Use the following information to answer the question(s) below. Security Term (ye
ID: 2668001 • Letter: U
Question
Use the following information to answer the question(s) below.
Security Term
(years) Yield
(%)
Treasury 20 5.5%
AAA Corporate 20 7.0%
BBB Corporate 20 8.0%
B Corporate 20 9.6%
27)
The credit spread on AAA-rated corporate bonds is:
27)
______
A)
2.6%
B)
1.0%
C)
4.1%
D)
1.5%
28)
The credit spread on B-rated corporate bonds is:
28)
______
A)
1.5%
B)
2.6%
C)
1.0%
D)
4.1%
29)
Which of the following is not a way that a firm can increase its dividend?
29)
______
A)
By increasing its earnings (net income)
B)
By increasing its dividend payout rate
C)
By decreasing its shares outstanding
D)
By increasing its retention rate
30)
Which of the following statements is false?
30)
______
A)
Successful young firms often have high initial earnings growth rates.
B)
According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the grow rate.
C)
Estimating dividends, especially for the distant future, is difficult.
D)
A firm can only pay out its earnings to investors or reinvest their earnings.
31)
Which of the following statements is false?
31)
______
A)
As firms mature, their growth slows to rates more typical of established companies.
B)
The dividend discount model values the stock based on a forecast of the future dividends paid to shareholders.
C)
The simplest forecast for the firm’s future dividends states that they will grow at a constant rate, g, forever.
D)
We cannot use the general dividend discount model to value the stock of a firm with rapid or changing growth.
Explanation / Answer
Use the following information to answer the question(s) below.
Security Term
(years) Yield
(%)
Treasury 20 5.5%
AAA Corporate 20 7.0%
BBB Corporate 20 8.0%
B Corporate 20 9.6%
The credit spread on AAA-rated corporate bonds is:
A)2.6%
B)1.0%
C)4.1%
D)1.5%
28)
The credit spread on B-rated corporate bonds is:
A)1.5%
B)2.6%
C)1.0%
D)4.1%
29)
Which of the following is not a way that a firm can increase its dividend?
A)By increasing its earnings (net income)
B)By increasing its dividend payout rate
C)By decreasing its shares outstanding
D)By increasing its retention rate
30)
Which of the following statements is false?
A)Successful young firms often have high initial earnings growth rates.
B)According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the grow rate.
C)Estimating dividends, especially for the distant future, is difficult.
D)A firm can only pay out its earnings to investors or reinvest their earnings.
31)
Which of the following statements is false?
31)
______
A)As firms mature, their growth slows to rates more typical of established companies.
B)The dividend discount model values the stock based on a forecast of the future dividends paid to shareholders.
C)The simplest forecast for the firm’s future dividends states that they will grow at a constant rate, g, forever.
D)We cannot use the general dividend discount model to value the stock of a firm with rapid or changing growth.