QUESTION 28 Assume that interest rates on 20-year Treasury and corporate bonds w

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QUESTION 28

Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, 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:______

Tax effects.

Default risk premium.

Maturity risk premium

Liquidity risk premium.

5 points   

QUESTION 29

John purchased 100 shares of Google common stock today. This transaction occurs in the:

Primary market.

Secondary market.

Credit market.

Money market.

5 points   

QUESTION 30

An increase in a firm's expected growth rate would normally cause its required rate of return to

increase.

decrease.

remain constant.

possibly increase, possibly decrease, or possibly have no effect.

5 points   

QUESTION 31

What's the future value of the initial $200 deposit after 5 years? We assume current interest rate is = 12%, compounded annually. ______

$365.2

$363.3

$352.5

$396.8

5 points   

QUESTION 32

What's the present value of $200 due in 5 years? We assume current interest rate is = 12%, compounded monthly. ______

$122.1

$113.5

$110.1

$107.3

5 points   

QUESTION 33

A stock has the following probability distribution: If economy is good (the probability is 20%), its expected stock return is 20%; if economy is on average (the probability is 60%), its expected stock return is 10%; if economy is bad (the probability is 20%), its expected return is -20%. Find the expected rate of return for the stock

4.0%

6.0%

10.0%

14.0%

5 points   

QUESTION 34

Using the data from Question 33, find the standard deviation (risk) for the stock

11.49%

12.59%

13.56%

14.56%

5 points   

QUESTION 35

Construct an amortization schedule for a $1,000, 5% annual rate loan with 3 equal payments. The first payment will be made at the end of the1st year. Find the required annual payments

$355.8

$367.2

$388.0

$390.7

5 points   

QUESTION 36

Based on the information from Question 35, what's the ending balance of the amortized loan at the end of the first year

$0

$349.7

$388.3

$682.8

5 points   

QUESTION 37

Based on the information from Question 35 and 36, calculate the total amount of interests you should pay for the amortized loan in three years.

$28.8

$55.4

$80.0

$101.6

5 points   

QUESTION 38

Find the yield to maturity (YTM) for a 10-year, 10% annual coupon rate, $1,000 par value bond if the bond sells for $1,000 currently? We assume that interest is paid on this bond annually.

5.11%

6.91%

7.64%

10.0%

5 points   

QUESTION 39

Using the information from Question 38, calculate the bond's current yield.

6.20%

6.57%

10.0%

8.21%

5 points   

QUESTION 40

Using the information from Question 38 and 39, calculate the bond's capital gain yield.

-0.35%

-1.27%

0.35%

0.0%

Tax effects.

Default risk premium.

Maturity risk premium

Liquidity risk premium.

Explanation / Answer

28. difference occur due to Default risk premium

interest rate gets adjusted to the risk of the bond, thereby, if the risk of the realisation of payment is more, more the interest will be.

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