Deck 5: Share Valuation and Bond Valuation

Question 1

Matt's Carpentry Services Inc. has just paid a dividend of $0.55 per share. The dividends are expected to grow at an annual rate of 5 percent indefinitely. What is today's stock price if the required return is 12.5 percent?

A) $4.62.
B) $7.33.
C) $7.70.
D) $11.55.

Answer 1

$7.70.

Question 2

The preference share of Gainsite Ltd is selling currently at $110.35. If your required rate of return is 9.75 percent, what is the dividend paid by this share?

A) $9.75.
B) $11.32.
C) $10.76.
D) $8.53.

Answer 2

$10.76.

Question 3

A ten-year bond has a par value of $1,000; a 7.5 percent coupon rate; and a yield to maturity of 8.25 percent. Assuming the coupons are paid semi-annually, the market price is closest to:

A) $949.60.
B) $950.24.
C) $1,051.48.
D) $1,052.11.

Answer 3

$949.60.

Question 4

A zero coupon bond with a face value of $1,000 is currently selling for $687.38. The bond has a market yield of 5.48 percent. What is the bond's term to maturity, assuming semi-annual compounding?

A) 6.62 years.
B) 6.93 years.
C) 7.03 years.
D) 7.42 years.

Question 5

A twenty-year zero coupon bond with a face value of $1,000 is currently selling for $326.50. Assume that coupon payments are normally semi-annual. What is the bond's YTM?

A) 5.68%.
B) 5.65%.
C) 5.76%.
D) 5.72%.

Question 6

A five-year zero coupon bond with a face value of $1,000 is currently selling for $826.50. Assume that coupon payments are normally semi-annual. What is the bond's YTM?

A) 3.84%
B) 1.92%.
C) 3.88%.
D) 1.94%.

Question 7

What is the YTM of a four-year bond with a par value of $1,000 and a 4 percent coupon rate when coupons are paid annually and the bond is priced at $1,000?

A) 2%.
B) 4%.
C) 6%.
D) 8%.

Question 8

A five-year bond is currently selling for $930.11. It has a face value of $1,000 and a market yield of 8 percent. Coupons are paid semi-annually. The coupon rate is closest to:

A) 4.12%.
B) 6.25%.
C) 6.28%.
D) 7.48%.