15. The National Bank of the Shire has issued perpetual preferred stock with a $

Question

15. The National Bank of the Shire has issued perpetual preferred stock with a $1,000 par value. The k pays a quarterly dividend of $. 80 on this stock. What is the current price of this preferred storck a required rate of return of 8.5 percent? a. $43.25 b. $23.06 c. $37.65 d. $65.88 Answer:_ 16. Which one of the following statements is true of a bond's yield to maturity? a. A bond's yield to maturity changes daily as interest rates increase or decrease. b. 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. e. All of the items listed are true. d. It is the annual yield that the investor earns if the bond is held to maturity, and all the coupon and principal payments are made as promised Answer:

Explanation / Answer

15.

For a perpetual dividend paying stock

Stock price = Dividend/Rate

Rate = 0.085/4 per quarter

Stock price = 0.8/(0.085/4) = 37.65

Stock price = $37.65

Option C.

2.

All the items listed are true. Option c

YTM is the rate earned if the bond is held till maturity. It is the rate at which the present value of the coupons and par value is equal to the bond price. It changes according to the market rates.

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