Question

In: Accounting

To answer questions, assume “All else equal” 13. A municipal bond must have a yield to...

To answer questions, assume “All else equal”

13. A municipal bond must have a yield to maturity that is higher/lower/equal to the yield to maturity on a similar corporate bond.

14. An investment has a 3% rate which compounds quarterly, therefore it must have an EAR that higher than/lower than/equal to an investment that has a 1% rate which compounds monthly.

15. An investment has a 3% rate which compounds quarterly, therefore it must have an APR that higher than/lower than/equal to an investment that has a 1% rate which compounds monthly.

16. A stock that has a beta of 1.5 will have a risk premium that is higher than/lower than/equal to a stock that has a beta of 2.

17. A stock that has a beta of 1.5 will have a risk premium that is higher than/lower than/equal to the market risk premium.

18. A stock that has a growth rate of 4% must have a price that is higher than/lower than/equal to a stock that has a growth rate of 6%.

19. A stock that has a growth rate of 4% must have a price that is higher than/lower than/equal to a stock that is a perpetuity.

20. A bond that has a yield of 4% and a coupon rate of 5% must have price that is higher than/lower than a bond that has a yield of 5% and a coupon rate of 4%.

Solutions

Expert Solution

13. A municipal bond is backed by the government ans is therefore considered to be less risky. Therefore, the yield offered on the same as compared to a corporate bond would be less.

14. EAY (Quarterly) = 3.03%, EAY (Monthly) = 1.004%. Quarterly EAY would be higher.

15. APR of both would be the same. APR (Quarterly) = 3*4 = 12%, APR (Monthly) = 12*1 = 12%

16. The risk premium of the stock having beta 2 would be more as the systematic risk of that stock, as shown by beta, is more.

17. The risk premium of the stock will be more as the beta is 1.5 as compared to the beta of market which is 1.

18. The stock having growth rate of 6% will be priced higher as per the constant growth model.

19. The stock having the growth rate will be priced higher as all stocks are deemed to last till perpetuity.

20. The bond with coupon 5% will be priced at higher because not only does it have greater amounts of cash flows, these flows are also discounted at a lower rate.


Related Solutions

To answer questions, assume “All else equal” 21. A bond that has a yield of 4%...
To answer questions, assume “All else equal” 21. A bond that has a yield of 4% and a coupon rate of 5% must have price that is higher than/lower than a zero-coupon bond. 22. A bond that is callable is likely to be called when yields are higher than/lower than/equal to its coupon rate.
To answer questions, assume “All else equal” 6.    An increase in the interest rate on a mortgage...
To answer questions, assume “All else equal” 6.    An increase in the interest rate on a mortgage will cause an increase/decrease/no change in the mortgage payment, all else equal. 7.    If the payout ratio increases, then the stock’s price will increase/decrease/not change. 8.    If the price of a stock increases, the dividend yield will increase/decrease/not change. 9.    If the yield on a bond decreases, the value of the bond should increase/decrease/not change. 10. A bond that has a coupon rate of 8% should have...
A taxable bond has a yield of 8.50% and a municipal bond has a yield of...
A taxable bond has a yield of 8.50% and a municipal bond has a yield of 5.95%. At what tax rate would you be indifferent between the two bonds (i.e., the rate where the returns on the two bonds are equal)? a. 40.00 percent b. 25.00 percent c. 35.00 percent d. 30.00 percent North Side Corporation is expected to increase dividends at 10 percent rate each year over the next three years. Afterward, the company pledges to maintain a constant...
All else equal, an increase in taxes will cause Group of answer choices a.) a decrease...
All else equal, an increase in taxes will cause Group of answer choices a.) a decrease in National Income. b) a decrease in the government's budget surplus. c) An increase in disposable income. d) all of the above.
20. Which of the following statements about a bond is true? All else being equal, the...
20. Which of the following statements about a bond is true? All else being equal, the lower the coupon rate on a bond, the higher the price of the bond The value of a bond cannot be traded in the market at its face value If the yield curve is downward sloping, long-term yields are lower than short-term yields because market interest rates are expected to decrease. If the yield curve is downward sloping, long-term yields are lower than short-term...
please answer all 15 questions if u cant answer all then please let someone else answer...
please answer all 15 questions if u cant answer all then please let someone else answer it. thanks. Histones are proteins associate with which of the following? Blood Hair Follicle DNA Sperm Skip Which of the following organs releases Bicarbonate as a response release of secretine by duodenum? Liver Pancreas Gall Bladder Spleen Which of the following describes a process that occurs along the proximal tubules of nephron? Toxins in the filtrate are detoxified Glucose, lactate, and amino acids are...
Assuming all else is equal, which of the following loans is most likely to have the...
Assuming all else is equal, which of the following loans is most likely to have the lowest total interest cost? Secured non-amortizing loan Secured amortizing loan Unsecured amortizing loan Unsecured non-amortizing loan
Here is all of the information to answer questions 13, 14, 15. I have asked this...
Here is all of the information to answer questions 13, 14, 15. I have asked this already and recieved wrong answers to those questions. Thank you for your help in this matter. The following information applies to the questions displayed below.] Diego Company manufactures one product that is sold for $73 per unit in two geographic regions—the East and West regions. The following information pertains to the company’s first year of operations in which it produced 44,000 units and sold...
1. Compare 30-year bond to a 5-year bond all else equal. Which one is more sensitive...
1. Compare 30-year bond to a 5-year bond all else equal. Which one is more sensitive to interest rate changes. Why? Please explain. 2. AAA, Inc. currently has an issue of bonds outstanding that will mature in 31 years. The bonds have a face value of $1,000 and a stated annual coupon rate of 20.0% with annual coupon payments. The bond is currently selling for $890. The bonds may be called in 4 years for 120.0% of the par value...
If you are holding a municipal bond that is trading at par to yield 6%, by...
If you are holding a municipal bond that is trading at par to yield 6%, by how much will your after-tax yield change if your federal income tax bracket increases from 15% to 20%. Assume there are no state or local taxes
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT