Finc Investments - 5 multiple choice ques

3. Two years ago, an investor purchased a $1,000 par 6% coupon bond that pays interest semiannually. Inflation over the last two years has been 2% per year. The inflation-adjusted value of the next interest payment is

A: $28.84

B: $30.00

C: $31.21

D: $57.67

E: $60.00

4. Cameron pays 15% in dividend and capital gains taxes and 35% in ordinary income taxes. Ten years ago, Cameron purchased a position in a limited partnership for $10,000. Three years later, she was required to contribute $2,000 more to the partnership. Two years ago, she was required to contribute an additional $2,000. If Cameron sells her limited partnership investment today for $20,000, what are the taxes?

A: $ 900

B: $1,500

C: $2,100

D: $2,700

E: $3,500

5. Bonds A, B and C are all zero-coupon bonds. Bond A matures in 3 years; Bond B matures in 7 years, and Bond C matures in 10 years. Paul is uncertain as to the direction of interest rates over the next several years, so he wants to lock-in his return over his 7 year time horizon. Which bond is best for Paul?

A: Bond A because it matures in 3 years, and Paul can then roll-over the funds to a 4 year bond.

B: Bond B because it matches Paul’s time horizon.

C: Bond C because it has a longer maturity, it will probably have a higher yield.

D: Since these are zero-coupon bonds, it does not matter which bond Paul

chooses.

E: Bonds are too risky for Paul to be investing.

28. XYZ Corporation has a cumulative preferred stock that pays $1 per share per quarter. The firm did not declare a dividend the last two quarters. To be able to pay dividends to common shareholders, the preferred stock dividend this coming quarter must be

A: XYZ does not need to pay preferred stock dividends to be able to pay common stock dividends

B: $1

C: $2

D: $3

E: $4

29. Preferred stock with cumulative fixed dividends

A: Are required to pay dividends each quarter

B: Must pay the missed dividend before common shareholders can receive dividends

C: Are taxed on the accumulated dividends

D: Are considered to be bankrupted if one year of dividends is missed

E: All of the above are true