BUS 401 Week 2 Finance MCQ

1. Preferred stock is similar to a bond in the following
way (Points : 1)

preferred stock always contains a maturity
date.

both investments provide a stated income
stream.

both contain a growth factor similar to common
stock.

both provide interest
payments.

2. Positive Tronics Industries preferred stock has a par
value of $100 and pays a dividend of $6.00 per share. It presently sells for $87
per share. What do investors require as a rate of return on this stock? Round
off to the nearest .10%. (Points : 1)

14.5%

9.3%

6.9%

6.0%

3. Assume that Brady Corp. has an issue of 18-year $1,000
par value bonds that pay 7% interest, annually. Further assume that today's
required rate of return on these bonds is 5%. How much would these bonds sell
for today? Round off to the nearest $1. (Points : 1)

$1,233.79

$1,201.32

$1,134.88

$1,032.56

4. You decide you want your child to be a millionaire. You
have a son today and you deposit $15,000 in an investment account that earns 9%
per year. The money in the account will be distributed to your son whenever the
total reaches $1,000,000. How old will your son be when he gets the money
(rounded to the nearest year)? (Points : 1)

82 years

74 years

60 years

49 years

5. Lily Co. paid a dividend of $5.25 on its common stock
yesterday. The company's dividends are expected to grow at a constant rate of
8.5% indefinitely. If the required rate of return on this stock is 15.5%,
compute the current value per share of Lily Co. stock. (Points : 1)

$81.38

$76.43

$56.23

$43.90

6. Halverson, Inc. just issued $1,000 par 20-year bonds.
The bonds sold for $936 and pay interest semi-annually. Investors require a rate
of 7.00% on the bonds. What is the amount of the semi-annual interest payment on
the bonds? (Points : 1)

$64.50

$55.00

$32.00

$21.75

7. What is the value of a preferred stock that pays a $4.50
dividend to an investor with a required rate of return of 10%? (Points : 1)

$22.22

$27.83

$45

$55.50

8. What is the value of a bond that matures in 17 years,
makes an annual coupon payment of $50, and has a par value of $1,000? Assume a
required rate of return of 6%. (Points : 1)

$822.90

$856.29

$895.23

$904.87

9. If two firms have the same current dividend and the same
expected growth rate, their stocks must sell at the same current price or else
the market will not be in equilibrium. (Points : 1)

False, because the required return could be
different

True, because we are using a dividend valuation
model

True if markets are semi-strong form
efficient

True if investors are
risk-averse

10. Butler Corp paid a dividend today of $5 per share. The
dividend is expected to grow at a constant rate of 6.5% per year. If Butler Corp
stock is selling for $50.00 per share, the stockholders' expected rate of return
is (Points : 1)

11.50%.

13.56%.

15.49%.

16.50%.

None of these. Answer is 17.15%

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BUS 401 Week 2 Questions