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

A bond has 16 years until maturity, a coupon rate of 5.8%, and sells for $1,109.
a. What is the current yield on the bond? (Round your answer to 2 decimal places.)
Current yield %
b. What is the yield to maturity? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Yield to mat

ABC Industries bond has a 10 percent coupon rate and a $1000 face value. Interest is paid semiannually, and the bond has 20 years to maturity. If investors require a 12 percent yield, what is the bond's value? What is the effective annual yield on the bond?
XYZ corp. bond carries an 8 percent coupon, paid semiannually. The pa

My company's bonds are currently selling for $1,157.75 per $1,000 par-value bond. The bonds have a 10% coupon rate and will mature in 10 years. What is the approximate yield to maturity of the bonds?

Company A is selling bonds paying $105 annually that will mature 10 years from today. The bond is currently selling for $970, the face value of the bond is $1000.
Calculate:
-coupon rate
-current yield
-yield to maturity

Explain why the expected return on the corporate bond does not equal its yield to maturity. What is the relationship between a bond's price and its yield to maturity?

You just purchased a bond that matures in 5 years. The bond has a face value of $1000 and has an 8% annual coupon. The bond has a current yield of 8.21%. What is the bond's yield to maturity?

A corporate bond has a face value of $1,000, and pays a $50 coupon every six months (i.e., the bond has a 10 percent semiannual coupon). The bond matures in 12 years and sells at a price of $1,080. What is the bond's nominal yield to maturity

Explain the difference of a bond's Current Yield and its Yield to Maturity. Why would these measures be important to a bond investor? Find the Current Yield and the Yield to Maturity of a 20 year, nine percent coupon, $1000 par value bond currently trading in the market at $850.

Each of the bonds shown in the following table pays interest annually.
Bond A $1,000 Coupon interest rate 9% Years to maturity 8 Current Value $820
Bond B $1,000 Coupon interest rate 12% Years to maturity 16 Current Value $1,000
Bond C $500 Coupon interest rate 12% Years to maturity 12 Current Value $560
Bond D $1,000 Cou

A bond has a $1,000 face value and a $989 market value. The bond pays interest semi-annually, has a yield-to-maturity of 7.47 percent, and matures in 12 years. What is the current yield?
a. 6.67 percent
b. 7.41 percent
c. 7.47 percent
d. 8.01 percent