1.If a bond\'s coupon rate is less than its yield to maturity, the the bond will
ID: 2723019 • Letter: 1
Question
1.If a bond's coupon rate is less than its yield to maturity, the the bond will sell __________. A.at a price equal to its face value B.at a price less than its face value C.at a price equal to the number of payments remaining D.at a price greater than its face value
2. Mears Corporation just paid a dividend of $4.45. The company forecasts a constant growth rate in dividends of 8 percent. If the appropriate discount rate is 14 percent, what is the current price of this stock (rounded to the nearest dollar)?
$40
$60
$80
$100
3. If the supply of loanable funds decreases then all else equal __________.
interest rates will increase, decrease, or remain the same
interest rates will decrease
interest rates will increase
interest rates will remain unchanged
4. The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments __________.
equal to zero
greater than the price of the bond
equal to the price of the bond
less than the price of the bond
$40
$60
$80
$100
Explanation / Answer
1.If a bond's coupon rate is less than its yield to maturity, the the bond will sell __________. B.at a price less than its face value
Mears Corporation just paid a dividend of $4.45. The company forecasts a constant growth rate in dividends of 8 percent. If the appropriate discount rate is 14 percent, what is the current price of this stock
Answer: $80
We can find stock price using Gordon Growth model,
Value of stock = D1/ (k - g)
where:
D1 = next year's expected annual dividend per share
k = Approproate discount rate
g = the expected dividend growth rate
=(4.45*(1+8%))/(14%-8%)
Current Stock price=$80
3. If the supply of loanable funds decreases then all else equal __________.
interest rates will increase
The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments
equal to the price of the bond
interest rates will increase
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.