The required rate of return for any securiy is comprised of three components. Wh

Question

The required rate of return for any securiy is comprised of three components. Which of the The required rate of return for any security is comprised of t ollowing is not a component of the required rate of return? The Real Rate of Return B. The Inflation Premium C. The Market Premium D. The Risk Premium 2. Environment factors have shifted since the original launch of the XYZ corporate bond, Inflation has unexpectedly increased over the past year. With the increase in inflation, what impact will this have on the value of the bond? Bond value $$ will increase Bond value $S will decreass 3. The required rate of return for any security is determined based on A. The security's coupon rate. B. The market price for other similar securities / asset classes. C. The return dictated by the US Government. D. The return quoted by major US commercial banks. 4. The current price (ie, present value) for a preferred stock ean be determined based on a general valuation model that includes A. an annuity B. an annuity plus a single cash flow C. a perpetuity D. a growing dividend 5. The current price (ue. present value) for a bond can be determined based on a general valuation model that includes A. an annuity B. an annuity plus a single cash flow, a two part calculation C. a perpetuity D. a growing perpetuity 1 of 4

Explanation / Answer

1. The required rate of return for any security is comprised of three components. Which one of the following is not a component of the required rate of return?

Answer = A) The Real Rate of Return

2. B) Bond value $$ will decrease

3. The required rate of return for any security is determined based on

B) The Market price for other similar securities/ asset classes

4) The current price for a preferred stock can be determined based on a general valuation model that includes

D) a growing dividend

5) the current price for a bond can be determined based on a general valuation model that includes

c) a perpetuity

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