Multiple Choice

1. If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value? A. A 10-year bond with an 8% coupon B. A 10-year zero coupon bond

C. A 10-year bond with a 12% coupon

Which of the following statements is CORRECT? A. If the market risk premium increases by 1%, then the required return will increase by 1% for a stock that has a beta of 1.0. B. If the market risk premium increases by 1%, then the required return will increase for stocks that have a beta greater than 1.0, but it will decrease for stocks that have a beta less than 1.0. C. The effect of a change in the market risk premium depends on the slope of the yield curve

Stock As beta is 0.5 and Stock Bs beta is 1.5. Which of the following statements must be true, assuming the CAPM is correct A. In equilibrium, the expected return on Stock A will be smaller than that on B B. Stock B would be a more desirable addition to a portfolio than A C. Stock A would be a more desirable addition to a portfolio then B

Under normal conditions, which of the following would be most likely to increase the coupon rate required for a bond to be issued at par? A. The rating agencies change the bonds rating from Baa to Aaa B. Adding a call provision

C. Adding additional restrictive covenants that limit managements actions

Warr Corporation just paid a dividend of $1.50 a share (that is, D0 = $1.50). The dividend is expected to grow 7% a year for the next 3 years and then at 5% a year thereafter. What is the expected dividend per share for the 4th years? A. $1.9294 B. $1.8376 C. $1.6050