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Bond price: Jeremy Kohn is planning to invest in a 10-year bond that

pays a 12 percent coupon. The current market rate for similar bonds
is 9 percent. Assume semiannual coupon payments. What is the
maximum price that should be paid for this bond? (Round to the
nearest dollar.)
Select one:
1. $951
2. $882
3. $1,033
4. $1,195

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Which ONE of the following statements is true?
Select one:
1. The largest investors in corporate bonds are life insurance
companies and superannuation funds.
2. The market for corporate bonds is thin.
3. Prices in the corporate bond market also tend to be more
volatile.
4. All of the above are true.

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Which one of the following statements about bond price is NOT

true?
Select one:
1. To calculate a bond's price, one needs to calculate the present
value of the bond's expected cash flows.
2. The value, or price, of any asset is the future value of its cash
flows.
3. The required rate of return, or discount rate, for a bond is the
market interest rate called the bond's yield to maturity
4. Estimate the expected future cash flows using the coupons
that the bond will pay and the maturity value to be received.

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Which ONE of the following statements is true?
Select one:
1. The lower the transaction costs are, the greater a security's
marketability.
2. The interest rate, or yield, on a security varies inversely with
its degree of marketability.
3. U.S. Treasury bills have the largest and most active secondary
market and are considered to be the most marketable of all
securities.
4. All of the above are true.

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PV of dividends: Next year Jenkins Traders will pay a dividend of

$3.00. It expects to increase its dividend by $0.25 in each of the
following three years. If their required rate of return is 14 percent,
what is the present value of their dividends over the next four
years?
Select one:
1. $13.50
2. $9.71
3. $12.50
4. $11.63

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Zero growth: Magnacar Limited Co. has a stable sales track record
but does not expect to grow in the next several years. Its last annual
dividend was $5.75. If the required rate of return on similar
investments is 18 percent, what is the current share price?
Select one:
1. $103.50
2. $13.50
3. $39.30
4. $31.94

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Non-constant growth: Denyer & Grant Ltd., is a fast growth share
and expects to grow at a rate of 25 percent for the next four years.
It then will settle to a constant-growth rate of 10 percent. The first
dividend will be paid out in year 3 and will be equal to $5.00. If the
required rate of return is 18 percent, what is the current price of the
share?
Select one:
1. $85.94
2. $97.19
3. $50.59
4. $65.68

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Advantages of the payback method include the following:
Select one:
1. The technique is simple for managers to calculate and
interpret.
2. It is a good measure of liquidity risk.
3. Both a and b,
4. Neither a nor b.

Question 9

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A construction company is evaluating two value-adding projects.
The first project deals with building access roads to a new terminal
at the local airport. The second project is to build a parking garage
on a piece of land that the company owns adjacent to the airport. If
both projects are positive-NPV projects, then the company should:
Select one:
1. accept both projects because they are independent projects.
2. select the higher NPV project because they are mutually
exclusive.
3. accept both projects because they are contingent projects.
4. Not enough information is given to make a decision.

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Payback: Lister Electronics bought new machinery for $5 million.
This is expected to result in additional cash flows of $1.2 million
over the next seven years. What is the payback period for this
project? If their acceptance period is five years, will this project be
accepted?
Select one:
1. 4.17 years; yes
2. 4.17 years; no
3. 3.83 years; yes
4. 3.83 years; no