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FIN 370 Week 3 Practice: Bond Valuation and Stock Valuation Quiz

FIN 370 Week 3 Practice: Bond Valuation and Stock Valuation Quiz
 

Complete the Week 3 “Practice: Bond Valuation and Stock Valuation Quiz” in Connect®.

Note: You have unlimited attempts available to complete practice assignments. The highest scored attempt will be recorded.

These assignments have earlier due dates, so plan accordingly.

Grades must be transferred manually to eCampus by your instructor. Don’t worry, this might happen after your due date.

 

Which of the following is a legal contract that outlines the precise terms between the issuer and the bondholder?

Multiple Choice

 

 

 

 
 

 

 

Indenture

 

 

 

 
 

 

 

Enforcement codes

 

 

 

 
 

 

 

Debenture

 

 

 

 
 

 

 

Prospectus

 

 

Determine the interest payment for the following three bonds: 5.5 percent coupon corporate bond (paid semi-annually), 6.45 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)

Multiple Choice

 

 

 

 
 

 

 

$27.50, $32.25, $0, respectively

 

 

 

 
 

 

 

$55.00, $64.50, $0, respectively

 

 

 

 
 

 

 

$5.50, $6.45, $0, respectively

 

 

 

 
 

 

 

$27.50, $32.25, $100, respectively

 

 

Many bonds are not callable, but for those that are, which of following is a common feature?

Multiple Choice

 

 

 

 
 

 

 

Called any time after 2 years of issuance.

 

 

 

 
 

 

 

Called any time after 10 years of issuance.

 

 

 

 
 

 

 

Called any time after 2 years from the time an investor buys the bond.

 

 

 

 
 

 

 

Called any time after 10 years from the time an investor buys the bond.

 

 

A 3.75 percent TIPS has an original reference CPI of 175.8. If the current CPI is 207.7, what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

Multiple Choice

 

 

 

 
 

 

 

$1,181.46, $22.15, respectively

 

 

 

 
 

 

 

$1,000, $37.50, respectively

 

 

 

 
 

 

 

$1,181.46, $37.50, respectively

 

 

 

 
 

 

 

$1,000, $18.75, respectively

 

 

Which of the following determines the dollar amount of interest paid to bondholders?

Multiple Choice

 

 

 

 
 

 

 

Call premium

 

 

 

 
 

 

 

Market rate

 

 

 

 
 

 

 

Coupon rate

 

 

 

 
 

 

 

Original issue discount

 

 

A 3.75 percent TIPS has an original reference CPI of 183.9. If the current CPI is 214.7, what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)

Multiple Choice

 

 

 

 
 

 

 

$37.50

 

 

 

 
 

 

 

$18.75

 

 

 

 
 

 

 

$43.78

 

 

 

 
 

 

 

$21.89

 

 

Regarding a bond’s characteristics, which of the following is the principal loan amount that the borrower must repay?

Multiple Choice

 

 

 

 
 

 

 

Par or face value

 

 

 

 
 

 

 

Call premium

 

 

 

 
 

 

 

Time to maturity value

 

 

 

 
 

 

 

Maturity date

 

 

Which of the following was the catalyst for the recent financial crisis?

Multiple Choice

 

 

 

 
 

 

 

Widespread layoffs due to illegal alien hiring.

 

 

 

 
 

 

 

Corruption in the investment banking industry.

 

 

 

 
 

 

 

All of the options were catalysts.

 

 

 

 
 

 

 

Defaults on subprime mortgages.

 

 

Which of the following is NOT a factor that determines the coupon rate of a company’s bonds?

Multiple Choice

 

 

 

 
 

 

 

The level of interest rates in the overall economy at the time.

 

 

 

 
 

 

 

The term of the loan.

 

 

 

 
 

 

 

All of the options are factors that determine the coupon rate of a company’s bonds.

 

 

 

 
 

 

 

The amount of uncertainty about whether the company will be able to make all the payments.

 

 

Consider the following three bond quotes; a Treasury note quoted at 102.30, and a corporate bond quoted at 99.45, and a municipal bond quoted at 102.45. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?

Multiple Choice

 

 

 

 
 

 

 

$1,002.30, $1,000, $1,000, respectively

 

 

 

 
 

 

 

$1,002.30, $994.50, $5,012.25 respectively

 

 

 

 
 

 

 

$1,000, $1,000, $5,000, respectively

 

 

 

 
 

 

 

$1,023.00, $994.50, $5,122.50, respectively

 

 

 

Bond prices are quoted in terms of which of the following?

Multiple Choice

 

 

 

 
 

 

 

Original issue discount

 

 

 

 
 

 

 

Coupon rate in dollars

 

 

 

 
 

 

 

Percent of par value

 

 

 

 
 

 

 

Market rate in dollars

 

 

Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?

Multiple Choice

 

 

 

 
 

 

 

Asset-backed securities

 

 

 

 
 

 

 

Junk bonds

 

 

 

 
 

 

 

Credit quality securities

 

 

 

 
 

 

 

Debentures

 

 

To compensate the bondholders for getting the bond called, the issuer pays which of the following?

Multiple Choice

 

 

 

 
 

 

 

Original issue premium

 

 

 

 
 

 

 

Call premium

 

 

 

 
 

 

 

Call feature

 

 

 

 
 

 

 

Coupon rate

 

 

A 2.5 percent TIPS has an original reference CPI of 170.4. If the current CPI is 205.7, what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

Multiple Choice

 

 

 

 
 

 

 

$1,000, $15.09, respectively

 

 

 

 
 

 

 

$1,207.16, $7.16, respectively

 

 

 

 
 

 

 

$1,000, $7.16, respectively

 

 

 

 
 

 

 

$1,207.16, $15.09, respectively

 

 

Determine the interest payment for the following three bonds: 2.5 percent coupon corporate bond (paid semi-annually), 3.15 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)

Multiple Choice

 

 

 

 
 

 

 

$12.50, $15.75, $100, respectively

 

 

 

 
 

 

 

$25.00, $31.50, $0, respectively

 

 

 

 
 

 

 

$2.50, $3.15, $0, respectively

 

 

 

 
 

 

 

$12.50, $15.75, $0, respectively

 

 

 

A 2.95 percent TIPS has an original reference CPI of 180.2. If the current CPI is 205.1, what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

Multiple Choice

 

 

 

 
 

 

 

$878.60, $16.79, respectively

 

 

 

 
 

 

 

$1,138.18, $16.79, respectively

 

 

 

 
 

 

 

$1,000.00, $29.50, respectively

 

 

 

 
 

 

 

$1,138.18, $29.50, respectively

 

 

 

Determine the interest payment for the following three bonds: 4 percent coupon corporate bond (paid semi-annually), 4.75 percent coupon Treasury note, and a corporate zero coupon bond maturing in 15 years. (Assume a $1,000 par value.)

Multiple Choice

 

 

 

 
 

 

 

$20.00, $23.75, $150, respectively

 

 

 

 
 

 

 

$20.00, $23.75, $0, respectively

 

 

 

 
 

 

 

$4.00, $4.75, $0, respectively

 

 

 

 
 

 

 

$40.00, $47.50, $0, respectively

 

 

 

Which of the following are main issuers of bonds?

Multiple Choice

 

 

 

 
 

 

 

U.S. Treasury bonds

 

 

 

 
 

 

 

Municipal bonds

 

 

 

 
 

 

 

All of the options

 

 

 

 
 

 

 

Corporate bonds

 

 

A 4.5 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?

Multiple Choice

 

 

 

 
 

 

 

$45

 

 

 

 
 

 

 

$225

 

 

 

 
 

 

 

$1,045

 

 

 

 
 

 

 

$1,000

 

 

 

Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 8.5 percent. (Assume annual compounding and a par value of $1,000.)

Multiple Choice

 

 

 

 
 

 

 

$995.62

 

 

 

 
 

 

 

$1,195.62

 

 

 

 
 

 

 

$195.62

 

 

 

 
 

 

 

$90.29

 

 

 

Which of the following terms is a comparison of market yields on securities, assuming all characteristics except maturity are the same?

Multiple Choice

 

 

 

 
 

 

 

Liquidity of interest rate risk

 

 

 

 
 

 

 

Term structure of interest rates

 

 

 

 
 

 

 

Interest rate risk

 

 

 

 
 

 

 

Credit quality risk

 

 

Which of the following is used to compute bond cash interest payments?

Multiple Choice

 

 

 

 
 

 

 

Current yield.

 

 

 

 
 

 

 

Coupon rate.

 

 

 

 
 

 

 

Yield to maturity.

 

 

 

 
 

 

 

None of the options.

 

 

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?

Multiple Choice

 

 

 

 
 

 

 

4.50 percent

 

 

 

 
 

 

 

7.38 percent

 

 

 

 
 

 

 

11.54 percent

 

 

 

 

 
 

 

 

1.76 percent

 

 

 

Which of the following bonds carry significant risk that the issuer will not make current or future payments?

Multiple Choice

 

 

 

 
 

 

 

Credit quality risk bonds

 

 

 

 
 

 

 

Junk bonds

 

 

 

 
 

 

 

Interest rate risk bonds

 

 

 

 
 

 

 

Liquidity rate risk bonds

 

 

If Zeus Energy bonds are upgraded from BBB- to BBB+, which of the following statements is true?

Multiple Choice

 

 

 

 
 

 

 

The current bond price will decrease.

 

 

 

 
 

 

 

The current bond price will decrease and interest rates on new bonds issue will increase.

 

 

 

 
 

 

 

The current bond price will increase and interest rates on new bonds issue will decrease.

 

 

 

 
 

 

 

Interest rates required on new bond issue will increase.

 

 

Sally has researched GLE and wants to pay no more than $50 for the stock. Currently, GLE is trading in the market for $54. Sally would be best served to:

Multiple Choice

 

 

 

 
 

 

 

buy using a limit order.

 

 

 

 
 

 

 

buy using a market order.

 

 

 

 
 

 

 

use the bid-ask spread to her advantage.

 

 

 

 
 

 

 

None of the options.

 

 

As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims?

rev: 07_10_2017_QC_CS-93259

Multiple Choice

 

 

 

 
 

 

 

bondholders

 

 

 

 
 

 

 

common stockholders

 

 

 

 
 

 

 

creditors

 

 

 

 
 

 

 

preferred stockholders

 

 

GEN has 10 million shares outstanding and a stock price of $89.25. What is GEN’s market capitalization?

Multiple Choice

 

 

 

 
 

 

 

$892,500,000

 

 

 

 
 

 

 

$89,250,000

 

 

 

 
 

 

 

$892,500

 

 

 

 
 

 

 

$89,250,000,000

 

 

 

The NASDAQ Composite includes:

Multiple Choice

 

 

 

 
 

 

 

30 of the largest (market capitalization) and most active companies in the U.S. economy.

 

 

 

 
 

 

 

500 firms that are the largest in their respective economic sectors.

 

 

 

 
 

 

 

500 firms that are the largest as ranked by Fortune Magazine.

 

 

 

 
 

 

 

all of the stocks listed on the NASDAQ Stock Exchange.

 

 

Trading at physical exchanges like the New York Stock Exchange and the American Stock Exchange takes place:

Multiple Choice

 

 

 

 
 

 

 

at market markers.

 

 

 

 
 

 

 

at brokers’ trading posts.

 

 

 

 
 

 

 

at dealers’ trading posts.

 

 

 

 
 

 

 

at dealers’ computers.

 

 

All of the following are stock market indices EXCEPT:

Multiple Choice

 

 

 

 
 

 

 

Nasdaq Composite Index.

 

 

 

 
 

 

 

Dow Jones Industrial Average.

 

 

 

 
 

 

 

Standard & Poor’s 500 Index.

 

 

 

 
 

 

 

Mercantile 1000.

 

 

If on November 26, 2017, The Dow Jones Industrial Average closed at 12,743.40, which was down 237.44 that day. What was the return (in percent) of the stock market that day?

Multiple Choice

 

 

 

 
 

 

 

+1.83 percent

 

 

 

 
 

 

 

−0.02 percent

 

 

 

 
 

 

 

−1.83 percent

 

 

 

 
 

 

 

+0.02 percent

 

 

 

If on November 27, 2017, The Dow Jones Industrial Average closed at 12,958.44, which was up 215.04 that day. What was the return (in percent) of the stock market that day?

Multiple Choice

 

 

 

 
 

 

 

+0.017 percent

 

 

 

 
 

 

 

−1.69 percent

 

 

 

 
 

 

 

+1.69 percent

 

 

 

 
 

 

 

−0.017 percent

 

 

 

Which of these investors earn returns from receiving dividends and from stock price appreciation?

Multiple Choice

 

 

 

 
 

 

 

Stockholders

 

 

 

 
 

 

 

Managers

 

 

 

 
 

 

 

Investment bankers

 

 

 

 
 

 

 

Bondholders

 

 

Individuals who use their own stock inventory and capital to buy and sell the stocks they represent are called:

Multiple Choice

 

 

 

 
 

 

 

brokers.

 

 

 

 
 

 

 

investors.

 

 

 

 
 

 

 

market makers.

 

 

 

 
 

 

 

none of the options.

 

 

Which of the following is an electronic stock market without a physical trading floor?

Multiple Choice

 

 

 

 
 

 

 

Mercantile Exchange

 

 

 

 
 

 

 

American Stock Exchange

 

 

 

 
 

 

 

Nasdaq Stock Market

 

 

 

 
 

 

 

New York Stock Exchange

 

 

JUJU’s dividend next year is expected to be $1.50. It is trading at $45 and is expected to grow at 9 percent per year. What is JUJU’s dividend yield and capital gain?

Multiple Choice

 

 

 

 
 

 

 

9 percent; 3.33 percent

 

 

 

 
 

 

 

1.5 percent; 6 percent

 

 

 

 
 

 

 

3.33 percent; 9 percent

 

 

 

 
 

 

 

6 percent; 1.5 percent

 

 

 

If Target Corp. (TGT) recently earned a profit of $6.07 earnings per share and has a P/E ratio of 16.5. The dividend has been growing at a 10 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 18 in five years?

Multiple Choice

 

 

 

 
 

 

 

$161.30, $175.96 respectively

 

 

 

 
 

 

 

$259.78, $283.39 respectively

 

 

 

 
 

 

 

$100.16, $109.26 respectively

 

 

 

 
 

 

 

$261.30, $275.96 respectively

 

 

 

If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 7 percent, what’s the value of the stock?

Multiple Choice

 

 

 

 
 

 

 

$21.00

 

 

 

 
 

 

 

$0.21

 

 

 

 
 

 

 

$0.43

 

 

 

 
 

 

 

$42.86

 

 

 

At your full-service brokerage firm, it costs $120 per stock trade. How much money do you receive after selling 200 shares of Ralph Lauren (RL), which trades at $85.13?

Multiple Choice

 

 

 

 
 

 

 

$16,906.00

 

 

 

 
 

 

 

$17,146.00

 

 

 

 
 

 

 

$17,026.00

 

 

 

 
 

 

 

$16,546.00

 

 

At your discount brokerage firm, it costs $7.95 per stock trade. How much money do you receive after selling 250 shares of General Electric (GE), which trades at $55.19?

Multiple Choice

 

 

 

 
 

 

 

$13,789.55

 

 

 

 
 

 

 

$12,174.95

 

 

 

 
 

 

 

$11,958.55

 

 

 

 
 

 

 

$14,037.95

 

 

JUJU’s dividend next year is expected to be $5.50. It is trading at $45 and is expected to grow at 4 percent per year. What is JUJU’s dividend yield and capital gain?

Multiple Choice

 

 

 

 
 

 

 

12.22 percent; 4 percent

 

 

 

 
 

 

 

2.5 percent; 6 percent

 

 

 

 
 

 

 

4 percent; 12.22 percent

 

 

 

 
 

 

 

6 percent; 2.5 percent

 

 

You would like to buy shares of International Business Machines (IBM). The current bid and ask quotes are $96.17 and $96.24, respectively. You place a market buy-order for 100 shares that executes at these quoted prices. How much money did it cost to buy these shares?

Multiple Choice

 

 

 

 
 

 

 

$19,241.00

 

 

 

 
 

 

 

$9,624.00

 

 

 

 
 

 

 

$9,617.00

 

 

 

 
 

 

 

$7.00

 

 

 

The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm’s:

Multiple Choice

 

 

 

 
 

 

 

book value.

 

 

 

 
 

 

 

market capitalization.

 

 

 

 
 

 

 

market makers.

 

 

 

 
 

 

 

constant growth model.

 

Investors sell stock at the:

Multiple Choice

 

 

 

 
 

 

 

broker price.

 

 

 

 
 

 

 

dealer price.

 

 

 

 
 

 

 

bid price.

 

 

 

 
 

 

 

quoted ask price.

 

 

Stock valuation model dynamics make clear that lower discount rates lead to:

Multiple Choice

 

 

 

 
 

 

 

lower growth rates.

 

 

 

 
 

 

 

higher growth rates.

 

 

 

 
 

 

 

lower valuations.

 

 

 

 
 

 

 

higher valuations.

 

You would like to sell 400 shares of International Business Machines (IBM). The current bid and ask quotes are $96.24 and $96.17, respectively. You place a limit sell-order at $96.20. If the trade executes, how much money do you receive from the buyer?

Multiple Choice

 

 

 

 
 

 

 

$38,496.00

 

 

 

 
 

 

 

$38,468.00

 

 

 

 
 

 

 

$38,480.00

 

 

 

 
 

 

 

$38,464.00

 

 

A preferred stock from DLC pays $5.10 in annual dividends. If the required return on the preferred stock is 12.1 percent, what is the value of the stock?

Multiple Choice

 

 

 

 
 

 

 

$240.97

 

 

 

 
 

 

 

$6.31

 

 

 

 
 

 

 

$42.15

 

 

 

 
 

 

 

$47.25

 

 

Ralph Lauren (RL) has earnings per share of $3.85 and a P/E ratio of 17.37. What is the stock price?

Multiple Choice

 

 

 

 
 

 

 

$0.22

 

 

 

 
 

 

 

$66.87

 

 

 

 
 

 

 

$22.16

 

 

 

 
 

 

 

$4.51

 

 

Many companies grow very fast at first, but slower future growth can be expected. Such companies are called:

Multiple Choice

 

 

 

 
 

 

 

constant growth rate firms.

 

 

 

 
 

 

 

variable growth rate firms.

 

 

 

 
 

 

 

Fortune 500 companies.

 

 

 

 
 

 

 

blue chip companies.

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