price of common stock?
8.
Common stock has a dividend of $2.00 and at the end of the first year, a growth rate of 6%, and a required rate of return at 8%. What is the price of the common stock?
9.
Factors that influence the price-earnings ratio include
10.
Given the following information, what is the risk-free rate of return for this investment.
Real rate of return 4%
Inflation premium 3%
Risk premiums 5%
12.
If the required rate of return decreases as a result of deflation or decreased risk, the value of common stock will
13.
If the stated interest rate on the bond is 10%, what is the yield to maturity (discount rate) that will cost the bond to trade a par value?
14.
The inability of a firm to meet debt obligations as they come due is known as
15.
The longer the life of the financial asset
16.
The market allocates capital to companies based on
22.
Preferred stock is also referred to as _______ because it has no maturity date.
23.
The present value of a principal payment for a $10,000, 10 year bond with the coupon rate of 8% paid semiannually with the is
26.
The price of a bond can be determined using the formula. Choose the terms from the list below that are involved in pricing a bond.
27.
The price of the bond is based on which cash flow(s)?
28.
The rate of return required by bondholders as called
29.
The real rate of return is the financial _______ the investor charges for using his or her funds for a given period of time.
30.
Required rate of return is also known as the ________ rate?
31.
Stockholders may be influenced by changes in earnings and other factors, but the ultimate value rests with the distribution of
33.
To determine the price of a bond, the interest payments in the principal must be discounted by the
35.
Valuation concept can be applied to
36.
The valuation of a financial asset is based on determining the________ value of future cash flows
40.
What is the present value of principle payment for $1,000, 5 year bond with the stated coupon rate of 8% and the market rate of 10%?
43.
Which of the following formula is used to determine the required rate of return for preferred stock?
45.
Y, in the bond market, represents the required rate of return for bonds of a given ______ and maturity.
Calculate the present value of the bonds principal payment for a $5,000, 10 year bond with a stated rate of 10% compounded annually, and a yield of 12%.
Calculate the present value of $5,000, 10 year bond with a stated rate of 12% and a market rate of 10%.
Preferred stock has a constant annual dividend payment of $20 and a price of $400. What is the required rate of return.
The present value of the principal payment for a $10,000, 10 year bond with a coupon rate of 8% paid semiannually with a market rate of 10% is ____________?
Common stock has a dividend of $2.00 at the end of the first year, a growth rate of 6%, and a required rate of return of 8%. What is the price of the common stock?
100
40
150
25
The required rate of return is also known as the ________ rate?
What needs to be known to determine the current value of a financial asset.
- discount rate
-price of the asset
-future cash flows
-future value factor
The rate of return required by bondholders is called__________?
Which of the following formulas is used to determine the price of preferred stock?
Which of the following is used to determine the required rate of return for preferred stock?
Stockholders may be influenced by changes in earnings and other factors, but the ultimate value rests with the distribution of
Factors that influence the price-earnings ratio include
True or false: The current price of stock is the future value of the present stream of dividends growing at a constant rate.
A $1,000,000, 20 year bond has a stated rate of 10% and sells for $928,000. What is the yield to maturity?
The amount required by the investor for the use of funds adjusted for the erosion of the value of the dollar
What is the reward to financial managers who use capital efficiently?
If the interest rate stated on the bonds is equal to the yield to maturity (discount rate), the bonds will sell for
Preferred stock is referred to as a _________ because it has no maturity date.
The amount required by the investor for the use of funds on a non inflation adjusted basis
The rate of return the investor demands for giving up the current use of funds on a non inflation adjustment basis is called ________?
Combines the real rate of return and the inflation premium
All of the following effect the price-earning rations except
To determine the price of a bond, the interest payments and the principal must be discounted by the __________
All of the following effect the price-earnings ratio except
A. S&P 500 index
B. sales growth
C. risk
D. debt-equity structure
Cash flows are discounted at Y. What does Y represent?
A. Yield to maturity
B. market position
C. time valuation of money
D. valuation concept
Common stock has a dividend of $2 at the end of the first year, a growth rate of 6%, and a price of $100. What is the required rate of return?
A. 8%
B. 2%
C. 6%
D. 10%
What needs to be known to determine the current value of a financial asset?
A. future cash flows
B. discount rate
C. price of the asset
D. future value factor
Which factors influence the bondholder's or investor's required rate of return?
A. inflation premium
B. amount of investment
C. real rate of return
D. risk premium
Factors that influence the price-earnings ratio include
A. quality of management
B. investment banking
C. dividend policy
D. earnings
The price of a bond can be determine using a formula. Choose the term(s) listed below that are involved in pricing a bond
A. take the present value of the principal payment at maturity
B. take the future value of the principal payment at maturity
C. take the sum of the future values of the interest payments
D. take the sum of the present values of the interest payments
The types of risks associated with the risk premium include
A. financial risk
B. bond valuation risk
C. inflationary risk
D. business risk
A bond provides an ____________ which is a stream of interest payments of equal amounts for a period of time
Company A has a price-earnings ratio of $40 and Company B has price-earnings ratio of $50. If both companies have earnings per share of $5, which company's stock price is higher?
Company _____________
A $1,000,000, 20 year bond has a stated rate of 10% and sells for $928,000. What is the yield to maturity?
A. can't be determined
B. greater than 10%
C. 10%
D. less than 10%
If the required rate of return decreases as a result of deflation or decreased risk, the value of common stock will
A. remain unchanged
B. increase
C. decrease
Common stock has an annual stock dividend of $2 and a required rate of return of 8%. What is the price of the common stock?
A. 10
B. 25
C. 40
D. 15
The price at which a bond sells for is equal to the present value of the
A. yield to maturity
B. interest payments
C. principal
D. required rate of return
provides annuity stream of interest payments and principle payment at maturity
-price of a bond=Present value of regular interest payments discounted at the yield to maturity +present value of principal amount also discounted at the yield to maturity
inability of a firm to retain its competitive position and growth; compensated for in the risk premium of a bond which in turn affects the required rate of return
What is the reward to financial managers who use capital efficiently?
A. lower costs
B. higher profits
C. a lower required return
D. a lower present value
Preferred stock has a constant annual dividend payment of $20 and a required rate of return of 5%. What is the price of the preferred stock?
A. 100
B. 250
C. 400
D.150
What needs to be known to determine the current value of a financial asset?
A. future value factor
B. price of the asset
C. future cash flows
D. discount rate
Which factor(s) would cause the bond to sell below par value (for a discount)?
A. decreased business risk
B. decreased inflation
C. increased business risk
D. increased inflation
Y, in the bond market, represents the required rate of return for bonds of a given ___________ and maturity
A. amount
B. rate
C. return
D. risk
what happens to the price of the bond with an inflation premium increase?
The price of the bond will__________
when a bond is selling for less than its face amount; the required rate of return increases so the bond price goes down
-the longer the time until maturity, the greater the discount or the lower the cost of the bond. Over time the bond amount increases until the maturity when it evens out to the original price
true or false: the current price of the stock is the future value of the present stream of dividends growing at a constant rate
true or false: the drawback of the future stock value procedure is that it does not consider dividend income
true or false: preferred stock is compensated for not having the same ownership privileges as common stock by offering a fixed dividend stream supported by a binding contractual obligation
inability of a firm to meet its debt obligations; compensated for in the risk premium of a bond which in turn affects the required rate of return
choose: greater, smaller
the longer the time to maturity, the __________ impact of changes in yield to maturity
What happens to the price of a bond with an inflation premium decrease?
The price of the bond will _________________
compensates the holder of the bond for the fact that inflation is going to make future dollars worth less and therefore worth less to them; risk free; a factor that influences the required rate of return
the amount required by the investor for the use of funds adjusted for the erosion of the value of the dollar
preferred stock is a ______________, which means that the corporation is paying dividends every period forever
A ____________ has no maturity date while an ____________ does have a maturity date
when a bond is selling for more than its face amount; the required rate of return decreases so the bond price goes up
-the longer the time until maturity, the bigger the premium or the higher the cost of the bond. Over time the bond amount decreases until the maturity when it evens out to the original price
the ________________ at maturity is either called the par value or face value of the bond
the amount required by the investor for the use of funds on a noninflation-adjusted basis
demanded for the use of the funds by investors on a non-adjusted basis (not adjusted for inflation or risk); a factor that influences the required rate of return
for a stock, the ______________ is whatever the stockholders are requiring that the stock returns in order for them to be willing to own the stock.
-depends on the market's perceived level of risk associated with the individual security, competitively determined, determined by efficient use of capital in the past
combines the real rate of return and the inflation premium
compensates the holder of the bond for the chance that the firm won't make payments they promised; compensates for the risk of an investment; a factor that influences the required rate of return; either a business risk or financial risk
true or false: Valuation of a common stock with no dividend growth potential is treated in the same manner as preferred stock
true or false: the value of a share of stock is the present value of the expected stream of future dividends
true or false: firms with bright expectations for the future tend to trade at high P/E ratios
true or false: the longer the maturity of a bond, the greater the impact on price to changes in market interest rates
true or false: the market determined required rate of return is the appropriate discount rate used in valuation calculations
when interest rates go down, bond values go ___________.
When interest rates go up, bond values go _____________.
_____________ of a financial asset is based on determining the present value of future cash flows
_____________ aka the discount rate is the rate of return received by bondholders who hold the bond to maturity (until the principal amount is paid off). It's the rate that the market decides
