Bond

What's the value to you of a $1,000 face-value bond with an 8% coupon rate when your required rate of return is 15 percent?

• More than its face value.

• Less than its face value.

• $1,000.

• $1,250

If the intrinsic value of a stock is greater than its market value, which of the following is a reasonable conclusion?

• The stock has a low level of risk.

• The stock offers a high dividend payout ratio.

• The market is undervaluing the stock.

• The market is overvaluing the stock.

When the market's required rate of return for a particular bond is much less than its coupon rate, the bond is selling at:

• a premium.

• a discount.

• cannot be determined without more information.

• face value.

If an investor may have to sell a bond prior to maturity and interest rates have risen since the bond was purchased, the investor is exposed to

• the coupon effect.

• interest rate risk.

• a perpetuity.

• an indefinite maturity.

Interest rates and bond prices

• move in the same direction.

• move in opposite directions.

• sometimes move in the same direction, sometimes in opposite directions.

• have no relationship with each other (i.e., they are independent).

In the formula k_e = (D₁/P₀) + g, what does g represent?

• the expected price appreciation yield from a common stock.

• the expected dividend yield from a common stock.

• the dividend yield from a preferred stock.

• the interest payment from a bond.

The expected rate of return on a bond if bought at its current market price and held to maturity.

• yield to maturity

• current yield

• coupon yield

• capital gains yield

An investor who expects increasing interest rates should purchase a bond that has a _____ coupon and a _____ term to maturity.

• high, long

• high, short

• zero, long

• low, long