Question

Show steps plz

1.The yield declines on a bond that pays a 5.00% annual coupon. Given this decline, it can be said that the bond’s price:

a.
Will not change

b.
Will increase and the bond will sell at a premium.

c.
Will decrease and the bond will sell at a discount.

d.
Will decrease.

e.
Will increase.

2. XYZ Corporation needs to raise additional capital and is considering a rights issue to raise $5 million. There are currently 1,000,000 shares on issue, trading at $15.00. The company plans to increase the total number of shares on issue to 1,500,000. Calculate the theoretical ex-rights price and the value of a right.

a.

$18.25, $2.85

b.

$15.00, $5.00

c.

$12.5, $2.5

d.

$13.33, $1.67

e.

$13.33, $3.33

3.Steady Company pays annual dividends and just paid a dividend of $1.00. You assume Steady Company’s dividends are expected to grow by 15.00% per year indefinitely and that the required return is 10.00% p.a. Based on this information, what is the price of a Steady Company share?

a.

-$23.00

b.

$22.00

c.

$100.00

d.

$101.53

e.

None of the above

Answer 1