1. Market-determined required rate of return is the same thing as discount rate, according to the text.
a. True
b. False

2. When the market interest rate exceeds the coupon rate, bonds sell for less than face value.
a. True
b. False

3. The yield to maturity is defined as the discount rate that makes the present value of the bond's payments equal its price.
a. True
b. False

4. Common stock usually represents a perpetuity.
a. True
b. False

5. Required rate of return = real rate of return + inflation premium + risk premium
a. True
b. False

6. Price-earnings ratio represents a multiplier applied to current earnings to determine the value of a share of stock.
a. True
b. False

7. Supernormal growth pattern is often experienced by firms in mature industries.
a. True
b. False

8. If the annual dividend of a preferred stock is $10 and the required rate of return is 10%, then the price of the preferred stock would be:
a. $10
b. $90
c. $100
d. $110

9. According to the constant growth dividend valuation model, if dividends were $2.00, required rate of return is 12%, and the dividends grow at a constant rate of 7% per year, the price of the stock would be:
a. $24
b. $40
c. $48
d. $60

10. What is the approximate price of a bond if par value is $1000, interest rate of (coupon) 9%, matures in 20 years and the present yield to maturity is 6%?
a. $910
b. $1245
c. $1344
d. $1485

Solution Preview

1. Market-determined required rate of return is the same thing as discount rate, according to the ...

Solution Summary

This discusses the steps to calculate the yield to maturity

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