Exam 6: How to Value Bonds and Stocks

The No-zip Snap Company had net earnings of $127,000 this past year. Dividends were paid of $38,100 on the company's equity of $1,587,500. The estimated growth for Unzip is:

Zero-coupon bonds:

Which of the following statements is true?

If the quoted dividend yield in the paper was 2.2% and the dividend was listed as $0.72 what price is used in the calculation of dividend yield?

The expectations hypothesis states that the forward rate over second period is:

Consider a bond which pays 7% semi-annually and has 8 years to maturity. The market requires an interest rate of 8% on bonds of this risk. What is this bond's price?

The liquidity preference hypothesis explains that the 2^nd year forward rates are set higher than the expected spot rate over year two because

The net present value of a growth opportunity, NPVGO, can be defined as:

Given the opportunity to invest in one of the three bonds listed below, which would you purchase? Assume an interest rate of 7%.

All else constant, a bond will sell at _____ when the yield to maturity is _____ the coupon rate.

Which of the following amounts is closest to what should be paid for Overland common stock? Overland has just paid a dividend of $2.25. These dividends are expected to grow at a rate of 5% in the foreseeable future. The required rate of return is 11%.

Queen and Bees, Inc. offers a 7% coupon bond with semiannual payments and a yield to maturity of 7.73%. The bonds mature in 9 years. What is the market price of a $1,000 face value bond?

In the above example, the price of the bond is

Spot rates are the interest rates that prevail in the market from:

A forward rate prevailing from period three through to period four can be:

Suppose that an investor disagrees with market expectations and feels that the forward rate prevailing in the market is higher than what it should be, then the investor can make profit by

A firm's value increases when it invests in projects that have

What would be the maximum an investor should pay for the common stock of a firm that has no growth opportunities but pays a dividend of $1.36 per year? The next dividend will be paid in exactly 1 year. The required rate of return is 12.5%.

Which of the following values is closest to the amount that should be paid for a stock that will pay a dividend of $10 1 year from now and $11 two years from now? The stock will be sold in 2 years for an estimated price of $120. The appropriate discount rate is 9%.

The discount rate in equity valuation is composed entirely of: