# Finance questions 1. What are coupon payments, and what is

Finance questions

1. What are coupon payments, and what is a coupon rate?

2. Define the following terms: bond indenture, par value, principal, maturity, call provision, and

sinking fund.

3. What does the term payout ratio mean?

4. A corporate bond is quoted at a price of 102. What is its dollar price?

5. What is interest-rate risk? How is interest-rate risk related to the maturity of a bond and to

the coupon rate for a bond?

6. (Required return) According to the CAPM, what would be the required return on an asset

that has a beta of 1.35 when the expected return on the market portfolio is 12% and the

riskless return is 7%?

7. (Required return) According to the CAPM, what would be the required return on an asset

that has a beta of 1.25 when the expected return on the market portfolio is 12% and the

riskless return is 5%?

8. (CAPM) The required return on an asset with a beta of 1.4 is 17% and the riskless return

is 7%. What is the expected return on the market portfolio?

9. (CAPM) Stock A has a beta of 2.0 and a required return of 15%. The market return is

10%. What will be the required return on stock B, which has a beta of 1.4?

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#### Solution Preview

See attached file for proper format of symbols.

1. What are coupon payments, and what is a coupon rate?

Coupon payment is an interest payment that is paid by the issuer/owner and is received by a bondholder during the period between when the bond is issued and until the bond is matured.

Coupon rate is the stated interest rate that the bond issuer agreed to pay the bondholders, in most cases, the interest rate is fixed.

2. Define the following terms: bond indenture, par value, principal, maturity, call provision, and

Sinking fund:

Bond indenture: a written agreement or contract between the owner of the bond (bond issuer) and the bondholder that specifies the term of the bond such as interest rate, coupon rate, maturity date, and other related terms.

Principal: The face amount of a bond

Maturity: The specific date in the future on when the investorââ?¬â?¢s principal will be repaid by the bond issuer.

Call ...