1.) a man owns two bonds that are identical in every way except one has 3 years
ID: 2704400 • Letter: 1
Question
1.) a man owns two bonds that are identical in every way except one has 3 years left to maturity and one has 10 years left to maturity. if there is a change in market interest rates which bonds market price will change the most.
a) the market price of the bond with 3 years to maturity will change the most
b) the market price of the bond with 10 years to maturity will change the most
c) both bonds marekt prices will change by the same amount
2.) A firm has determined its cost of each source of capital and optimal capital structure which is composed of the following sources and target market value proportions.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Source of Capital Target Market Proportions After tax Cost long term debt 35% 9%
Prefferred Stock 10 14
Common Stock Equity 55 20
The firm is consdering an investment opportunity, which has an internal rate of return of 10 percent. The Project
a) should not be considered because its internal rate of return is less that the cost of long term debt
b) should be considered because its internal rate of return is less that the cost of long term deb
c) should not be consdered because its internal rate of return is greater that the weighted average cost of capital
d) should be consdered because its interal rate of is greater that the weighted average cost of capital
3.) at the quarterly meeting of an oil corporation held on september 10th, the directors declared a $1.00 per share dividend for the firm's 100,000 shares of common stockoutstanding. the net effect of declaring and paying this dividend would be to
a) decrease cash by $100,000 and increase stockholders equity by $100,000
b) decrease cash by $100,000 and decrease stockholders equity by $100,000
c) increase cash by $100,000 and increase stockholders equity by $100,000
d) increase cash by $100,000 and decrease stockholders equity by $100,000
Explanation / Answer
1.a) the market price of the bond with 3 years to maturity will change the most
2)c) should not be consdered because its internal rate of return is greater that the weighted average cost of capital
3.b) decrease cash by $100,000 and decrease stockholders equity by $100,000
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