Question

22) The market price of a bond with 12 years until maturity and an annual coupon rate of 8% increased yesterday. Which one of these may havecaused this price increase? 22) AJ The issuing firm announced that its annual earnings met investor expectations. B) The bond's rating was downgraded. C) The issuing firm announced the next interest payment. D) Market interest rates decreased. 23) Which one of the following is fixed for the life of a given bond? B) Coupon rate D) Current yield 23) A) Current price C) Yield to maturity 24) What is the yield to maturity for a bond paying $100 annually that has 6 years unt D) 10.00% 25) Which of these bond ratings is the lowest of Moody's investment-grade ratings? l 24) maturity and sells for $1,000? A) 8.5% B) 6.0% C) 12.5% 25) A) A B) Aa C) Ba D) Baa 26) The existence of an upward-sloping yield curve suggests that: 26) A) real interest rates will be increasing soon. B) interest rates may be increasing in the future. C) bonds should be selling at a discount to par value. D) bonds will not return as much as common stocks. 21) 27) A firm's liquidation value is the amount: A) a purchaser would pay to acquire all of the firm's assets. B) necessary to repurchase all outstanding shares of common stock. C) shown on the balance sheet as total owners' equity D) realized from selling all assets and paying off all creditors. 28) 28) When valuing stock with the dividend discount model, the present value of future dividends will: A) always equal the present value of the terminal price. B) remain constant regardless of the rate of growth. C) change depending on the time horizon selected D) remain constant regardless of the time horizon selected. 29) If The Wall Street Journal lists a stock's dividend as S1, then it is most likely the case 29) that the stock: A) pays SI per share per quarter B ) is expected to pay a dividend of SI per share at the end of next year. C) paid SI during the past quarter, with no future dividends forecast. D) paid $.25 per share per quarter for the past year.

Answer 1

22. Option D. If the bond is paying 8% which is constant and Market rate decreases. Then the price of Bond increases

23. Option B. Coupon rate is fixed for the bond but current yield, YTM and current price will changes based on market conditions

24. Option D. As the bond price is at par. Yield Rate is equal to coupon rate

25. Option C. As per Moody’s investment grade ratings Ba is equal to lowest rating

26. Option B. Rising upward sloping yield indicates that the interest rates are going to rise in future

27. Option D. A firm's liquidation value = Assets - Liabilities

28. Option C. The PV of future cash inflows will change depending upon Time horizon

29. Option D. The sign means the paying 0.25$ quarterly or $1 annually