BUS401 quiz wk2
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1. Question : How is preferred stock similar to bonds?
Dividend payments to preferred shareholders (much like bond interest payments to bondholders) are tax deductible.
Investors can sue the firm if preferred dividend payments are not paid (much like bondholders can sue for non-payment of interest payments).
Preferred stockholders receive a dividend payment (much like interest payments to bondholders) that is usually fixed.
Preferred stock is not like bonds in any way.
2. Question : If you invest $750 every six months at 8 percent compounded semi-annually, how much would you accumulate at the end of 10 years?
$10,065 $10,193 $22,334 $21,731
3. Question : Nuray Corp. preferred stock pays a $.50 annual dividend. What is the value of the stock if your required rate of return is 10%?
$.05 $.50 $5.00 $50.00
4. Question : H. J. Corp. common stock paid $2.50 in dividends last year (D0). Dividends are expected to grow at a 12-percent annual rate forever. If H. J.'s current market price is $40.00, what is the
stock's expected rate of return (nearest .01 percent)?
5.50% 11.00% 18.25% 19.00%
5. Question : What is the present value of $15,500 to be received 12 years from today? Assume a discount rate of 7.5% compounded annually and round to the nearest $1.
$5,790 $6,508 $7,210 $9,010
6. Question : You determine that XYZ common stock has an expected return of 24%. XYZ has a Beta of 1.5. The risk-free rate is 5%, and the market expected return is 15%. Which of the following is
most likely to happen?
You and other investors will buy up XYZ stock and its price will rise.
You and other investors will sell XYZ stock and its return will fall.
You and other investors will buy up XYZ stock and its return will rise.
You and other investors will sell XYZ stock and its price will fall.
7. Question : What is the value of a preferred stock that pays a $4.50 dividend to an investor with a required rate of return of 10%?
$22.22 $27.83 $45 $55.50
8. Question : Emery Company just paid a dividend yesterday of $2.25 per share. The company's stock is currently selling for $60 per share, and the required rate of return on Emery Company stock is
16%. What is the growth rate expected for Emery Company dividends assuming constant growth?
9.47% 9.89% 10.87% 11.81%
9. Question : Finance theory suggests that the current market value of a bond is based upon which of the following?
The future value of interest paid on a bond. The sum total of principal and interest paid on a bond. The
sum of the present value of the bond's interest payments and the present value of the principal.
The present value of a bond's par value plus the future value of the bond's present value.
10. Question : What is the value of a bond that matures in 17 years, makes an annual coupon payment of $50, and has a par value of $1,000? Assume a required rate of return of 6%.
$822.90 $856.29 $895.23 $904.87
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