Question

Your friend just bought a share of stock at a price of $48.98. The stock paid a dividend of $1.63 per share and the stock price at the end of the year was $54.12. What was the total return for the year on this stock?

Multiple Choice

• 12.51%

• 10.49%

• 13.17%

• 3.33%

• 13.82%

Which of the following statements is/are true?  

Multiple Choice

• A. The rate of return required by the market on a bond that is held until maturity is called the coupon rate.

• B. A zero coupon bond is one that initially sells at a discount and only makes one payment to bondholders.

• Both A and B are true.

• Neither A nor B are true.

Bob owns a portfolio that is one-third invested in a risk-free asset, one-third invested in Stock A and one-third invested in Stock B. Stock A has a beta of 1.09 and the total portfolio is equally as risky as the market. What must the beta be for Stock B?

Which one of the following statements is true?

Multiple Choice

• The current yield on a par value bond will exceed the bond's yield to maturity.

• The yield to maturity on a premium bond exceeds the bond's coupon rate.

• A premium bond has a current yield that exceeds the bond's coupon rate.

• The current yield on a premium bond is equal to the bond's coupon rate.

• A discount bond has a coupon rate that is less than the bond's yield to maturity.

Answer 1

Answer to Part 1 is "13.82%"

Answer to Part 2 is Option "B" i.e "A zero-coupon bond is one that initially sells at a discount and only makes one payment to bondholders."

Zero-Coupon Bond is called zero-coupon because they don't carry any coupon payment but only payment at the time of maturity. The rate of return required by the market on a bond that is held until maturity is called the coupon rate is a wrong statement, it is called Yield to maturity (YTM).

Answer to Part 3 is "1.94"

Market Beta is 1.00

The beta of Portfolio = Market Beta = 1.00

The beta of Portfolio = (Wrf * Brf) + (Wa * Ba) + (Wb * Bb)

1.00 = (.33 * 0) + (.33 * 1.09) + (.33 * X)

X = (1 - (.33 * 1.09))/.33

X = 1.94

The beta of Stock B = 1.94

Answer to Part 4 is Option "A discount bond has a coupon rate that is less than the bond's yield to maturity."