# Liberty BUSI 320 Chapter 10 Reading Assignment Answers Complete Solutions

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Higher risk investments potentially lead to higher potential return and lower potential loss.

Calculate the present value of the bond’s interest payments. The interest payments are $200 annually for 6 years at a discount rate of 6%. Use the formula method to calculate the present value.

The price of a bond is based on which cash flow(s)?

If the required rate of return increases as a result of inflation or increased risk, the growth rate of common stock will ________.

What is the present value of interest payment for $5,000, 10 year bond with a stated coupon rate of 12% and a market rate of 10%? (Round to the nearest whole dollar)

A $1,000,000, 20 year bond has a stated rate of 10% and sells for $928,000. What is the yield to maturity?

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A $500,000, 10 year bond has a stated rate of 8% and sells for $520,000. What is the yield to maturity.

A 10-year bond pays 6% annual interest in semi-annual payments. The current market yield to maturity is 4%. The appropriate interest factors should be in the tables under 2% for 20 periods.

All of the following effect the price-earnings ratio except

Assume a bond’s stated rate is 8% and the yield to maturity is 6%, will the bonds sell for par value, above par value, or below par value?

By using different discount rates, the market allocates capital to companies based on their risk, efficiency, and expected returns.

Calculate the present value of $5,000, 10 year bonds with a stated rate of 12% and a market rate of 10%. Round to the nearest whole dollar.

Calculate the present value of the bonds principal payment for a $5,000, 10 year bond with a stated rate of 10% compounded annually, and a yield of 12%?

Common stock has a constant annual dividend of $2.00 and a required rate of return of 8%. What is the price of the common stock?

Common stock has a dividend of $2.00 at the end of the first year, a growth rate of 6%, and a price of $100. What is the required rate of return?

Company A has a price-earnings ratio of 40 times and company B has a price earnings ratio of 50 times. If both companies have earnings per share of $5, which company’s stock price is higher

The cost of capital for common stock is ke= (D1/Po) + g. What are the assumptions of the model?

The current price of stock is the future value of the present stream of dividends growing at a constant rate.

Doug has been approached by his broker to purchase a bond for $795. He believes the bond should yield 8%. The bond pays 5% annual coupon rate and has 12 years left until maturity. What should Doug’s analysis of the bond indicate to him? Use Appendix B and Appendix D.

The drawback of the future stock value procedure is that it does not consider dividend income.

The fact that small businesses are usually illiquid does not affect their valuation process

Firms with bright expectations for the future, tend to trade at high P/E ratios.

The further the yield to maturity of a bond moves away from the bond’s coupon rate the greater the price-change effect will be

If a company’s stock price (Po) goes up, and nothing else changes, Ke (the required rate of return) should

If the stated interest rate on the bond is 10%, what is the yield to maturity (discount rate) that will cause the bond to trade at par value?