10. is an annuity ty that provides its holder with payment dollars at the beginr
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10. is an annuity ty that provides its holder with payment dollars at the beginring ot each year. a An annuity due c. A perpetuity An ordinary annuity ollowing accurately descnbes the bebaviot of bond prices? a For a gives change in market required nate of return, the price of a bond will change by b. For a given cheeth pric owill change by e. If interest rates rise so that the market required tale of returm increases, the bond's price propeetionally less, the lower the coupon. a smaller amount, the longer its maturity will fall When the market required rate of return oquals the stated coupon rale, the price of the bond he greater than its face value. (Assumeual interest payments und discounting). determines the value of the bond. 12. TThe present value of a bond's b eoupon payment and maturity value coupon payment maturity value 13. If the returns on one asset move in the same direction as the returns on another asset then the assets are positively correlated. not conrelated a negatively correlated. d. perfectly positively correlated. 14. Another term for non-diversifiable risk is a. systematic risk nonsystematic risk. c. firm specific risk d both b and c 15·The valuation of common stock is more complicated than the valuation of either bonds or preferred stock because Dividends of common stock are expected to grow at an uneven rate Il. Cash flows of common stock are generally more uncertain II. The dividends of coemmon stock are usually not declared rV. Cash flows of bonds or preferred stock are usually uncertain I and II only I only c. I only d. and Ill onlyExplanation / Answer
10) Answer: a) An Annuity Due
In case of an annuity due the payments are made at the begining of the year while in the case of an ordinary annuity the payments are made at the end of the year.
11) Answer: b) For a given change in the market required rate of return the price of a bond will change by a smaller amount , the longer its maturity
12) Answer: b) Coupon Payment and maturity value
Both the coupon payments and maturity value is needed to calculate the value of the bond by taking into consideration the discounting factor.
13) Answer: a) Positively correlated
In case of positively correlated both the variables move in the same direction, an increase in one variable shall increase the other and vice versa. Perfect correlation is when the co-effitient is exactly equal to 1.
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