MULTIPLE CHOICES , can i have clarification, for #1 i have 24, #2 B #3 C #4 25 #

Question

MULTIPLE CHOICES , can i have clarification, for #1 i have 24, #2 B #3 C #4 25 #5 NON OF THE ABOVE is this correct ?

1) Imagine you purchased a convertible bond today for $1,000. The conversion ratio is 40. At which of the following stock prices would the conversion feature be profitable to exercise now?

A $20.00   B $22.00   C $24.00 D $26.00

2) The tax exclusion benefit of preferred stock accrues to the ________ of the preferred stock.

A Seller B Corporate buyer C Individual buyer   D Tax-exempt buyer

3) Which of the following is a necessary, but insufficient, condition for immunizing a single cash flow liability?

A The present value of the assets must exceed the present value of the liability

B The duration of the assets must be less than the duration of the liability

C The duration of the assets must be equal to the duration of the liability

D The duration of the assets must be more widely dispersed than that of the liability

4) Suppose a particular firm just paid a dividend of $1.50 per share yesterday. You estimate that the firm will grow its dividend at an annual rate of 4% indefinitely and that its required return is 10%. What price should you be willing to pay for 1 share of this business today?

A $26 B $25 C   $15 D $39

5) The value of a share of stock is

Explanation / Answer

1) Convertible ratio = 40

So 1 bond = 40 shares , Bond value = 1000

Therefore share price must be 1000/40 = 25 or above

i.e answer is D - 26 for making profitable because the bond price is 1000, if we get more than 1000, then it becomes profitable.

2) Answer is B Corporate Buyer , beacuse it allows a qualified corporation to exclude 70% of dividend income received.

3) Answer is C The duration of the assets must be equal to the duration of the liability.

4) Po = D1/ Ke-g, where D1 = div. + growth

= (1.5 + 4%)/ .10-.04

= 26, answer is A

5) A positive realted, because if in the above formula if we increases the growth rate of dividend , the share price also increases.

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