17. Ifa bond with a fece value of $1,000 has s yield to maturity thet greater th

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17. Ifa bond with a fece value of $1,000 has s yield to maturity thet greater than its coupon rete 22. Assume ere considerin: purchesng tock n company A. The company website and various stock analysts anticipate that the price of tha stock wil grow to S210/share by th and of the first year. In addition, they are prajecting that a divicend af 55/share will also be paid at the end of the frst year, Ifyou demand a so% rate ofretun, hat would be afair price for one share of A. The bond would have been purchazed at a premium 5 The bond would have been purchased at a discoun c YTmis unealared to bond prices D. The bondholder wll see anincresse in their interest peyments. A. 5200.00 5193 C. 5202 25 D. 519545 13. in Fabruary of 2015, US TYeasury bonds ware sold with a coupon rate f & 79%. The interest was to ba pais sami-annualy two times par year) and the YTM waa 2.75. The bonds are due to mature in 2041. Given the ebove, what would be the bonds price 5551 20 . 99520 C 1,105.75 D. $1,281 TO E. 1,351 20 23 short term govermeent securides are often issued as "zerocoupen bonds. This means that: A. In exchange for auS Government guarantee the bond offers no interest The bond issold t8 premium and redeemed at face vslue with no intervening interest paymants peyment determined by the federal funds rate at the time. C. The band is sold ata decount and redeemes at foce value with no intervening interest D. The bond can be redemed at any ime at the aption af the holder andintaret ia 19. A Factory costs $S00,000 to build. However, itsprojected thet it wil produce positive net cash ows of $170,000 per year for the nest ten years. if che opportunity cost of apital &435 what s the Ne: Present Velue of that cash stream A. 50 B. S58.023.75 C. 562,173.85 o. (14,522 54) E. 586,739.66 24. When a corporation decides to "go pubic reteins an investment banker to walk them througn the process. The Investmant bankr, or underwritar, help the businass ownar determine the right price to enter the marketwith as wel helping with filing of all necessary documents to comply with federal and state security as, what is the term given to this introductory offaring of sacurtle? A. Introductory Primery Omnibus a Initial Primary statemem . investment Banker D. Initial Public OHering . Preiminary sock ofmering. 20. If you were sttempting to determine the Net Book Value of corporation whet financi a Decaration aentwouls you look to? A. Stabement of Cach Flow c alance sheet D. Corporate Budget . Statement of changes in Retained Earnings 25. Just prior to the introductory offering of the stock, the business owner will typialy sel all the stock to the investment benker.This transection is sid to occur in the primary market & Pabe 21 as a egal any, a corporaton can do a the tolowing EXCEPT: A. Borrow or lend money a sue or be sued D. Donate to public charities t. Pay income tases

Explanation / Answer

17. When YTM is higher than coupon rate, it implies that the bond is selling at discount

option B is correct

18. You find that out using the PV function in excel:

= pv(rate, nper, pmt, fv)

Since interest payment is semi annual, rate and yield are divided by 2. Maturity is after 26 years. Hence nper will be 26 x 2 = 52

= PV(1.35%,52,23.75,1000)

=1,381.20

19. NPV is calculated as

Initital outlay - CF/(1+r)n

Using a financial calculator the result is $86,739.66

20. Balancesheets are based on book values of items. Hence option C

21. A corporation can't vote as an individual. Option C

22. $210 is the price of stock at the end of year 1. Therefore,

P1 = D1(1+g) / Ke - g

Or, 210 = 5 + 5g /0.10 - g

Or, 21 - 210g = 5 + 5g

Or, g = 16/215 = 7.44%

Now, P0 = 5/0.10 - 0.0744

= $195.45

Option D

24. The first time securities are offered for sale to public, it is called initial public offering of shares.

Option D

25. A zero coupon bond is issued at a discount and redeemed at its face value. It doesn't involve interest payments.

Option C

26. The first time securities are offered for sale, it happens in primary market. In secondary market, the previously issued bonds and securities are bought and sold.

Option A. True

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