Reference no: EM1314578

Objective type Question on Bond yield and Valuation

1. Cold Boxes Ltd. has 100 bonds outstanding (maturity value $1,000). Their nominal required yield to maturity is 10%, and interest is paid semi-annually. The bonds mature in 5 years, and their current market value is $768 per bond. What is the annual coupon interest rate?

1. 8%
2. 6%
3. 4%
4. 2%
5. 0%

2. The current price of a 10-year, $1,000 par value bond is $1,158.91. Interest on this bond is paid every six months, and the nominal annual yield is 14%. Given these facts, what is the annual coupon rate on this bond?

1. 10%
2. 12%
3. 14%
4. 17%
5. 21%

3. A 6-year bond, 8% semiannual coupon bond sells at par ($1,000). Another bond of equal risk, maturity, and par value pays an 8% annual coupon. What is the price of the annual coupon bond?

1. $689.08
2. $712.05
3. $980.43
4. $986.72
5. $992.64

4. A 15-year, 10% semiannual coupon bond has a par value of $1,000. The bond has a nominal yield to call of 6.5%, but may be called after 10 years at a price of $1,050. What is the bond\'s nominal yield to maturity?

1. 5.97%
2. 6.30%
3. 6.75%
4. 6.95%
5. 7.10%

5. Recently, Ohio Hospitals Inc. filed for bankruptcy. The firm was reorganized as American Hospitals Inc., and the court permitted a new indenture on an outstanding bond issue to be put into effect. The issue has 10 years to maturity and an annual coupon rate of 10%. The new agreement allows the firm to pay no interest for 5 years. Then, interest payments will be resumed for the next 5 years. Finally, at maturity (Year 10), the principal plus the interest that was not paid during the first 5 years will be paid. However, no interest will be paid on the deferred interest. If the required annual return is 20%, what should the bonds sell for in the market today?

1. $242.26
2. $281.69
3. $578.31
4. $362.44
5. $813.69

6. T. Martell Inc.\'s stock has a 50% chance of producing a 30% return, a 25% chance of producing a 9% return, and a 25% chance of producing a -25% return. What is Martell\'s expected return?

1. 14.4%
2. 15.2%
3. 16.0%
4. 16.8%
5. 17.6%

7. Niendorf Corporation\'s stock has a required return of 13.00%, the risk-free rate is 7.00%, and the market risk premium is 4.00%. Now suppose there is a shift in investor risk aversion, and the market risk premium increases by 2.00%. What is Niendorf\'s new required return?

1. 14.00%
2. 15.00%
3. 16.00%
4. 17.00%
5. 18.00%

8. Suppose you hold a diversified portfolio consisting of $10,000 invested equally in each of 10 different common stocks. The portfolio\'s beta is 1.120. Now suppose you decided to sell one of your stocks that has a beta of 1.000 and to use the proceeds to buy a replacement stock with a beta of 1.750. What would the portfolio\'s new beta be?

1. 0.982
2. 1.017
3. 1.195
4. 1.246
5. 1.519

9. Assume that the risk-free rate is 5%. Which of the following statements is correct?

1. If a stock's beta doubled, its required return would also double.
2. If a stock's beta doubled, its required return would more than double.
3. If a stock's beta were 1.0, its required return would be 5%.
4. If a stock's beta were less than 1.0, its required return would be less than 5%.
5. If a stock has a negative beta, its required return would be less than 5%.

10. Which of the following statements is CORRECT?

1. If a company's beta doubles, then its required rate of return will also double.
2. If investors became more risk averse, then the slope of the security market line should decrease.
3. If a company's beta is cut in half, then its required rate of return will also be halved.
4. Other things held constant, if investors suddenly became convinced that there would be deflation in the economy, then the required returns on all stocks should decrease.

If the risk-free rate rises by 0.5% but the market risk premium declines by that same amount, then the required rates of return on stocks with betas less than average will decline while returns on stocks with above average betas will increase