1. Which of the following is a true statement? a. If interest rates fall, U.S. T
ID: 2759688 • Letter: 1
Question
1. Which of the following is a true statement?
a. If interest rates fall, U.S. Treasury bonds will have decreasing values.
If interest rates fall, corporate bonds will have decreasing values.
c. If interest rates fall, no bonds will enjoy rising values.
If interest rates fall, all bonds will enjoy rising values.
1. A 2.5 percent Treasury Inflation Protected Security has a reference CPI of 170.4. If the current CPI is 205.7, what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)
a. $1000, $7.16, respectively
b. $1000, $15.09, respectively
c. $1207.16, $7.16, respectively
d. $1207.16, $15.09, respectively
2. XOM just paid a $1.57 dividend and investors expect that dividend to grow by 5% each year forever. If the required return on the stock investment is 14%, what should be the price of the stock today.
a. $11.21
b. $18.32
c. $17.44
d. $25.37
3. Financial analysts project Target’s growth for the future to be 11 percent. Their recent dividend was $0.52. What is the value of their stock when the required rate of return is 11.89 percent?
$5.25
$6.48
$58.43
$64.85
a. If interest rates fall, U.S. Treasury bonds will have decreasing values.
b.If interest rates fall, corporate bonds will have decreasing values.
c. If interest rates fall, no bonds will enjoy rising values.
d.If interest rates fall, all bonds will enjoy rising values.
Explanation / Answer
2 Price = Dividend at year 1/ Return- Growth D1 = 1.57*105% 1.6485 Price = 1.6485/.14-.05 1.6485/.09 Price = $18.32 The correct option is B. $ 18.32 3 D1 = .52*111% 0.5772 Price = .5772/.1189-.11 .5772/.0089 Proce = 64.85393 The correct option is D. $ 64.85
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