Answered: Under what conditions would the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 15QTD

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Question

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1. Under what conditions would the yield-to-maturity and current yield of a bond be equal?

Group of answer choices

a. The bond is priced at par

b. The bond is priced at a discount

c. Insufficient information

d. The bond is priced at a premium

2. Which of the following is correct about the risk-free rate as used in valuing equity instruments?

Group of answer choices

a. The risk-free rate accounts for the rate of return or yield of a government instrument which does not carry any risk.

b. The risk-free rate used for valuing equity instruments is normally the yield of a long-term government security.

c. The risk-free rate used for valuing equity instruments is the same as that used for valuing short-term debt instruments.

d. The risk-free rate accounts for the risks related to government securities which is composed of credit-spread, maturity risk premium and the real risk-free rate.

3. Berg Inc. has just paid a dividend of P2.00. Its stock is now selling for P48 per share. The firm is half as risky as the market. The expected return on the market is 14 percent, and the yield on Treasury bills is 11 percent. If the market is in equilibrium, what rate of growth is expected?

Group of answer choices

a. 8%

b. 4%

c. 10%

d. 13%

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