Section $1.$ Short answer$/$Discussion$.$ Make sure your answers are specific enough to answer the entire question for full credit. Each question is worth $5$ points.

A$.$ When someone purchases a share of stock, describe specifically what they are buying?

B$.$ When someone purchases a bond, describe specifically what they are buying?

$2-3.$ There are two well$-$known types of federal government savings bonds, Series EE Savings bonds and Series I Savings bonds. Using

Treasurydirect.gov as a reference, discuss the basics of both of these types of bonds, and answer the following: What is this type of bond? What rate is currently being paid? How much may be invested in this bond each year $($per person$)?$ What is the risk of this investment? How would someone purchase this bond?

A$.$ Series EE Bond

B$.$ Series I Bond

$4.$ Explain what it means when a bond sells at a premium or a discount. What causes a bond to sell at a premium?

$5.$ There are a variety of types of corporate bonds. Discuss two of these types of bonds and provide an example of their use.

$6.$ What exactly does it mean for the DJIA to be down $1400$ points? Be specific.

Section $2.$ Stock and Bond Valuation Problems. $4$ points each. Please show all of your work and write your answers in the blank.

$q,$ What is the price of a $5\mathrm{.}5\%$ coupon bond that will mature in $14$ years, assuming the market return is $4\mathrm{.}4$ percent?

$q,$ Olivia has an opportunity to purchase a perpetuity that will pay $$2,500$ per year and her required rate of return is $9\%.$ How much will Olivia pay for this perpetuity?

$q,$ Assume a USPI bond has a coupon of $5\%$ and matures in $10$ years. If the market rate on similar bonds is $6\%,$ what is the price of this bond?

$$ What is the yield to maturity on an $8-$year, $3\mathrm{.}5\%$ coupon bond that is selling for $$1110?$

$$ What is the price of a bond that has a $7\%$ coupon, $8$ years left until maturity, and the market rate is $1\%?$

$q,$ MOJ preferred stock pays a dividend of $$2\mathrm{.}10$ and currently sells for $$25\mathrm{.}06.$ What is the cost of capital $($for preferred stock$)$ for MOJ?

$$ JOBL's last dividend was $$3\mathrm{.}35$ and it is expected to grow by $2\%.$ If the required rate of return is $7\%,$ how much should the stock's price be$?$

$$ LBN$\text{'}$s stock pays a dividend of $$4\mathrm{.}44$ and does not expect any change or growth in that aiviaena. II mivestors have a $9\%$ required rate of return, what is the price of the shares?

$q,$ Assume JWN$\text{'}$s stock has a beta of $1\mathrm{.}3.$ The market return is $10\mathrm{.}5\%$ and the risk$-$free rate is $3\mathrm{.}0\%.$ vvirat is the required rate of return on JWN stock?

$$ ABCo recently paid a dividend of $$1\mathrm{.}90$ and has a beta of $1\mathrm{.}1.$ Assume a growth rate of $4\mathrm{.}0$ percent per year and a risk$-$free rate on Treasury bonds of $3$ percent. If the market rate of return is $8$ percent, what is the price of ABCo stock?

Section $3.$ Fill$-$in$-$the Blank. $2$ points each.

The average number of years until a bond's cash flows are received is called

$q,$

$A(n)$ relationship is one in which one party acts on behalf of another party.

$$ stockholders have the right to vote to elect a board of directors, whereas stockholders do not have corporate voting rights.

A financial instrument that considers payments that continues forever is called a

$q,.$

The right of a debtor to retire a bond $($repay the lender$)$ prior to maturity is called $$

$$

A series of periodic payments to retire a bond issue is called a $q,$

$q,$

The document specifying the terms of a bond or debt issue is called the $q,.$

The coupon on a bond is treated as a $$ when calculating the present value of all future returns on a bond.

A key incentive to buy a municipal bond is $$

There is $a(n)$ relationship between bond prices and interest rates.