QUIZ 2

Quiz Paper A 1, Quiz Paper B 6

Which one of the following measures a bond’s sensitivity to changes in market

interest rates?

a. yield to call

b. yield to market

c. duration

d. immunization

e. target date valuation

JJ Industries will pay a regular dividend of $2.40 per share for each of the next four

years. At the end of the four years, the company will also pay out a liquidating

dividend, and the company will cease operations. If the current share price is $50

and the discount rate is 10%, what must the liquidating dividend be?

a. $40

b. $50

c. $58.60

d. $62.07

e. $65.87

Quiz Paper A 3, Quiz Paper B 8

An 8.5 percent coupon bond pays interest semiannually and has 10.5 years to

maturity. The bond has a face value of $1,000 and a market value of $878.50. What

is the yield to maturity?

a. 5.16 percent

b. 8.37 percent

c. 8.78 percent

d. 10.43 percent

e. 11.21 percent

Quiz Paper A 4, Quiz Paper B 9

LKD Co. has 10 percent coupon bonds with a YTM of 8.6 percent. The current

yield on these bonds is 9.2 percent. How many years do these bonds have left until

they mature? (Face value is $1,000 and coupons are paid semiannually.)

a. 18.52 years

b. 18.14 years

c. 9.26 years

d. 9.07 years

Quiz Paper A 5, Quiz Paper B 10

Atlantis Seafood Company stock currently sells for $70 per share. The company is

expected to pay a dividend of $4.35 per share next year, and analysts project that

dividends should increase at 4.5% per year for the indefinite future. What must the

relevant discount rate be for Atlantis stock?

a. 7.869%

b. 8.255%

c. 10.334%

d. 10.714%

e. 10.994%

Quiz Paper A 6, Quiz Paper B 16

Landon Air Corporation reported net income of $25 million for last year.

Depreciation expense totaled $10 million and capital expenditures came to $3

million. Free cash flow is expected to grow at a rate of 3% for the foreseeable future.

Landon Air faces a 35% tax rate and has $100 million (market value) in debt

outstanding. If required return on Landon Airâ€™s assets is 10.65%, what is the current

total value of Landon Air’s equity (in millions)?

a. $296.21

b. $318.30

c. $330.85

d. $418.30

e. $430.85

Quiz Paper A 7, Quiz Paper B 17

Which one of the following rates is used by brokerage firms as the basis for

determining margin loan rates?

a. discount

b. Fed funds

c. prime

d. brokerage

e. call money

Quiz Paper A 8, Quiz Paper B 18

An increase in the retention ratio will:

a. increase the payout ratio.

b. decrease a firm’s sustainable rate of growth.

c. not affect the value of a firm’s stock.

d. decrease the value of a firm’s stock.

e. increase the value of a firm’s stock.

Quiz Paper A 9, Quiz Paper B 19

Which one of the following orders is frequently used as a means to limit losses

resulting from a short sale?

a. limit