1. A typical measure for the risk-free rate of return is the (Points : 1)
U.S. Treasury Bill rate.
prime lending rate.
money market rate.
short-term AAA-rated bond rate.
2. What is the value of a preferred stock that pays a $4.50 dividend to an investor with a required rate of return of 10%? (Points : 1)
3. Nuray Corp. preferred stock pays a $.50 annual dividend. What is the value of the stock if your required rate of return is 10%? (Points : 1)
4. Preferred stock is similar to a bond in the following way (Points : 1)
preferred stock always contains a maturity date.
both investments provide a stated income stream.
both contain a growth factor similar to common stock.
both provide interest payments.
5. If two firms have the same current dividend and the same expected growth rate, their stocks must sell at the same current price or else the market will not be in equilibrium. (Points : 1)
False, because the required return could be different
True, because we are using a dividend valuation model
True if markets are semi-strong form efficient
True if investors are risk-averse
6. A corporate bond has a coupon rate of 12%, a yield to maturity of 10.55%, a face value of $1,000, and a market price of $850. Therefore, the annual interest payment is (Points : 1)
7. You determine that XYZ common stock has an expected return of 24%. XYZ has a Beta of 1.5. The risk-free rate is 5%, and the market expected return is 15%. Which of the following is most likely to happen? (Points : 1)
You and other investors will buy up XYZ stock and its price will rise.
You and other investors will sell XYZ stock and its return will fall.
You and other investors will buy up XYZ stock and its return will rise.
You and other investors will sell XYZ stock and its price will fall.
8. What is the value of a bond that has a par value of $1,000, a coupon of $120 (annually), and matures in 10 years? Assume a required rate of return of 7.8%. (Points : 1)
9. Emery Company just paid a dividend yesterday of $2.25 per share. The company’s stock is currently selling for $60 per share, and the required rate of return on Emery Company stock is 16%. What is the growth rate expected for Emery Company dividends assuming constant growth? (Points : 1)
10. The capital asset pricing model (Points : 1)
provides a risk-return trade off in which risk is measured in terms of the market volatility.
provides a risk-return trade off in which risk is measured in terms of beta.
measures risk as the coefficient of variation between security and market rates of return.
depicts the total risk of a security.
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