Question

In: Accounting

Which of the following statements about bonds and their prices is correct: There is an inverse...

  1. Which of the following statements about bonds and their prices is correct:

  1. There is an inverse relationship between interest rates and price.  
  2. When the coupon rate of the bond is greater than the required, market interest rate, the price of the bond is greater than the face value of the bond.
  3. The bond with a greater term to maturity is affected to a greater extent by the change in the interest rate
  4. All of the above
  5. A) and B) only

  1. Which of the following constitutes a difference between debt and equity?

  1. The right to claim against the assets of the corporation in the case of bankruptcy
  2. The entity issuing the security
  3. The nature of accounting revenue underlying the security
  4. Both B) and C)
  5. None of the above

  1. Which of the following describes the difference between the returns on debt and equity?
  1. The return on debt is more variable than the return on equity
  2. The return on debt is stipulated in the debt contract, whereas the return on equity is stipulated in the trust deed
  3. The return on debt is stipulated in the trust deed, whereas the return on equity is varied at the discretion of management
  4. The return on debt is not secure
  5. None of the above
  1. What is the Price of a Bond that pays a coupon interest rate of 13.5% p.a. with interest paid semi-annually, has four years to maturity and which has a Face value of $100. Market interest rates are 13.5% (Round to the nearest dollar).

  1. $110
  2. $100  
  3. $105
  4. $98
  5. None of the above

  1. The intrinsic value of an asset is:  

  1. The asset’s minimum value.

B) The asking price for the asset.        

C) The asset’s replacement value.    

                        D) The assets’ future cash flows compounded by the required rate of return.   

E) None of the above

  1. What is the Present Value of an asset that pays cash flows of $1.5 million per year for three (3) years if the cash flows commence in Year Three? The required rate of return is 10% p.a.

  1. $3.08 million
  2. $4.25 million  
  3. $5.06 million
  4. $3.73 million  
  5. None of the above

  1. The prospective P/E ratio:  

  1. Is positively related to the payout ratio
  2. Negatively related to the cost of equity
  3. Positively related to the past dividend
  4. All of the above
  5. A) and B) only

  1. What is the future value of a $2,000 invested for 15 years at an interest rate of 10% p.a. compounded quarterly? (Rounded to the nearest dollar).

  1. $5,000
  2. $7,600
  3. $8,800
  4. $6,180
  5. None of the above

  1. The value of a share is given by the present value of which cash flows?

  1. The last dividend and future dividends
  2. The most recent dividend and future dividends
  3. The current dividend and future dividends
  4. Future dividends only
  5. None of the above

  1. The interest rate is defined as:

  1. The opportunity cost of selling real assets  
  2. The cost of having money in the bank.
  3. The cost of liquidity.  
  4. The opportunity cost of buying real assets
  5. None of the above

** Please show the all mathematical steps and the Financial Calculator step if possible, Thanks.

Solutions

Expert Solution

10- The interest rate is defined as: option is E it is the rate which is charged on borrowed fund
9- The value of a share is given by the present value of which cash flows option is D Future dividends only because future dividends are discounted at required rate of return and then sum up to get the value of share
8- Future value PV*(1+r)^n 2000*(1.025)^60 8800
7- The prospective P/E ratio: option is E A. A) and B) only
6- Year cash flow present value of cash flow = cash flow/(1+r)6n r = 10%
3 1.5 1.126972201
4 1.5 1.024520183
5 1.5 0.931381985
present value of cash flow = sum of present value of cash flow 3.08 option is A
5- A. The asset’s minimum value. Option is E none of the above
4- option is B 100 as bond coupon rate and market interest rate is same so it would be selling out at par value
3- Which of the following describes the difference between the returns on debt and equity? option is C A. The return on debt is stipulated in the trust deed, whereas the return on equity is varied at the discretion of management
2- Which of the following constitutes a difference between debt and equity option is A A. The right to claim against the assets of the corporation in the case of bankruptcy
1- Which of the following statements about bonds and their prices is correct option is D All of the above

Related Solutions

1. Which of these statements about corporate bonds is correct? A. Bonds provide equity financing. B....
1. Which of these statements about corporate bonds is correct? A. Bonds provide equity financing. B. Bonds are like IOUs with a promise to repay the amount borrowed, with interest, on a certain date. C. Debenture bonds require assets pledged as collateral. D. Issuing new bonds dilutes the existing ownership in the firm. 2. Purchasing insurance, paying employees, and selling goods on credit are all examples of financial transactions. T / F 3. Costs of Goods Sold are the expenses...
Which of the following statements about the cost of capital is CORRECT ?
Which of the following statements about the cost of capital is CORRECT ?Select one:a. Both the cost of debt and equity financing will decrease when a firm expands into a risky new area.b. Both the cost of debt and equity financing will decrease when a nuclear plant company encounters a ban on nuclear power generation in certain states.c. The WACC of a firm will decrease when investors become more risk averse.d. Both the cost of debt and equity financing will...
Which of the following statements about valence electrons is correct?
Which of the following statements about valence electrons is correct? Li has 1 valence electron and S has 6 valence electrons Mg has 12 valence electrons and O has8 valence electrons K has 19 valence electrons and Cl has 17 valence electrons Al has 13 valence electrons and C has 12 valence electrons Li has 3 valence electrons and Na has 11 valence electrons
Which of the following statements is CORRECT about a yield curve?
Which of the following statements is CORRECT about a yield curve? a. A yield curve reflects the relationship between bond yields and the inflation rate. b. A humped yield curve reflects interest rates lower than short term maturities. c. A normal yield curve is generally humped. d. An upward sloping yield curve is referred to as abnormal or inverted. e. A downward sloping yield curve is referred to as abnormal or inverted 
Which of the following statements is (are) correct? (x) Bonds can sell at par but they...
Which of the following statements is (are) correct? (x) Bonds can sell at par but they often sell at either a premium or a discount. (y) If the market interest rate on a 5.50 percent coupon bond with 15 years left to maturity is 5.50 percent then the bond is selling at par and it is not a premium bond. (z) If the market interest rate on a 6.25 percent coupon bond with 15 years left to maturity is 5.75...
Bonds There is an inverse relationship between bond prices and yields. This inverse relationship will be...
Bonds There is an inverse relationship between bond prices and yields. This inverse relationship will be demonstrated by calculating bond prices to show that interest rates move inversely: if yields rise, then bond prices fall. Bonds will be sold either at a premium or a discount. With this in mind respond to the following question. You currently own a 30 year Treasury Bond paying a 4% annual coupon rate. The market interest rates for like securities rose to 5%. Would...
Which of the following statements is not correct about cholesterol? a. it is an essential component...
Which of the following statements is not correct about cholesterol? a. it is an essential component of cell membranes b. it is the precursor of steroid hormones c. it is soluble in non-polar solvents d. it is soluble in polar solvents Which intermolecular force exists between all molecules regardless of polarity? Which of the following compounds exhibits primarily dipole-dipole intermolecular forces? a. CH3-O-CH3 b. CH3CH3 c. CO2 d. F2
Which one of the following statements is correct about hypothesis testing?
Which one of the following statements is correct about hypothesis testing?
Choose the correct answer. 1.Which of the following statements about the income statement is correct? The...
Choose the correct answer. 1.Which of the following statements about the income statement is correct? The income statement covers a specific point in time. The elements of the income statement include income from operations and distributions to owners. The income statement summarizes the results of a company's operations for a period. All of the above. 2. A company's balance sheet shows the value of assets, liabilities, and stockholders' equity: Over a period of time for any given period of time...
Which of the following statements concerning bonds is (are) correct? :I. Municipal bonds have lower yields...
Which of the following statements concerning bonds is (are) correct? :I. Municipal bonds have lower yields than Treasury bonds. :II. Low coupon bonds have higher yields than high coupon bonds. :III. General obligation bonds yield more than revenue bonds. :IV. Initially, callable bonds have higher yields than noncallable bonds. a. I and III only b. I and IV only c. I, III and IV only d. II and IV only
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT