14 . The yield-to-maturity on long-term debt: a. can never equal the bond’s coup

Question

14. The yield-to-maturity on long-term debt:

a. can never equal the bond’s coupon rate b. is the coupon rate on the bond   c.is the present value of the bond                            d. is the required rate of return on the bond     e. is the expected rate of return on the bond

15. Calculate the value of a 1-year zero-coupon bond that has a face value of $1000. Use a required rate of return of 25% in your calculation.

a. $800              b. $1250          c. $750

16. Bond yields observed in the market indicate the nominal rates of return demanded by investors. In addition to a real rate of return, which of the following concepts are included in bond yields for corporate bonds?                       a. Inflation risk premium             c. Lack-of-liquidity premium

                        b. Default risk premium                                   d. Interest-rate risk premium

                                    e. All of the “above” (i.e., a, b, c, and d are all correct)

17. The ideal evaluation method for capital budgeting should consider:

                        a. all the cash flows that occur during the project’s life                       b. consider the time value of money             c. consider or incorporate the the required rate of return on the projects

                        d.the number of years needed to recover the initial outlay.     e. It should consider a.), b.) and c.) only

Explanation / Answer

14 . option e

15. option a

16. option e

17. option e

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