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FIN/534 FIN534 FIN 534 Week 5 Midterm Exam Part 2 QUIZ 2

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FIN 534 Week 5 Midterm Exam Part 2 QUIZ 2 • Question 1 You are considering two equally risky annuities, each of which pays $25,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT? • Question 2 Ellen now has $125. How much would she have after 8 years if she leaves it invested at 8.5% with annual compounding? • Question 3 A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT? • Question 4 Of the following investments, which would have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero. • Question 5 Which of the following statements regarding a 20-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT? • Question 6 Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 8% is CORRECT? • Question 7 Which of the following statements is CORRECT? • Question 8 A 15-year bond has an annual coupon rate of 8%. The coupon rate will remain fixed until the bond matures. The bond has a yield to maturity of 6%. Which of the following statements is CORRECT? • Question 9 Which of the following statements is CORRECT? • Question 10 Which of the following statements is CORRECT? • Question 11 A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity. Which of the following statements is CORRECT? • Question 12 Assume that interest rates on 15-year noncallable Treasury and corporate bonds with different ratings are as follows: T-bond = 7.72% A = 9.64% AAA = 8.72% BBB = 10.18% The differences in rates among these issues were most probably caused primarily by: • Question 13 Which of the following statements is CORRECT? • Question 14 Which of the following is most likely to be true for a portfolio of 40 randomly selected stocks? • Question 15 Which of the following statements is CORRECT? • Question 16 How would the Security Market Line be affected, other things held constant, if the expected inflation rate decreases and investors also become more risk averse? • Question 17 Assume that the risk-free rate remains constant, but the market risk premium declines. Which of the following is most likely to occur? • Question 18 Which of the following statements is CORRECT? • Question 19 Which of the following statements is CORRECT? • Question 20 Stock X has the following data. Assuming the stock market is efficient and the stock is in equilibrium, which of the following statements is CORRECT? Expected dividend, D1 $3.00 Current Price, P0 $50 Expected constant growth rate 6.0% • Question 21 Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? A B Price $25 $25 Expected growth (constant) 10% 5% Required return 15% 15% • Question 22 Which of the following statements is CORRECT? • Question 23 If a firm’s expected growth rate increased then its required rate of return would • Question 24 Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? A B Price $25 $25 Expected growth (constant) 10% 5% Required return 15% 15% • Question 25 A stock is expected to pay a dividend of $0.75 at

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