Question 16

The higher the rating the lower the yield. of the bond. True or false?

Question 16 options:

True

False

Question 17

A certain company's cash flows are expected to grow at a rate of 15% for the next eight years before tapering off to a constant growth rate of 6% forever. The current year's cash flow is $50,000. If the firm's cost of capital is 20%, what should its fair market value be? Round your answer to the nearest dollar.

Question 17 options:

A)$331,856

B)$309,727

C)$888,126

D)$641,583

Question 18

Immunization is the strategy of protecting a bond portfolio from interest rate risk. True or false?

Question 18 options:

True

False

Question 19

The difference between the cost of the zero-coupon bond and its value when redeemed is the investor's return. True or false?

Question 19 options:

True

False

Question 20

What is the most you would be willing to pay for a promise to pay you $10 per year forever, beginning next year, if your opportunity cost of capital is a constant 10%?

Question 20 options:

A)$10

B)$100

C)$1,000

D)$10,000