Question

In: Finance

7) (I) A coupon bond (not perpetual) is a debt security that promises to make payments...

7) (I) A coupon bond (not perpetual) is a debt security that promises to make payments periodically for a specified period of time.

(II) A stock is a security that would be a residual claim on the earnings and assets of a corporation.

A) (I) is true, (II) false.

B) (I) is false, (II) true.

C) Both are false.

D) Both are true.

Solutions

Expert Solution

(D)

However, (II) is partially true.

A stock is a share in a corporation which, in case of liquidation, will be a residual claim on the assets of the corporation after paying off all the liabilities. However, earnings can be a measure to value a stock (but not in a situation of liquidation)


Related Solutions

An investment promises to make $100 annual payments forever. If the annual interest rate is 7%,...
An investment promises to make $100 annual payments forever. If the annual interest rate is 7%, then what is the value of this investment today? Round your answer to 2 decimal places.
First, consider a 10 year bond with a coupon rate of 7% and annual coupon payments....
First, consider a 10 year bond with a coupon rate of 7% and annual coupon payments. Draw a graph showing the relationship between the price and the interest on this bond. The price should be on the y- axis and the interest rate on the x-axis. To compute the various prices, consider interest rates between 2% and 12% (use 0.5% increments). So your x-axis should go from 2%, then 2.5% ... until 11.5% and then 12%. Is the relationship linear...
A 10-year, 10% coupon bond, semi-annual payments, $1,000 Par, is expected to make all coupon payments...
A 10-year, 10% coupon bond, semi-annual payments, $1,000 Par, is expected to make all coupon payments but to pay only 50% of par value at maturity. What is the expected yield on this bond if the bond is purchased for $975? a. 10.00% b. 6.77% c. None of the options are correct. d. 11.68% e. 6.68%
Altria has a 7% coupon 25 year bond (par value = 1,000). Assume that coupon payments...
Altria has a 7% coupon 25 year bond (par value = 1,000). Assume that coupon payments are semiannual and that the yield-to-maturity is 6.5%. What is the price of this bond?
Bond Dave has a 7 percent coupon rate, makes semiannual payments, a 7 percent YTM, and...
Bond Dave has a 7 percent coupon rate, makes semiannual payments, a 7 percent YTM, and 26 years to maturity. If interest rates suddenly rise by 5 percent, what is the percentage change in the price of Bond Dave? 4 decimals (e.g. 0.0123).
A 10-year maturity mortgage-backed bond is issued. The bond is a zero coupon bond that promises...
A 10-year maturity mortgage-backed bond is issued. The bond is a zero coupon bond that promises to pay $10,000 (par) after 10 years. At issue, bond market investors require a 15 percent interest rate on the bond. What is the initial price on the bond? (A) $2,252 $2,472 $8,696 $10,000 Answer is A but I don't know how to do it. Please explain using financial calculator step.
A bond with face Value =$1,000 with semi-annual payments, a coupon rate of 7%, and has...
A bond with face Value =$1,000 with semi-annual payments, a coupon rate of 7%, and has 8 years to maturity. The market requires a yield of 8% on bonds of this risk. What is this bond’s price?
A government bond matures in 7 years, makes annual coupon payments of 5.1% and offers a...
A government bond matures in 7 years, makes annual coupon payments of 5.1% and offers a yield of 3.1% annually compounded. Assume face value is $1,000. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) a. Suppose that one year later the bond still yields 3.1%. What return has the bondholder earned over the 12-month period? b. Now suppose that the bond yields 2.1% at the end of the year. What return did...
GE has a 7-year, 4.5% coupon bond with semi-annual coupon payments. The current YTM is 3.5%....
GE has a 7-year, 4.5% coupon bond with semi-annual coupon payments. The current YTM is 3.5%. What is duration of this bond and how much will price change if YTM goes up by 1% using duration approximation method?
Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced...
Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has four years to maturity, whereas Bond Dave has 15 years to maturity. a.If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam and Bond Dave? b. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of Bond Sam and...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT