WorksheetsBUSM4155 Time value of money and security valuation
Total questions: 10
Worksheet time: 6mins
Long-term bonds are ... than short-term bonds.
more liquid
less risky
less sensitive to interest rate changes
subject to more uncertainty
If a bond's yield to maturity is lower than its coupon rate, the bond will sell at a discount.
True
False
A bond which has a yield to maturity greater than its coupon rate will sell for a price
below par
at par
above par
equal to face value of bond plus the interest payments
What will happen to the market value of a bond if interest rates rise?
market value will decrease
market value will increase
Stay the same
No idea
The Pancake House pays a constant annual dividend of USD 1.25 per share. How much are you willing to pay for one share if you require a 15 percent rate of return?
USD 7.86
USD 8.33
USD 10.87
USD 11.04
USD 11.38
Healthy Foods just paid its annual dividend of RM1.45 a share. The firm recently announced that all future dividends will be increased by 2.8 percent annually. What is one share of this stock worth to you if you require a 14 percent rate of return?
RM12.56
RM12.95
RM13.31
RM13.68
RM14.07
Company X has a beta of of 1.45. The expected risk-free rate of interest is 2.5% and the expected return on the market as a whole is 10%. Using the CAPM, what is ABC's expected return?
13.3%
13.375%
18.75%
12.25%
Preferred stock is similar to a bond in the following way:
Preferred stock always contains a maturity date.
Both investments provide a stated income stream.
Both contain a growth factor similar to common stock.
Both provide interest payments.
What is the formula for calculating Future Value (FV) in Time Value of Money?
FV = PV / (1 + r)^n
FV = PV * (1 + r)^n
FV = PV + (1 + r)^n
FV = PV * (1 - r)^n
What does the term "annuity" mean in the context of Time Value of Money?
A one-time lump sum payment
A series of equal periodic payments or receipts
The interest rate used in calculations
The future value of an investment
