week 2 quiz

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Question 1. 1. Interest rates are given as annual rates. If semiannual (twice a year) compounding is being used, then you would make the following adjustments: (Points : 1)

Double the rate and double the number of years. Double the rate and halve the number of years. Halve the rate and halve the number of years. Halve the rate and double the number of years.

Question 2. 2. An ordinary annuity has its first payment ______, but an annuity due has its first payment _________. (Points : 1)

at the beginning of the period; at the beginning of the period. at the beginning of the period; at the end of the period. at the end of the period; at the end of the period. at the end of the period; at the beginning of the period.

Question 3. 3. Compounding means that: (Points : 1)

dollar interest the first year is multiplied by the number of years to get total interest. the same dollar amount of interest is paid each period. interest is paid on interest earned in earlier periods. the rate of interest grows over time.

Question 4. 4. We would expect that, all else being equal, investors would pay less for a stock that they view as having become more risky. Assume a stock has just paid a $2.00-per-share dividend. Analysts believe that future dividends will grow at a 14% rate. The constant dividend growth rate is 4%. What would the stock price be? (Points : 1)

$14.29 $20.00 $20.80 $28.57

Question 5. 5. Suppose a zero-coupon bond is selling for $614.00 today. It promises to pay $1,000 in exactly 10 years with annual compounding. Its annual rate of return would be about ____. (Points : 1)

4% 5% 6% 7%

Question 6. 6. Which of the following is true of the structure of a zero-coupon bond? (Points : 1)

an annuity of interest payments and a single principal payment at maturity no interim interest payments but a variable payment at maturity, depending on interest rates an annuity of payments comprised of both interest and principal no interim interest payments and a single payment at maturity

Question 7. 7. The present value of $1,000 to be received in 1 year with annual compounding at a 10% per year rate, would be: (Points : 1)

$900.00. $909.09. $990.90. $1,100.

Question 8. 8. The great majority of stock trades occur: (Points : 1)

in the secondary markets. in the primary market. as IPOs (initial public offerings). directly between the company and investors.

Question 9. 9. Simple interest means that: (Points : 1)

the interest rate is the same every period. the dollar amount of interest is the same every period. interest is only paid once a year. the compounding periods are annual.

Question 10. 10. We would expect that, all else being equal, investors would pay more for a stock with a higher dividend growth rate. Assume a stock has just paid a $2.00-per-share dividend. Analysts believe that future dividends will grow at a 6% rate. The required rate of return is 11%. What would the stock price be? (Points : 1)

$29.71 $31.71 $40.00 $42.40