Exam 4: Applying the Time Value of Money to Security Valuation

According to the expectations theory of the term structure of interest,if the 1-year bond rate today is 7% p.a.and the 1-year bond rate in one year's time is 9% p.a. ,what is 2-year bond rate today?

One reason that the required rate of return on shares is generally more than on interest-yielding securities is because:

Which of the following statements best describes the concept used to value shares?

Once a bond has been issued,its promised future cash flows are ___________.

The price effect and the reinvestment effect are both sources of:

Assume that XYZ Ltd has a current growth rate of 10% p.a.that is expected to be maintained for only another three years and then fall to 5% p.a. ,where it is expected to remain indefinitely.Given that the required return on ABC's shares is 12% and that the last dividend of 50 cents has just been paid,the price of ABC's shares will be:

If an investor is prepared to pay $600 for an asset that returns $700 at the end of two years,what annual rate of return is the investor receiving?

Consider a 10-year bond with a face value of $1000 and with an annual coupon of $100.What is its market value if the appropriate required rate of return is 6% p.a.?

If you have $1000 to invest and are able to earn 8% p.a.interest on money invested in a bank,how much will you be willing to receive in two years' time to be indifferent between the two options?

When valuing shares under uncertainty,the price can be written as:

The price effect and reinvestment effect are both sources of interest rate risk.

Interest rate elasticity refers to:

Financial assets such as bonds and shares can be valued by discounting their future cash flows and summing these present values.

The best security to achieve immunisation is:

A Ltd pays a dividend of 90 cents per share.If A Ltd retains 40% of its earnings each year and these are reinvested to earn a 25% return,what is the price of A Ltd?

A Ltd is currently paying a dividend of 90 cents per share.Assume that the investors expect this dividend to be maintained indefinitely and that they require a return of 15% on the investment.What is the value of A's shares?

If you were able to earn 10% p.a.interest on money invested in a bank,how much money would you be willing to receive in 12 months' time,rather than $1000 now,so that you are indifferent between the two options?

Assume that for the past 10 years the growth rate in A Ltd's dividends per share has been 10% p.a.Also assume that this growth rate is to be maintained indefinitely.The latest dividend of 90 cents was paid yesterday.What is the value of A's shares?

An increase in interest rates results in a _________ in the price of a bond.

The appropriate value of K_e is determined using the concept of: