Question 12. (2 marks) A regular coupon bond has a face value of $1,000. The bond pays an annual coupon of $100. The bond has 10 years to maturity. If the yield to maturity is 11% the bond will trade at ___________________

1. a premium
2. par
3. a discount
4. its face value
5. cannot be determined from the information provided.

Question 13. (2 marks) Economic Value Added is?

1. The difference between the total market value of the firm and the total investor supplied capital.
2. The relationship between the years to maturity and the rate of return on bond
3. The correlation of the stocks returns with the markets return divided by the variance of the markets returns
4. An estimate of the value created by management during the year
5. None of the above

Question 14. (2 marks) You are trying to decide which bond to purchase. All of the bonds have a face value of $1,000. If the bond pays a coupon, coupons are paid annually. The term structure is flat and the current yield to maturity is 4%. You expect the yield to maturity to decrease to 3% tomorrow. You should purchase:

1. 3 years to maturity, zero coupon bond
2. 3 years to maturity, 12% coupon rate bond
3. a perpetual bond, with a coupon rate of 5%
4. 25 years to maturity, 12% coupon rate bond
5. 25 years to maturity, zero coupon bond

Question 15. (2 marks) What is the current price (value) of a bond that has a face value of $1000, a coupon rate of 12%, pays its coupons semi-annually, matures in 11 years, and its yield to maturity is 10%?

a) $1,068.14

b) $1,131.63

c) $1,129.90

d) $1,068.99

e) None of the above

Question 16. (2 marks) You wish to earn an effective annual rate of return of 6.3%. You decide to purchase a perpetual bond. The bond has a face value of $100,000 and a coupon rate of 4%. Coupons are paid annually. How much should you pay for the bond?

a) $63,492.06

b) $64,516.13

c) $64,000.00

d) $63,007.87

e) None of the above

Question 17. (2 marks) Alpha Inc. has current liabilities of $2.5 million. The companys current ratio is 3.5, and its quick ratio is 1.8. What is the amount of money the company has invested in inventory?

a) $4,000,000

b) $4,500,000

c) $4,750,000

d) $4,250,000

e) None of the above

Question 18. (2 marks) A call provision gives the _____________ the __________.

1. Bond investor, right to sell the bond prior to maturity for its face value.

b) Bond issuer, right to redeem the bond prior to maturity.

c) Bond issuer, obligation to redeem the bond prior to maturity.

d) Bond investor, obligation to sell the bond prior to maturity for its face value

e) none of a, b, c or d is correct

Question 19. (2 marks) If the IRR of an investment is greater than the required rate of return, then it must also be true that

a) the projects payback period equals the life of the project

b) the project never pays back on a discounted basis

c) the MIRR will be greater than the IRR, if the reinvestment rate is equal to the required rate of return

d) the NPV will be greater than zero.

e) none of a, b, c or d is correct

1. $152,843.21
2. $146,360.92
3. None of the above