QUIZ 2Quiz Paper A 1, Quiz Paper B 6Which one of the following measures a bond’s sensitivity to changes in marketinterest rates?a. yield to callb. yield to marketc. durationd. immunizatione. target date valuation JJ Industries will pay a regular dividend of $2.40 per share for each of the next fouryears. At the end of the four years, the company will also pay out a liquidatingdividend, and the company will cease operations. If the current share price is $50and the discount rate is 10%, what must the liquidating dividend be?a. $40b. $50c. $58.60d. $62.07e. $65.87Quiz Paper A 3, Quiz Paper B 8An 8.5 percent coupon bond pays interest semiannually and has 10.5 years tomaturity. The bond has a face value of $1,000 and a market value of $878.50. Whatis the yield to maturity?a. 5.16 percentb. 8.37 percentc. 8.78 percentd. 10.43 percente. 11.21 percentQuiz Paper A 4, Quiz Paper B 9LKD Co. has 10 percent coupon bonds with a YTM of 8.6 percent. The currentyield on these bonds is 9.2 percent. How many years do these bonds have left untilthey mature? (Face value is $1,000 and coupons are paid semiannually.)a. 18.52 yearsb. 18.14 yearsc. 9.26 yearsd. 9.07 yearsQuiz Paper A 5, Quiz Paper B 10Atlantis Seafood Company stock currently sells for $70 per share. The company isexpected to pay a dividend of $4.35 per share next year, and analysts project thatdividends should increase at 4.5% per year for the indefinite future. What must therelevant discount rate be for Atlantis stock?a. 7.869%b. 8.255%c. 10.334%d. 10.714%e. 10.994%Quiz Paper A 6, Quiz Paper B 16Landon Air Corporation reported net income of $25 million for last year.Depreciation expense totaled $10 million and capital expenditures came to $3million. Free cash flow is expected to grow at a rate of 3% for the foreseeable future.Landon Air faces a 35% tax rate and has $100 million (market value) in debtoutstanding. If required return on Landon Airâs assets is 10.65%, what is the currenttotal value of Landon Air’s equity (in millions)?a. $296.21b. $318.30c. $330.85d. $418.30e. $430.85Quiz Paper A 7, Quiz Paper B 17Which one of the following rates is used by brokerage firms as the basis fordetermining margin loan rates?a. discountb. Fed fundsc. primed. brokeragee. call moneyQuiz Paper A 8, Quiz Paper B 18An increase in the retention ratio will:a. increase the payout ratio.b. decrease a firm’s sustainable rate of growth.c. not affect the value of a firm’s stock.d. decrease the value of a firm’s stock.e. increase the value of a firm’s stock.Quiz Paper A 9, Quiz Paper B 19Which one of the following orders is frequently used as a means to limit lossesresulting from a short sale?a. limitb. marketc. dayd. stop-selle. stop-buyQuiz Paper A 10, Quiz Paper B 20Which one of the following rates is the rate a commercial bank must pay the FederalReserve to borrow reserves overnight?a. Fed fundsb. discountc. financial overnightd. dailye. institutionalQuiz Paper A 11, Quiz Paper B 1A Treasury bill has 36 days left to maturity. The bank discount yield on the bill is4.14 percent. What is the effective annual rate?a. 4.30 percentb. 4.36 percentc. 4.40 percentd. 4.45 percente. 4.49 percentQuiz Paper A 12, Quiz Paper B 2A discount bond:a. has a coupon rate which is greater than the yield to maturity.b. has a coupon rate which is less than the market rate of interest.c. has a par value which is less than the market value.d. is selling for more than face value.e. is the name given to a bond that has been called prior to maturity.Quiz Paper A 13, Quiz Paper B 3Best Value Outlet recently announced that it intends to pay dividends of $0.40,$0.60, $0.75, and $1.00 per share over the next four years, respectively. After that,the plan is to increase the dividend by 3.5 percent annually. What is the current valueof this stock if the applicable discount rate is 13.5 percent?a. $6.44b. $7.83c. $8.17d. $9.55e. $13.10Quiz Paper A 14, Quiz Paper B 4Which one of the following models can be used to value the stock of a firm thatmaintains a one hundred percent retention ratio?a. two-stage dividend growthb. residual incomec. perpetual dividend growthd. supernormal dividend growthe. dividend discountQuiz Paper A 15, Quiz Paper B 5Pure discount bonds which are created by separating the interest and principalpayments from U.S. Treasury bonds are called U.S. Treasury:a. notes.b. bills.c. STRIPS.d. SWAPS.e. tax-exempts.Quiz Paper A 16, Quiz Paper B 11A price-weighted index consists of stocks A, B, and C which are priced at $38, $21,and $26 a share, respectively. The current index divisor is 2.7. What will the newindex divisor be if stock B undergoes a 3-for-1 stock split?a. 2.1684b. 2.2553c. 2.5890d. 2.7000e. 3.1447Quiz Paper A 17, Quiz Paper B 12Which of the following strategies is most likely to yield the best interest rate riskimmunization results for a bond portfolio?a. Maturity matchingb. Duration matchingc. Buy and holdd. Investing in interest rate-sensitive stocks.Quiz Paper A 18, Quiz Paper B 13GL Enterprises has 130,000 shares of stock outstanding. Janet wants to sell 400 ofthese shares. The price she will have to pay is the _____ price.a. marginb. bidc. askd. brokere. spreadQuiz Paper A 19, Quiz Paper B 14You own a bond that pays semiannual interest payments of $40. The bond is callablein 3 years at a premium of $80. What is the callable bond price if the yield to call is9.7 percent? (The face value of this bond is $1,000.)a. $995.46b. $1,016.86c. $1,119.02d. $1,124.87e. $1,220.87Quiz Paper A 20, Quiz Paper B 15The _____ theory states that the shape of the yield curve reveals the financialmarketâs projections of future interest rates.a. market segmentationb. market yieldc. maturity preferenced. expectationse. rational rate
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