questions1).
If an American Water Company bond has a coupon rate of 9% and is selling for $890,
then the yield to maturity (market interest rate) must be ____.
a)
greater than 9%
b) equal to 9%
c) less than 9%
d) cannot be determined
2) In order for a company to benefit from calling an issue of bonds, the interest savings
must offset the ____.
a) call premium to redeem the outstanding bonds
b)
issuance costs related to the new bonds (underwriter’s fees)
c) transaction costs/professional fees related to the new bonds
d) all the above
3) What is the value of an Orion bond that has a 10% coupon, pays interest annually,
and has 10 years to maturity, if the required rate of return is 12%?
a) $1,106.42
b) $906.38
c) $1,000.00
d)
$887.00
4) Heleveton, Inc. currently pays a common stock dividend of $2.00 per share (D0).
Dividends are expected to increase by $0.50 per share next year. Determine the current
value of Heleveton's common stock to an investor who expects to be able to sell the
stock for $32 after one year. Assume that the investor requires a 12% rate of return on
the security.
This question was answered on: May 23, 2022
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