Question 1

In actual practice, most corporate bonds pay interest:

Accepted Answer

Most corporate bonds pay interest semi-annually, meaning twice a year (every six months). This is the industry standard for most fixed-income securities.

Question 2

To determine risks of nondomestic bonds, a multinational corporation must consider all but which one of the following risks?

Accepted Answer

Stabilized currencies are not a risk factor for nondomestic bonds, as they would provide stability in terms of exchange rates and reduce the risks associated with fluctuating currencies. However, political and economic risks, seizure or expropriation of assets, foreign exchange controls and tax regulations are all important risk factors that need to be considered by multinational corporations before investing in nondomestic bonds.

Question 3

Which of the following types of stocks have the lowest risk to shareholders?

Accepted Answer

Cumulative preferred stock has the lowest risk among the options because it guarantees the payment of dividends in arrears before any dividends can be distributed to common stockholders. This feature provides a layer of financial security to the shareholders.

Question 4

The constant dividend growth model assumes:

Accepted Answer

The answer of The constant dividend growth model assumes:
...

Question 5

According to the Gordon dividend model, which of the following variables would not affect a stock's price?

Accepted Answer

According to the Gordon dividend model, the only variable that does not affect a stock's price is the number of shares outstanding. The other variables - the firm's expected growth rate in dividends and the shareholder's required return - both have an impact on the stock price.

Question 6

Which of the following types of bonds have the lowest bondholder security risk?

Accepted Answer

Closed-end mortgage bonds have the lowest bondholder security risk because they are backed by a specific set of assets that can only be sold if the issuer defaults on the bond. This provides a higher level of security for bondholders compared to other types of bonds, such as subordinated debentures which are not secured by any specific assets. Open-end mortgage bonds, on the other hand, allow the issuer to add more assets to the bond over time, which can increase the risk for bondholders.

Question 7

Which of the following is considered to be the most risky?

Accepted Answer

Common stocks are considered the most risky out of the options given. The value of stocks can fluctuate greatly and there is no guarantee of a return on investment.

Question 8

A firm's stock is expected to pay a $2 annual dividend next year, and the current $50 stock price is expected to rise to $53 over the next year.What is the expected return?

Accepted Answer

The expected return can be calculated using the formula:
Expected Return = (Dividend + Expected Price Increase) / Current Stock Price

Expected Return = ($2 + ($53 - $50)) / $50 = 10%

Question 9

What is the value of GM HM stock which currently has a dividend of $2 and is growing at 7%? The investor's required rate of return is 11%.

Accepted Answer

The answer of What is the value of GM HM...

Question 10

19100.Most bonds pay coupon interest

Accepted Answer

Most bonds pay interest to bondholders twice a year, which is known as semi-annual or bi-annual interest payments. Therefore, option C (semi-annually) is the best choice for this question.

Question 11

A bond that allows investors to force the issuer to redeem the bond prior to maturity is called a:

Accepted Answer

A putable bond allows the investor to force the issuer to redeem the bond prior to maturity. A convertible bond can be converted into a certain number of shares of the issuer's common stock. A callable bond allows the issuer to redeem the bond prior to maturity. A debenture bond is an unsecured bond that is not backed by any collateral.

Question 12

A firm's stock is expected to pay a $3 annual dividend next year, the current stock price is $60, and the expected growth rate in dividends is 8%.Using the Gordon approach, what is the expected return?

Accepted Answer

The Gordon approach formula is:

Expected Return = (Expected Dividend Payment / Current Stock Price) + Expected Dividend Growth Rate

Plugging in the given values, we get:

Expected Return = (3/60) + 0.08 = 0.05 + 0.08 = 0.13

Therefore, the expected return is 13% and the best choice is D.

Question 13

Suppose a firm just issued a $1,000 par value convertible bond.Its conversion ratio is 30 and the stock currently sells for $25 per share.Would it make better financial sense to hold onto the bond or convert it?

Accepted Answer

The conversion value is 30 shares * $25 = $750, which is less than the $1,000 par value of the bond. Therefore, it makes more financial sense to hold onto the bond.

Question 14

AT&T 10-year, $1,000 par value bond is selling at $1,158.91.Interest on this bond is paid semianually.If the annual yield to maturity is 14%, what is the annual coupon rate of the AT&T bond?

Accepted Answer

The answer of AT&T 10-year, $1,000 par value bond is...

Question 15

All of the following represent bonds secured by real assets except a (n):

Accepted Answer

A closed-end mortgage bond and an equipment trust certificate are both secured by specific assets (real estate and equipment, respectively), while a debenture is an unsecured bond. Therefore, the correct answer is C, as it does not represent a bond secured by real assets.

Question 16

All other things being equal, aA bond's value will be below its maturity value of $1,000 if it pays interest of $100 per year and investors require a rate of return that is of, all other things being equal:

Accepted Answer

The bond's price will be discounted if the required rate of return, which represents the market's interest rate, is higher than the bond's coupon rate of 10%. Therefore, the bond's price will be lower than its face value (maturity value of $1,000), which indicates that the bond is selling at a discount.

Question 17

Which of the following bonds may be secured by home mortgages?

Accepted Answer

The answer of Which of the following bonds may be...

Question 18

Dollar-denominated bonds that are issued in the United States by a foreign issuer are called:

Accepted Answer

Yankee bonds are dollar-denominated bonds issued in the United States by foreign issuers. Eurodollar bonds are dollar-denominated bonds issued outside of the United States, while foreign bonds and global bonds may be denominated in currencies other than the US dollar.

Question 19

An individual or organization that represents the bondholders to ensure the indenture's provisions are respected by the bond issuer is called a (n):

Accepted Answer

A trustee is specifically assigned to represent bondholders and ensure that the issuer follows the terms of the indenture. A trust indenture is a legal agreement outlining the terms and conditions of the bond issue. An investment banker may be involved in the underwriting and issuance process, but they do not represent the bondholders after issuance. A trust organization is not a commonly used term in this context.

Question 20

A bond that can be changed into a specified number of shares of the issuer's common stock is called a:

Accepted Answer

A convertible bond gives the holder the option to convert the bond into a specified number of shares of the issuer's common stock.

Quiz 10: Bonds and Stocks: Characteristics and Valuation