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