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    AFIN 253 Quiz 2

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    garytrollington
    The document contains 10 multiple choice questions about finance topics such as bond pricing, bond markets, dividend valuation, and capital budgeting techniques. For each question, students are asked to select the one answer that is true or correctly addresses the question. The questions cover calculations of bond prices, characteristics of bond and stock markets, using the dividend discount model to value stocks, and applying capital budgeting methods like net present value, payback period, and accept/reject criteria.

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    AFIN 253 Quiz 2

    Uploaded by

    garytrollington
    301 views8 pages
    The document contains 10 multiple choice questions about finance topics such as bond pricing, bond markets, dividend valuation, and capital budgeting techniques. For each question, students are asked to select the one answer that is true or correctly addresses the question. The questions cover calculations of bond prices, characteristics of bond and stock markets, using the dividend discount model to value stocks, and applying capital budgeting methods like net present value, payback period, and accept/reject criteria.

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    Quiz 2

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    AFIN 253 quiz 2

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    The document contains 10 multiple choice questions about finance topics such as bond pricing, bond markets, dividend valuation, and capital budgeting techniques. For each question, students are asked to select the one answer that is true or correctly addresses the question. The questions cover calculations of bond prices, characteristics of bond and stock markets, using the dividend discount model to value stocks, and applying capital budgeting methods like net present value, payback period, and accept/reject criteria.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    301 views8 pages

    AFIN 253 Quiz 2

    Uploaded by

    garytrollington
    The document contains 10 multiple choice questions about finance topics such as bond pricing, bond markets, dividend valuation, and capital budgeting techniques. For each question, students are asked to select the one answer that is true or correctly addresses the question. The questions cover calculations of bond prices, characteristics of bond and stock markets, using the dividend discount model to value stocks, and applying capital budgeting methods like net present value, payback period, and accept/reject criteria.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 8

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    Bond price: Jeremy Kohn is planning to invest in a 10-year bond that


    pays a 12 percent coupon. The current market rate for similar bonds
    is 9 percent. Assume semiannual coupon payments. What is the
    maximum price that should be paid for this bond? (Round to the
    nearest dollar.)
    Select one:
    1. $951
    2. $882
    3. $1,033
    4. $1,195

    Question 2
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    Which ONE of the following statements is true?
    Select one:
    1. The largest investors in corporate bonds are life insurance
    companies and superannuation funds.
    2. The market for corporate bonds is thin.
    3. Prices in the corporate bond market also tend to be more
    volatile.
    4. All of the above are true.

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    Which one of the following statements about bond price is NOT


    true?
    Select one:
    1. To calculate a bond's price, one needs to calculate the present
    value of the bond's expected cash flows.
    2. The value, or price, of any asset is the future value of its cash
    flows.
    3. The required rate of return, or discount rate, for a bond is the
    market interest rate called the bond's yield to maturity
    4. Estimate the expected future cash flows using the coupons
    that the bond will pay and the maturity value to be received.

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    Which ONE of the following statements is true?
    Select one:
    1. The lower the transaction costs are, the greater a security's
    marketability.
    2. The interest rate, or yield, on a security varies inversely with
    its degree of marketability.
    3. U.S. Treasury bills have the largest and most active secondary
    market and are considered to be the most marketable of all
    securities.
    4. All of the above are true.

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    PV of dividends: Next year Jenkins Traders will pay a dividend of


    $3.00. It expects to increase its dividend by $0.25 in each of the
    following three years. If their required rate of return is 14 percent,
    what is the present value of their dividends over the next four
    years?
    Select one:
    1. $13.50
    2. $9.71
    3. $12.50
    4. $11.63

    Question 6
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    Zero growth: Magnacar Limited Co. has a stable sales track record
    but does not expect to grow in the next several years. Its last annual
    dividend was $5.75. If the required rate of return on similar
    investments is 18 percent, what is the current share price?
    Select one:
    1. $103.50
    2. $13.50
    3. $39.30
    4. $31.94

    Question 7
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    Non-constant growth: Denyer & Grant Ltd., is a fast growth share
    and expects to grow at a rate of 25 percent for the next four years.
    It then will settle to a constant-growth rate of 10 percent. The first
    dividend will be paid out in year 3 and will be equal to $5.00. If the
    required rate of return is 18 percent, what is the current price of the
    share?
    Select one:
    1. $85.94
    2. $97.19
    3. $50.59
    4. $65.68

    Question 8
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    Question text
    Advantages of the payback method include the following:
    Select one:
    1. The technique is simple for managers to calculate and
    interpret.
    2. It is a good measure of liquidity risk.
    3. Both a and b,
    4. Neither a nor b.

    Question 9

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    A construction company is evaluating two value-adding projects.
    The first project deals with building access roads to a new terminal
    at the local airport. The second project is to build a parking garage
    on a piece of land that the company owns adjacent to the airport. If
    both projects are positive-NPV projects, then the company should:
    Select one:
    1. accept both projects because they are independent projects.
    2. select the higher NPV project because they are mutually
    exclusive.
    3. accept both projects because they are contingent projects.
    4. Not enough information is given to make a decision.

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    Payback: Lister Electronics bought new machinery for $5 million.
    This is expected to result in additional cash flows of $1.2 million
    over the next seven years. What is the payback period for this
    project? If their acceptance period is five years, will this project be
    accepted?
    Select one:
    1. 4.17 years; yes
    2. 4.17 years; no
    3. 3.83 years; yes
    4. 3.83 years; no

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