Question 11 (2 points) The riskiest debt is Question 11 options: a) Secured debt

Question

Question 11 (2 points)

The riskiest debt is

Question 11 options:

a)

Secured debt

b)

Debenture

c)

Subordinated debenture

d)

All are equally risky

Question 12 (2 points)

Risk-free rate of return is

Question 12 options:

a)

The rate of return the investor demands for giving up the current use of funds on a noninflation-adjusted basis

b)

A premium an investor requires to compensate for the eroding effect of inflation

c)

The premium associated with special risks of a given investment

d)

The sum of the real rate of return and the inflation premium

Question 13 (2 points)

In our formula for valuing a stock with constant growth in dividends (P0 = D1 / (Ke – g)), g is the

Question 13 options:

a)

Price of the stock today

b)

Dividend at the end of the first year

c)

Required rate of return

d)

Constant growth rate in dividends

Question 14 (2 points)

In our formula for valuing a stock with no growth in dividends (P0 = D1 / K), D1 is the

Question 14 options:

a)

Price of the stock today

b)

Dividend paid today

c)

Dividend at the end of the first year

d)

Required rate of return

Question 15 (2 points)

If we want to calculate a stock’s value (P0 = D1 / Ke) and we know it will pay a dividend of $1.30 one year from today and the dividend growth rate is 5%, what adjustment do we need to make before using this formula?

Question 15 options:

a)

No adjustment. We use $1.30 as our D1

b)

We need to use D0 to calculate D1

c)

We cannot calculate D1 based on the information provided

d)

The dividend is not used in calculating price

a)

Secured debt

b)

Debenture

c)

Subordinated debenture

d)

All are equally risky

Explanation / Answer

question 11

A debenture is an unsecured bond, while subordinated debt has greater default risk than senior debt

so, option C is correct answer

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