BFIN exam - Questions with Correct Verified
Answers
Moerdyk Corporation's bonds have a 10-year maturity, a 6.25% semiannual coupon, and a
par value of $1,000. The going interest rate (r d) is 4.75%, based on semiannual
compounding. What is the bond's price?
1,118.31
Which of the following is an advantage of convertible bonds?
Investors can choose to hold the company's bonds or convert the bonds into its stock.
Commercial paper is a type of:
promissory note.
A(n) _____ can be exchanged for shares of equity at the owner's discretion.
convertible bond
A debt is said to be selling at par when:
the market value is equal to the face value of the debt.
A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the
following statements is CORRECT?
If the yield to maturity remains constant, the bond's price one year from now will be lower than
its current price.
A debt backed by some form of specific property is known as a:
,mortgage bond.
If the yield to maturity (the market rate of return) of a bond is less than its coupon rate,
the bond should be:
selling at a premium; i.e., the bond's market price should be greater than its face value
Garvin Enterprises' bonds currently sell for $1,150. They have a 6-year maturity, an
annual coupon of $85, and a par value of $1,000. What is their current yield?
7.39%
Cold Boxes Corporation has 100 bonds outstanding with a maturity value of $1,000. The
required rate of return on these bonds is currently 10 percent, and interest is paid
semiannually. The bonds mature in 5 years, and their current market value is $768 per
bond. The annual coupon interest rate is: (Round the answer to the nearest whole number.)
4%.
What does a P/E ratio of 10 indicate?
It would take 10 years for an investor to recover his or her initial investment.
When using the Dividend Discount Model, assuming that growth (g) will remain constant,
under which of the following circumstances will the dividend yield be equal to the required
return on a common stock (rs)?
g=0
, A firm expects to pay dividends at the end of each of the next four years of $2.00, $1.50,
$2.50, and $3.50. If growth is then expected to level off at 8 percent, and if you require a 14
percent rate of return, how much should you be willing to pay for this stock?
$43.97
What is the formula to calculate P/E ratio?
Market price per share ÷ Earnings per share
A protective feature on a preferred stock that requires preferred dividends previously not
paid to be disbursed before any common stock dividends can be paid is called _____.
cumulative dividends
The constant growth Dividend Discount Model (DDM) may be written as _____.
P0 = D1/(rs - g)
What is the risk of investing money in American depository receipts (ADRs)?
Risks associated with the corporations in which the investments are made
Alpha's preferred stock currently has a market price equal to $80 per share. If the
dividend paid on this stock is $6 per share, what is the required rate of return investors are
demanding from Alpha's preferred stock?
7.5%
The current expected value of a stock is $32. If investors demand a higher rate of return of
10% instead of the 8% rate of return, what will the impact on the stock price of the firm
be?
Answers
Moerdyk Corporation's bonds have a 10-year maturity, a 6.25% semiannual coupon, and a
par value of $1,000. The going interest rate (r d) is 4.75%, based on semiannual
compounding. What is the bond's price?
1,118.31
Which of the following is an advantage of convertible bonds?
Investors can choose to hold the company's bonds or convert the bonds into its stock.
Commercial paper is a type of:
promissory note.
A(n) _____ can be exchanged for shares of equity at the owner's discretion.
convertible bond
A debt is said to be selling at par when:
the market value is equal to the face value of the debt.
A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the
following statements is CORRECT?
If the yield to maturity remains constant, the bond's price one year from now will be lower than
its current price.
A debt backed by some form of specific property is known as a:
,mortgage bond.
If the yield to maturity (the market rate of return) of a bond is less than its coupon rate,
the bond should be:
selling at a premium; i.e., the bond's market price should be greater than its face value
Garvin Enterprises' bonds currently sell for $1,150. They have a 6-year maturity, an
annual coupon of $85, and a par value of $1,000. What is their current yield?
7.39%
Cold Boxes Corporation has 100 bonds outstanding with a maturity value of $1,000. The
required rate of return on these bonds is currently 10 percent, and interest is paid
semiannually. The bonds mature in 5 years, and their current market value is $768 per
bond. The annual coupon interest rate is: (Round the answer to the nearest whole number.)
4%.
What does a P/E ratio of 10 indicate?
It would take 10 years for an investor to recover his or her initial investment.
When using the Dividend Discount Model, assuming that growth (g) will remain constant,
under which of the following circumstances will the dividend yield be equal to the required
return on a common stock (rs)?
g=0
, A firm expects to pay dividends at the end of each of the next four years of $2.00, $1.50,
$2.50, and $3.50. If growth is then expected to level off at 8 percent, and if you require a 14
percent rate of return, how much should you be willing to pay for this stock?
$43.97
What is the formula to calculate P/E ratio?
Market price per share ÷ Earnings per share
A protective feature on a preferred stock that requires preferred dividends previously not
paid to be disbursed before any common stock dividends can be paid is called _____.
cumulative dividends
The constant growth Dividend Discount Model (DDM) may be written as _____.
P0 = D1/(rs - g)
What is the risk of investing money in American depository receipts (ADRs)?
Risks associated with the corporations in which the investments are made
Alpha's preferred stock currently has a market price equal to $80 per share. If the
dividend paid on this stock is $6 per share, what is the required rate of return investors are
demanding from Alpha's preferred stock?
7.5%
The current expected value of a stock is $32. If investors demand a higher rate of return of
10% instead of the 8% rate of return, what will the impact on the stock price of the firm
be?
