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Financing with Preferred Stock Assignment | Homework For You

#5: T/F: One of the disadvantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer.

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#6: T/F: The preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm. This right helps protect current stockholders against both dilution of control and dilution of value.Homework For You

#7: T/F: All else equal, high-coupon bonds have higher reinvestment risk than low-coupon bonds.

#8: T/F: If the coupon rate is higher than yield of a bond, this bond is sold at a premium.

#9: T/F: Companies can issue different classes of common stock. Some class or classes of common stock are entitled to more votes per share than other classes.

#10: T/F: Portfolio A has but one stock, while portfolio B consists of all stocks that trade in the market, each held in proportion to its market value. Because of its diversification, Portfolio B will by definition be risk less.

#11: Shelley won a lottery and will receive $1,000 a year for the next ten years. The value of her winnings today discounted at her discount rate is called which one of the following:

  1. Simple amount
  2. Present value
  3. Single amount
  4. Future value

#12: Mary just purchased a bond which pays $60 a year in interest and $1,000 when the bond matures after 10 years. What is this $60 called?

  1. Call premium
  2. Coupon
  3. Face value
  4. Discount

#13: Tom owns five different bonds valued at $66,000 and twelve different stocks valued at $82,500 total. Which one of the following terms most applies to his investments?

  1. Portfolio
  2. Grouping
  3. Collection
  4. Index

#14: The primary purpose of portfolio diversification is to:

  1. Eliminate systematic risk
  2. Increase returns and risks.
  3. Eliminate firm-specific risks.
  4. Eliminate all risks.

#15: The cash distributions by a corporation to shareholders is called:

  1. Dividends
  2. Net income
  3. Capital gains
  4. Retained earnings

#16: A bond that can be paid off early by the issuing company is referred to as being which one of the following?

  1. Zero coupon
  2. Callable
  3. Collateralized
  4. Senior

#17: The part of total risk that is irrelevant to a well-diversified investor is called:

  1. Diversifiable risk
  2. Market risk
  3. Systematic risk
  4. Beta risk

#18: Which one of the following is the y-intercept of the security market line?

  1. Beta coefficient
  2. Risk-free interest rate
  3. Market risk premium
  4. Market standard deviation

#19: FIN stock has a beta of 1.5. The risk-free rate of return is 2.5% and the market risk premium is 7.3%. What is the expected rate of return on this stock?

  1. 12.53%
  2. 9.70%
  3. 13.45%
  4. 8.58%

#20: FIN’s bonds have a 7.60% coupon and pay interest annually. The bonds mature in 20 years. The face value is $1,000. If the current market price is $1,062.50 per bond, what is the bond’s yield to maturity?

  1. 7.01%
  2. 7.71%
  3. 6.94%
  4. 7.46%Homework For You

#21:

What is the risk as measured in standard deviation of returns on a stock given the following information:

STATE OF ECONOMY

PROBABILITY OF OCCURRENCE

RETURN IF STATE OCCURS

Boom

30%

28%

Normal

60%

8%

Recession

10%

-15%

  1. 11.65%
  2. 12.62%
  3. 12.78%
  4. 11.77%

#22:

You have a chance to buy an annuity that pays $500 at the end of each year for 3 years. You could earn 4% on your money in other investments with equal risk. What is the most you should pay for the annuity?

  1. $1243.75
  2. $1387.55
  3. $1212.84
  4. $1415.48

#23:

What should be the share price of FIN inc. stock if the company just paid a $0.80 annual dividend, the dividends increase by 1.6% annually, and you require 8% rate of return.

  1. $12.70
  2. $19.52
  3. $13.84
  4. $16.68

#24:

You now have $500. How much would you have after 5 years if you leave it invested at 3.5% with annual compounding?

  1. $593.84
  2. 581.09
  3. 689.42
  4. 654.95

#25:

FIN inc. just paid a $2.80 annual dividend on its common stock. This dividend increases at an average rate of 4% per year. The stock is currently selling for $26.91 a share. What is the market rate of return?

  1. 15.20%
  2. 14.60
  3. 13.88
  4. 14.8. Get Finance homework help today

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