Question

1/ A company has earnings per share of $9.40. Its dividend per share is $1.15, its market price per share is $115.62, and its book value per share is $92. Its price-earnings ratio equals:

Multiple Choice

9.40.

9.79.

8.17.

8.30.

12.30.

2/ A company issues 6%, 4-year bonds with a par value of $200,000 on January 1 at a price of $207,170, when the market rate of interest was 5%. The bonds pay interest semiannually. The amount of each semiannual interest payment is:

Multiple Choice

$12,000.

$10,000.

$5,000.

$6,000.

$0.

3/ A company issued 5-year, 7% bonds with a par value of $1,100,000. The market rate when the bonds were issued was 6.5%. The company received $1,111,000 cash for the bonds. Using the straight-line method, the amount of recorded interest expense for the first semiannual interest period is:

Multiple Choice

Debit Interest Expense $20,127; debit Discount on Bonds Payable $1,473; credit Cash $21,600.

Debit Interest Expense $23,073; credit Premium on Bonds Payable $1,473; credit Cash $21,600.

Debit Interest Expense $20,127; debit Premium on Bonds Payable $1,473; credit Cash $21,600.

Debit Interest Payable $21,600; credit Cash $21,600.

Debit Interest Expense $23,073; credit Discount on Bonds Payable $1,473; credit Cash $21,600.

4/

Marwick Corporation issues 10%, 5 year bonds with a par value of $1,160,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%. What is the bond's issue (selling) price, assuming the following Present Value factors:

n=		i=			Present Value of an Annuity			Present value of $1
5		10	%			3.7908		0.6209
10		5	%			7.7217		0.6139
5		8	%			3.9927		0.6806
10		4	%			8.1109		0.6756

Multiple Choice

$1,160,000

$949,244

$1,630,432

$1,254,128

$689,568

Answer 1

Price earnings ratio = Price/ EPS

                                    = 115.62/9.4

                                    = 12.3 (E)

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Semi-annual coupon = (Par value * coupon rate)/2

                                      = (200000* 0.06)/2

                                       = (12000)/2

                                       = 6000 (D)

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Hope that helps.

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