gb550 unit 4 quiz

1 A stock with a beta equal to -1.0 has zero systematic (or market) risk.

1.True

2.False

2. Arbitrage Pricing Theory is based on the premise that more than one factor affects stock returns. The factors are (1) market returns, (2) dividend yield, and (3) changes in inflation.

1. True

2. False

3. All other things being equal, the higher a bonds yield to maturity (YTM), the lower will be its price.

1. True

2. False

4. Both the Coupon Interest Rate and the Yield to Maturity (YTM) on a bond can be expected to change during the life of the bond as economic conditions and investors' expectations change.

1. True

2. False

5. If the market rate of interest (required return or YTM) on a bond is less than the bond's coupon rate the bond's current market price will be less than par (face).

1. true

2. false

6. MCI has issued a 7 1/4% coupon interest rate bond that matures in five years. If the yield on other bonds of similar risk and maturity is 9%, what is the present value of the bond? (Assume the coupon interest payments are paid annually.)

1. about $282

2. about $650

3. about $932

4. about $1000

7. A bond matures in 12 years, and pays an 8 percent annual coupon. The bond has a face value of $1,000, and currently sells for $985. What is the bond's current yield and yield to maturity?

1. Current yield = 8.00%; yield to maturity = 7.92%.

2. Current yield = 8.12%; yield to maturity = 8.20%.

3. Current yield = 8.20%; yield to maturity = 8.37%.

4. Current yield = 8.12%; yield to maturity = 8.37%.

5. Current yield = 8.12%; yield to maturity = 7.92%.

8. A 20-year bond with a par value of $1,000 has a 9 percent annual coupon. The bond currently sells for $925. If the bond's yield to maturity remains at its current rate, what will be the price of the bond 5 years from now?

1. $ 966.79

2. $ 831.35

3. $1,090.00

4. $ 933.09

5. $ 925.00