Superb Professors

1. A $75 face value preferred share (with no special features) with a stated 4% dividend is observedtrading in the market at $103.24. What is discount rate must the market be using to value this share?Select one:a. None of the above.b. 4.08%.c. 2.91%.d. 3.87%.e. 4.90%.f. 5.81%.2. A 7 year $1,000 face value zero coupon bond is observed trading in the market at $840.00. What isits yield to maturity (expressed as an EAR)?Select one:a. None of the above.b. 2.95%.c. 3.55%.d. 2.52%.e. 2.20%.f. 1.96%.3. A common share that pays dividends annually is currently trading in the market at $24.00 per share.It is expected to pay a dividend of $1.10 per share one year from now, and that dividend is expected togrow at a constant annual rate every year thereafter. If investors are expecting a rate of return of 10%when valuing this common share, what is the market expecting the dividend growth rate to be?Select one:a. 4.38%.b. 6.67%.c. 7.29%.d. None of the above.e. 5.42%.f. 4.79%.4?Black Corp. typically earns a return on invested capital of 9% and pays dividends at the rate of40% of earnings per share. If you were to value this company using the dividend growth model, whatrate of growth would you use:Select one:a. 2.8%.b. None of the above.c. 6.8%.d. 4.4%.e. 5.6%.f. 5.4%.5. Exactly two years ago today, you bought a 10-year government of Canada bond with a face valueof $1,000, and a coupon of 12% per annum payable semi-annually. At the time of purchase, the yieldto maturity of this bond was 12% compounded semi-annually. Today, its yield to maturity is 4%. Whatwould your capital gain or loss be if you were to sell this bond today (i.e. the gain or loss due solely toits change in price).Select one:a. None of the above.b. $342.64.c. -$65.33.d. $107.96.e. $546.62. f. $213.84.6. Sonia Corporation expects to pay a dividend of $1.00 per share one year from today, a dividend of$2.00 per share two years from today and a dividend of $3.00 per share three years from today. In theyears following year 3, dividends per share are expected to grow at a constant annual rate of 6%. Ifinvestors require a return of 3% to invest in this company, what is a share of Sonia worth today?Select one:a. $43.88.b. $140.30.c. $415.79.d. $71.43.e. None of the above.f. $54.21.7. There is a 10-year bond trading with a face value of $1,000, and a coupon of 6% per annumpayable semiannually. What is the current value of the bond if the required yield to maturity(expressed as an EAR) is 4.50% (please round to the nearest dollar)?Select one:a. $1,124.b. $1,098.c. $884.d. $1,038.e. None of the above.f. $859.8. You are using the dividend growth valuation model to value a stock you may purchase. Youranalysis leads you to conclude that the dividend growth rate of the stock will likely fall short of thedividend growth rate market participants are currently expecting. Your analysis would lead you toconclude that the idea of buying the stock today is:Select one:a. It is not possible to make a general statement of what your view would be.b. Unattractive.c. Attractive.d. None of the above.9. Your loan at the bank requires you to make payments of principal and interest of $100 at the end ofeach of the years 2 through 10. Assuming the present time is year zero, and you can earn 4% per yearon a deposit in the bank, how much money would you have to deposit today so that your deposit andthe interest you would earn on it over time would exactly cover all of the future payments?Select one:a. $498.83.b. $714.94.c. $800.22.d. None of the above.e. $608.90.f. $550.0210. You have just invested $10,000 in a 10 year 8% coupon Government of Canada bond. Which ofthe following statements is most correct?Select one:a. Whether you make a capital gain or capital loss depends on whether the current yield to maturity isgreater than or less than the current coupon rate.b. It is impossible to make a capital loss on this bond because government bonds are riskless.c. The yield over a one-year holding period will be the coupon rate. d. None of the abovee. The realization of a capital gain or capital loss on this bond over a one year holding period dependson changes in the yield to maturity of the bond over this period.

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