Question 1. 1. The Sisyphean Company has a bond outstanding with a face value of $1,000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. How much will each semiannual coupon payment be? (Points : 10)
$60
$40
$120
$80

Question 2. 2. Consider a zero-coupon bond with a $1,000 face value and 10 years left until maturity. If the YTM of this bond is 10.4%, then the price of this bond is closest to __________. (Points : 10)
$1,000
$602
$1040
$372

Question 3. 3. The discount rate that sets the present value of the promised bond payments equal to the current market price of the bond is called: (Points : 10)
the current yield.
the yield to maturity.
the zero coupon yield.
the discount yield.

Question 4. 4. Which of the following statements is false? (Points : 10)
Investors pay less for bonds with credit risk than they would for an otherwise identical default-free bond.
Credit spreads fluctuate as perceptions regarding the probability of default change.
Credit spreads are high for bonds with high ratings.
We refer to the difference between the yields of the corporate bonds and the Treasury yields as the default spread or credit spread.

Question 5. 5. Which of the following statements is false? (Points : 10)
Estimating dividends, especially for the distant future, is difficult.
A firm can only pay out its earnings to investors or reinvest their earnings.
Successful young firms often have high initial earnings growth rates.
According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the grow rate.

Question 6. 6. Which of the following statements is false? (Points : 10)
Future dividend payments and stock prices are not known with certainty; rather these values are based on the investor’s expectations at the time the stock is purchased.
The capital gain is the difference between the expected sale price and the purchase price of the stock.
The sum of the dividend yield and the capital gain rate is called the total return of the stock.
We divide the capital gain by the expected future stock price to calculate the capital gain rate.

Question 7. 7. Which of the following statements is false? (Points : 10)
A common approximation is to assume that in the long run, dividends will grow at a constant rate.
The dividend each year is the firm’s earnings per share (EPS) multiplied by its dividend payout rate.
There is a tremendous amount of uncertainty associated with any forecast of a firm’s future dividends.
During periods of high growth, it is not unusual for firms to pay out 100% of their earnings to shareholders in the form of dividends.

Question 8. 8. Which of the following statements is false? (Points : 10)
The total payout model allows us to ignore the firm’s choice between dividends and share repurchases.
By repurchasing shares, the firm increases its share count, which decreases its earning and dividends on a per-share basis.
The total payout model discounts the total payouts that the firm makes to shareholders, which is the total amount spent on both dividends and share repurchases.
In the dividend discount model we implicitly assume that any cash paid out to the shareholders takes the form of a dividend.

Question 9. 9. Which of the following statements is false? (Points : 10)
If the profit opportunities from having private information are large, other individuals will attempt to gain the expertise and devote the resources needed to acquire it.
When private information is relegated to the hands of a relatively small number of investors, these investors may be able to profit by trading on their information.
When a buyer seeks to buy a stock, the willingness of other parties to sell the same stock suggests that they value the stock differently.
Since stock markets aggregate the information and view of many different investors, we expect the stock price to react slowly to new publicly available information as the investors continue to trade until a consensus is reached as to the new value of the stock.

Question 10. 10. Which of the following statements is false? (Points : 10)
We can estimate the value of a firm’s shares by multiplying its current earnings per share by the average P/E ratio of comparable firms.
For valuation purposes, the trailing P/E ratio is generally preferred, since it is based on actual not expected earnings.
Forward earnings are the expected earnings over the coming 12 months.
Trailing earnings are the earnings over the previous 12 months.