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<< Performance Management 3rd Edition Aguinis Test Bank | Perceiving the Arts An Introduction to the Humanities 11th Edition by Dennis J. Sporre Test bank >> |

4

Student: ___________________________________________________________________________

1. A decision to buy an asset implies a simultaneous decision to forego: A. future consumption.

B. less consumption.

C. current consumption.

D. none of the given options.

2. The periodic cash flows from an investment in shares are called: A. coupons.

B. interest.

C. capital gains. D. dividends.

3. When valuing shares under uncertainty, the price can be written as: A.

B.

C.

D.

4. The appropriate value of Ke is determined using the concept of: A. risk and return models.

B. internal rate of return.

C. cost of capital.

D. opportunity cost of capital.

5. A Ltd is currently paying a dividend of 90 cents per share. Assume that the investors expect this dividend to be maintained indefinitely and that they require a return of 15% on the investment. What is the value of As shares?

A. $0.14

B. $16.66 C. $6.00 D. $1.05

6. Assume that for the past 10 years the growth rate in A Ltds dividends per share has been 10% p.a. Also assume that this growth rate is to be maintained indefinitely. The latest dividend of 90 cents was paid yesterday. What is the value of As shares?

A. $18.00

B. $6.60 C. $19.80 D. $3.96

7. A Ltd pays a dividend of 90 cents per share. If A Ltd retains 40% of its earnings each year and these are reinvested to earn a 25% return, what is the price of A Ltd?

A. $1.22

B. $4.40

C. $19.80

D. More information is needed.

8. The price effect and the reinvestment effect are both sources of: A. default risk.

B. term structure.

C. interest rate risk.

D. default risk structure.

9. The connection between term and interest rates is called: A. interest rate risk.

B. price risk.

C. term structure of interest rates.

D. default structure of interest rates.

10. In general, an upward-sloping term structure implies that investors expect future short-term interest rates to:

A. decrease.

B. increase.

C. be the same as the current rate. D. increase by a minimum of 5bp.

11. In general, a downward-sloping term structure implies that investors expect future short-term interest rates to:

A. decrease.

B. increase.

C. be the same as the current rate. D. none of the options given.

12. A flat term structure implies that investors expect future short-term interest rates to: A. decrease.

B. increase.

C. be the same as the current rate. D. none of the options given.

13. Moodys and Standard and Poors provide ratings of short-term debt on a: A. three-point scale.

B. five-point scale.

C. 19-point scale.

D. four-point scale.

14. Moodys rate long-term debt on a: A. four-point scale from Aaa to C.

B. 13-point scale from Aaa to C.

C. 14-point scale from Aaa to C.

D. 19-point scale from Aaa to C.

15. Long-term debt is rated by Standard and Poors on a: A. 10-point scale from AAA to C.

B. 20-point scale from AAA to C.

C. 20-point scale from Aaa to C.

D. 19-point scale from AAA to C.

16. If you were able to earn 10% p.a. interest on money invested in a bank, how much money would you be willing to receive in 12 months time, rather than $1000 now, so that you are indifferent between the two options?

A. $1500

B. $909 C. $900 D. $1100

17. If you have $1000 to invest and are able to earn 8% p.a. interest on money invested in a bank, how much will you be willing to receive in two years time to be indifferent between the two options?

A. $840

B. $1160

C. $1166 D. $1500

18. You have a choice between receiving $500 now and $530 in six months time. Current interest rates are 10% p.a. (simple interest). As a rational investor, which option would you choose and why?

A $500 now, because receiving $530 in six months time is equivalent to earning only 6% interest,

. whereas in the bank you can earn 10% interest.

B. $530 in six months time, because $500 invested for six months is only worth $525. C. $500 now, because it would be worth $550 in six months time.

D. $500 now, because you have the option to invest or consume goods.

19. At what interest rate would investing $1000 in a bank leave you as well off as receiving $1078 in 12 months time?

A. 5%

B. 78%

C. 10% D. 7.8%

20. If an investor is prepared to pay $600 for an asset that returns $700 at the end of two years, what annual rate of return is the investor receiving?

A. 16.7%

B. $100

C. 8% D. 8.3%

21. Given that dividends on a share are expected to remain indefinitely at $1 p.a. and that the required rate of return for the level of risk on such a share is 15%, the correct price for this share:

A. cannot be ascertained from this information.

B. cannot be ascertained without regard to the management structure of the firm.

C. is $1.

D. is $6.67.

22. Given that dividends on a share are expected to remain indefinitely at $0.50 p.a. and that the required rate of return for the level of risk on such a share is 10% and the interest rate is 6%, the correct price for this shareis:

A. $8.33.

B. $5.

C. $3.

D. none of the options given.

23. Calculate the expected capital gain on a share that costs $1 and pays a 7c dividend if the share is sold in two years time. Assume that the required rate of return for such a share is 7% p.a.

A. Loss of 12.7c.

B. Gain of 14c.

C. None of the given options. D. Gain of 14.49c.

24. How much would you be prepared to pay for a share in two years time that pays a 15c dividend each year and is currently priced at $2? Assume the required rate of return is 7.5% p.a.

A. $1.87

B. $2.30

C. $1.70 D. $2

25. What is the required rate of return on a share that pays a $1 dividend each year and is currently valued at $16.66?

A. 6%

B. 16.66%

C. 6.66%

D. none of the options given.

26. Which of the following statements best describes the concept used to value shares?

A The value of an infinite stream of dividends discounted by the current short-term interest rate assuming

. a company has an infinite life.

B. Market price can be expressed as the present value of an infinite stream of dividends.

C.The present value of the dividend stream and expected capital gain must be calculated separately and

then added together.

D.Market price can be expressed as the present value of an infinite stream of dividends assuming a

company has an infinite life.

27. The return on a share listed on the stock exchange is likely to be:

A. less than the short-term rate of interest but greater than the long-term rate of interest. B. more than the short-term rate of interest but less than the long-term rate of interest. C. greater than the market rate of interest.

D. comparable to the rate of return earned on government securities.

28. The difference between the opportunity cost of capital for a risky security and a risk-free security is referred to as the:

A. required rate of return.

B. term structure.

C. liquidity premium. D. risk premium.

29. Assume the latest dividend per share, paid recently, for ACD Ltd is 90 cents and that the required rate of return on these shares is 15% p.a. If the current share price is $19.80, the expected growth rate on these shares is:

A. 0%.

B. 10%. C. 5%. D. 7.5%.

30. The latest dividend paid by ABC Ltd is 40 cents and the company retains 20 per cent of its earnings each year, which is invested to earn a rate of return of 25% p.a. Assuming the required rate of return on ABCs shares is 15% p.a., the price of ABC Ltd shares will be:

A. $3.33.

B. $5.

C. $4.

D. $4.20.

31. Assume that XYZ Ltd has a current growth rate of 10% p.a. that is expected to be maintained for only another three years and then fall to 5% p.a., where it is expected to remain indefinitely. Given that the required return on ABCs shares is 12% and that the last dividend of 50 cents has just been paid, the price of ABCs shares will be:

A. $8.56. B. $11.43. C. $10.25. D. $9.82.

32. Company A and Company B have identical expected earnings potential but Company B has a higher price-earnings ratio. This discrepancy:

A. can be explained by the difference in share price.

B. can be explained by the fact that Company A pays more dividends.

C. can be explained by the fact that Company A is considered to be riskier than Company B. D. cannot be explained.

33. Consider a 10-year bond with a face value of $1000 and with an annual coupon of $100. What is its market value if the appropriate required rate of return is 6% p.a.?

A. $2000

B. $1294.40

C. $1349.51 D. $1752.12

34. You have just purchased a government bond for $1100 that promises to pay $100 p.a. over the next five years. The market price of the bond has just increased to $1200. A likely reason for this is:

A. the face value of the bond has been increased.

B. the bond is perceived by the market to be more risky now than before.

C. interest rates, in general, have increased. D. interest rates, in general, have decreased.

35. What is the market value of a bond that has a required rate of return of 10% p.a. and pays $50 p.a. with only two years remaining to maturity, if the redemption value is $1000 and the initial market value of the bond was $850 when it was first issued eight years ago?

A. $571.80

B. $1421.80 C. $826.45 D. $913.22

36. Interest rate risk refers to:

A. the risk-free rate of interest.

B. the risk premium demanded on a bond in case of default. C. the random behaviour of past bond prices.

D. the unforeseen losses to an investor if interest rates change.

37. The price effect, with regards to bonds, refers to the:

A. capital gains or losses that occur when interest rates change. B. relationship between market interest rates and bond prices. C. present value of interest income and redemption value.

D. relationship between risk and bond prices.

38. The expectations theory of the term structure of interest implies that:

A. interest received on securities is in accordance with term to maturity.

B.bond investors can expect to achieve the same return over any future period, regardless of the security

in which they invest.

C. there is a premium due to uncertainty about the future level of interest rates. D. there is a risk that borrowers may default on the payment of the principal.

39. Liquidity premium theory suggests that:

A. there is a downward bias in the yield curve.

B. the market for some securities may be thinly traded; hence, investors require a reward for this risk. C. there is an upward bias in the yield curve because interest rate risk decreases with term to maturity. D. there is a premium due to uncertainty about the future level of interest rates.

40. There is a natural tendency for the yield on long-term bonds to be greater than on short-term bonds because:

A. holders of long-term bonds benefit most from a fall in interest rates.

B. reinvestment risk is more pronounced for long-term bonds than short-term bonds. C. long-term bonds are more price-sensitive than short-term bonds.

D. the risk of default is greater for long-term bonds.

41. An upward-sloping yield curve can best be explained by:

A. the relationship between nominal interest rates and expected inflation rates.

B. the expectation that short-term interest rates will decrease in the future.

C. the fact that short-term interest rates are more inflation-sensitive than long-term rates. D. the expectation that inflation will increase in the future.

42. Risk of default implies that:

A. there is an upward-sloping yield curve.

B. there is a downward-sloping yield curve.

C. AAA-rated bonds are more heavily discounted than BBB-rated bonds. D. AAA-rated bonds are less heavily discounted than BBB-rated bonds.

43. One reason that the required rate of return on shares is generally more than on interest-yielding securities is because:

A. borrowers may default on payments.

B. the returns on shares are higher than on interest-yielding securities. C. debtholders rank ahead of shareholders in case of default.

D. shareholders rank ahead of debtholders in case of default.

44. The promised yield on a non-interest-bearing security with one year to maturity, a face value of $100, a 20% chance of default and an expected market rate of return of 10%, is:

A. 7.8%.

B. 37.5%.

C. 25%. D. 10%.

45. Immunisation can best be described as:

A. the ability of investors to choose a bond investment that minimises reinvestment risk.

B. the ability of investors to choose a bond investment that minimises interest rate risk.

C. the ability of investors to choose a bond investment that matches cash inflows with outflows. D.the ability of investors to choose a bond investment that achieves some future target regardless of

changes to interest rates.

46. The best security to achieve immunisation is:

A. a zero-coupon bond.

B. a low-coupon bond with maturity that matches an investors target maturity. C. a zero-coupon bond with maturity that matches an investors target maturity. D. a high-coupon bond with maturity that matches an investors target maturity.

47. Interest rate elasticity refers to:

A. the response in interest rates to a change in monetary policy. B. the response in bond price to a change in interest rates.

C. bonds that pay flexible interest rates.

D. the response in interest rates to a change in bond price.

48. Which statement regarding bond prices is false?

A. If interest rates rise, bond prices will fall.

B.All bond prices respond to changes in interest rates in the opposite direction, but they do not all

respond to the same extent.

C. Bond prices and interest rates are negatively correlated. D. If bond prices rise, interest rates will fall.

49. The yield to maturity on a 1-year bond purchased for $980 with a maturity value of $1100 is: A. 10.05%

B. 12.24% C. 13.50% D. 14.23%

50. According to the expectations theory of the term structure of interest, if the 1-year bond rate today is 6% p.a. and the 2-year bond rate today is 7% p.a., what is the 1-year bond rate next year?

A. 6%

B. 6.75%

C. 7.5% D. 8%

51. According to the expectations theory of the term structure of interest, if the 1-year bond rate today is 7% p.a. and the 1-year bond rate in one years time is 9% p.a., what is 2-year bond rate today?

A. 6%

B. 7.5%

C. 8% D. 10%

52. According to the expectations theory of the term structure of interest, if the 1-year bond rate today is 6% p.a. and the 3-year bond rate today is 7.5% p.a., what is the 2-year bond rate next year?

A. 7.25%

B. 7.75%

C. 8.25% D. 8.75%

53. The ________________ of interest rates is the relationship between the interest rates and time to maturity.

________________________________________

54. An increase in interest rates results in a _________ in the price of a bond. ________________________________________

55. When interest rates increase, interest receipts can be rolled over into a new investment with a higher interest rate. This is known as the _____________ effect. ________________________________________

56. Once a bond has been issued, its promised future cash flows are ___________. ________________________________________

57. Two common methods of share valuation are dividend growth models and the _________________ ratio.

________________________________________

58. The higher the markets assessment of the probability of default, the ___________ the required rate of return on the debt.

________________________________________

59. A company just paid a dividend of $1.20. If this is expected to increase by 3% p.a. indefinitely, and the required rate of return is 8%, then the theoretical share price is $15.

True False

60. Financial assets such as bonds and shares can be valued by discounting their future cash flows and summing these present values.

True False

61. The price effect and reinvestment effect are both sources of interest rate risk. True False

62. Downward-sloping yield curves are inconsistent with the liquidity premium theory. True False

63. All other things being equal, an investor will buy a security of high marketability only if the yield is greater than that on a security of low marketability.

True False

64. As debtholders rank ahead of shareholders it is expected that the required rate of return on debt will be less than the required rate of return on shares.

True False

65. FBH Limited has just paid a dividend of $0.75. The required rate of return is 16% p.a.

a. What is the expected share price if this dividend remains constant for the foreseeable future?

b. What is the expected share price if this dividend is expected to grow by 5% p.a. indefinitely?

66. FBH Limited has just paid a dividend of $0.75 and your required rate of return is 16% p.a. If FBH Limited retains 30% of its earnings each year, which are then reinvested to earn a 20% rate of return, what is the value of FBH Limited shares?

67. Consider a $2000 government bond that matures in two years with a coupon rate of 12% p.a. interest paid twice yearly. What will be the expected price of the bond if the required rate of return is 14% p.a.?

68. Consider a $5000 government bond with a coupon rate of 8% p.a. interest paid twice yearly. The current yield on the bond is 6% p.a. and has 4 years to maturity.

a. How much would you expect to pay for the bond?

b. Why does the value of the bond differ from the face value?

69. Consider a $1000 government bond that matures in five years, with a coupon rate of 10% p.a. interest paid twice yearly.

(a) If the current yield on government bonds is 12% p.a. what is the current price of the bond?

(b) If the expected inflation rate is currently 5.5% p.a., what is the implied real rate of interest?

4 Key

1. A decision to buy an asset implies a simultaneous decision to forego: A. future consumption.

B. less consumption.

C. current consumption.

D. none of the given options.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #1

Section: 4.2 Financial asset valuation under certainty

2. The periodic cash flows from an investment in shares are called:

A. coupons.

B. interest.

C. capital gains. D. dividends.

3. When valuing shares under uncertainty, the price can be written as: A.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #2

Section: 4.3 Valuation of shares

B.

C.

D.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #3

Section: 4.3 Valuation of shares

4. The appropriate value of Ke is determined using the concept of: A. risk and return models.

B. internal rate of return.

C. cost of capital.

D. opportunity cost of capital.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #4

Section: 4.3 Valuation of shares

5. A Ltd is currently paying a dividend of 90 cents per share. Assume that the investors expect this

dividend to be maintained indefinitely and that they require a return of 15% on the investment. What is the value of As shares?

A. $0.14

B. $16.66

C. $6.00 D. $1.05

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #5

Section: 4.3 Valuation of shares

6. Assume that for the past 10 years the growth rate in A Ltds dividends per share has been 10% p.a.

Also assume that this growth rate is to be maintained indefinitely. The latest dividend of 90 cents was paid yesterday. What is the value of As shares?

A. $18.00

B. $6.60

C. $19.80 D. $3.96

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-02 Apply the dividend growth model to value ordinary shares Peirson Chapter 04 #6

Section: 4.3 Valuation of shares

7. A Ltd pays a dividend of 90 cents per share. If A Ltd retains 40% of its earnings each year and these

are reinvested to earn a 25% return, what is the price of A Ltd? A. $1.22

B. $4.40

C. $19.80

D. More information is needed.

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-02 Apply the dividend growth model to value ordinary shares Peirson Chapter 04 #7

Section: 4.3 Valuation of shares

8. The price effect and the reinvestment effect are both sources of: A. default risk.

B. term structure.

C. interest rate risk.

D. default risk structure.

9. The connection between term and interest rates is called: A. interest rate risk.

B. price risk.

C. term structure of interest rates. D. default structure of interest rates.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #8

Section: 4.5 Interest rate risk

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #9

Section: 4.6 The term structure of interest rates

10. In general, an upward-sloping term structure implies that investors expect future short-term interest

rates to:

A. decrease.

B. increase.

C. be the same as the current rate. D. increase by a minimum of 5bp.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #10

Section: 4.6 The term structure of interest rates

11. In general, a downward-sloping term structure implies that investors expect future short-term interest

rates to:

A. decrease.

B. increase.

C. be the same as the current rate. D. none of the options given.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #11

Section: 4.6 The term structure of interest rates

12. A flat term structure implies that investors expect future short-term interest rates to:

A. decrease.

B. increase.

C. be the same as the current rate. D. none of the options given.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #12

Section: 4.6 The term structure of interest rates

13. Moodys and Standard and Poors provide ratings of short-term debt on a: A. three-point scale.

B. five-point scale. C. 19-point scale. D. four-point scale.

14. Moodys rate long-term debt on a: A. four-point scale from Aaa to C.

B. 13-point scale from Aaa to C.

C. 14-point scale from Aaa to C.

D. 19-point scale from Aaa to C.

15. Long-term debt is rated by Standard and Poors on a: A. 10-point scale from AAA to C.

B. 20-point scale from AAA to C.

C. 20-point scale from Aaa to C.

D. 19-point scale from AAA to C.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #13

Section: 4.7 The default-risk structure of interest rates

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #14

Section: 4.7 The default-risk structure of interest rates

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #15

Section: 4.7 The default-risk structure of interest rates 16. If you were able to earn 10% p.a. interest on money invested in a bank, how much money would you

be willing to receive in 12 months time, rather than $1000 now, so that you are indifferent between the two options?

A. $1500

B. $909

C. $900 D. $1100

AACSB: Analytic Blooms: Application Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #16

Section: 4.2 Financial asset valuation under certainty

17. If you have $1000 to invest and are able to earn 8% p.a. interest on money invested in a bank, how much will you be willing to receive in two years time to be indifferent between the two options? A. $840

B. $1160

C. $1166

D. $1500

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #17

Section: 4.2 Financial asset valuation under certainty

18. You have a choice between receiving $500 now and $530 in six months time. Current interest rates

are 10% p.a. (simple interest). As a rational investor, which option would you choose and why? A $500 now, because receiving $530 in six months time is equivalent to earning only 6% interest,

. whereas in the bank you can earn 10% interest.

B. $530 in six months time, because $500 invested for six months is only worth $525.

C. $500 now, because it would be worth $550 in six months time.

D. $500 now, because you have the option to invest or consume goods.

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #18

Section: 4.2 Financial asset valuation under certainty 19. At what interest rate would investing $1000 in a bank leave you as well off as receiving $1078 in 12

months time? A. 5%

B. 78%

C. 10%

D. 7.8%

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #19

Section: 4.2 Financial asset valuation under certainty 20. If an investor is prepared to pay $600 for an asset that returns $700 at the end of two years, what

annual rate of return is the investor receiving? A. 16.7%

B. $100

C. 8%

D. 8.3%

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #20

Section: 4.2 Financial asset valuation under certainty

21. Given that dividends on a share are expected to remain indefinitely at $1 p.a. and that the required rate of return for the level of risk on such a share is 15%, the correct price for this share:

A. cannot be ascertained from this information.

B. cannot be ascertained without regard to the management structure of the firm.

C. is $1.

D. is $6.67.

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #21

Section: 4.3 Valuation of shares

22. Given that dividends on a share are expected to remain indefinitely at $0.50 p.a. and that the required

rate of return for the level of risk on such a share is 10% and the interest rate is 6%, the correct price for this share is:

A. $8.33.

B. $5.

C. $3.

D. none of the options given.

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #22

Section: 4.3 Valuation of shares

23. Calculate the expected capital gain on a share that costs $1 and pays a 7c dividend if the share is sold

in two years time. Assume that the required rate of return for such a share is 7% p.a. A. Loss of 12.7c.

B. Gain of 14c.

C. None of the given options.

D. Gain of 14.49c.

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-02 Apply the dividend growth model to value ordinary shares Peirson Chapter 04 #23

Section: 4.3 Valuation of shares

24. How much would you be prepared to pay for a share in two years time that pays a 15c dividend each

year and is currently priced at $2? Assume the required rate of return is 7.5% p.a. A. $1.87

B. $2.30

C. $1.70

D. $2

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #24

Section: 4.3 Valuation of shares

25. What is the required rate of return on a share that pays a $1 dividend each year and is currently valued at$16.66?

A. 6%

B. 16.66%

C. 6.66%

D. none of the options given.

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #25

Section: 4.3 Valuation of shares

26. Which of the following statements best describes the concept used to value shares?

A The value of an infinite stream of dividends discounted by the current short-term interest rate

. assuming a company has an infinite life.

B. Market price can be expressed as the present value of an infinite stream of dividends.

C. The present value of the dividend stream and expected capital gain must be calculated separately

and then added together.

D.Market price can be expressed as the present value of an infinite stream of dividends assuming a

company has an infinite life.

referred to as the:

A. required rate of return. B. term structure.

C. liquidity premium.

D. risk premium.

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #26

Section: 4.3 Valuation of shares

27. The return on a share listed on the stock exchange is likely to be:

A. less than the short-term rate of interest but greater than the long-term rate of interest. B. more than the short-term rate of interest but less than the long-term rate of interest. C. greater than the market rate of interest.

D. comparable to the rate of return earned on government securities.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #27

Section: 4.8 Other factors affecting interest rate structures

28. The difference between the opportunity cost of capital for a risky security and a risk-free security is

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #28

Section: 4.3 Valuation of shares

29. Assume the latest dividend per share, paid recently, for ACD Ltd is 90 cents and that the required rate of return on these shares is 15% p.a. If the current share price is $19.80, the expected growth rate on these shares is:

A. 0%.

B. 10%. C. 5%. D. 7.5%.

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-02 Apply the dividend growth model to value ordinary shares Peirson Chapter 04 #29

Section: 4.3 Valuation of shares

30. The latest dividend paid by ABC Ltd is 40 cents and the company retains 20 per cent of its earnings

each year, which is invested to earn a rate of return of 25% p.a. Assuming the required rate of return on ABCs shares is 15% p.a., the price of ABC Ltd shares will be:

A. $3.33.

B. $5.

C. $4.

D. $4.20.

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-02 Apply the dividend growth model to value ordinary shares Peirson Chapter 04 #30

Section: 4.3 Valuation of shares

31. Assume that XYZ Ltd has a current growth rate of 10% p.a. that is expected to be maintained for only another three years and then fall to 5% p.a., where it is expected to remain indefinitely. Given that the

required return on ABCs shares is 12% and that the last dividend of 50 cents has just been paid, the price of ABCs shares will be:

A. $8.56.

B. $11.43.

C. $10.25. D. $9.82.

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-02 Apply the dividend growth model to value ordinary shares Peirson Chapter 04 #31

Section: 4.3 Valuation of shares

32. Company A and Company B have identical expected earnings potential but Company B has a higher

price-earnings ratio. This discrepancy:

A. can be explained by the difference in share price.

B. can be explained by the fact that Company A pays more dividends.

C. can be explained by the fact that Company A is considered to be riskier than Company B. D. cannot be explained.

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #32

Section: 4.3 Valuation of shares

33. Consider a 10-year bond with a face value of $1000 and with an annual coupon of $100. What is its market value if the appropriate required rate of return is 6% p.a.?

A. $2000

B. $1294.40

C. $1349.51 D. $1752.12

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #33

Section: 4.4 Valuation of debt securities

34. You have just purchased a government bond for $1100 that promises to pay $100 p.a. over the next

five years. The market price of the bond has just increased to $1200. A likely reason for this is: A. the face value of the bond has been increased.

B. the bond is perceived by the market to be more risky now than before.

C. interest rates, in general, have increased.

D. interest rates, in general, have decreased.

AACSB: Analytic Blooms: Knowledge Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #34

Section: 4.5 Interest rate risk

35. What is the market value of a bond that has a required rate of return of 10% p.a. and pays $50 p.a. with only two years remaining to maturity, if the redemption value is $1000 and the initial market

value of the bond was $850 when it was first issued eight years ago? A. $571.80

B. $1421.80

C. $826.45

D. $913.22

36. Interest rate risk refers to:

A. the risk-free rate of interest.

B. the risk premium demanded on a bond in case of default. C. the random behaviour of past bond prices.

D. the unforeseen losses to an investor if interest rates change.

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #35

Section: 4.4 Valuation of debt securities

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #36

Section: 4.5 Interest rate risk

37. The price effect, with regards to bonds, refers to the:

A. capital gains or losses that occur when interest rates change. B. relationship between market interest rates and bond prices. C. present value of interest income and redemption value.

D. relationship between risk and bond prices.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #37

Section: 4.5 Interest rate risk

38. The expectations theory of the term structure of interest implies that:

A. interest received on securities is in accordance with term to maturity.

B. bond investors can expect to achieve the same return over any future period, regardless of the

security in which they invest.

C. there is a premium due to uncertainty about the future level of interest rates. D. there is a risk that borrowers may default on the payment of the principal.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #38

Section: 4.6 The term structure of interest rates

39. Liquidity premium theory suggests that:

A. there is a downward bias in the yield curve.

B. the market for some securities may be thinly traded; hence, investors require a reward for this risk. C. there is an upward bias in the yield curve because interest rate risk decreases with term to maturity. D. there is a premium due to uncertainty about the future level of interest rates.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #39

Section: 4.6 The term structure of interest rates

40. There is a natural tendency for the yield on long-term bonds to be greater than on short-term bonds

because:

A. holders of long-term bonds benefit most from a fall in interest rates.

B. reinvestment risk is more pronounced for long-term bonds than short-term bonds. C. long-term bonds are more price-sensitive than short-term bonds.

D. the risk of default is greater for long-term bonds.

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #40

Section: 4.6 The term structure of interest rates

41. An upward-sloping yield curve can best be explained by:

A. the relationship between nominal interest rates and expected inflation rates.

B. the expectation that short-term interest rates will decrease in the future.

C. the fact that short-term interest rates are more inflation-sensitive than long-term rates. D. the expectation that inflation will increase in the future.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #41

Section: 4.6 The term structure of interest rates

42. Risk of default implies that:

A. there is an upward-sloping yield curve.

B. there is a downward-sloping yield curve.

C. AAA-rated bonds are more heavily discounted than BBB-rated bonds. D. AAA-rated bonds are less heavily discounted than BBB-rated bonds.

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #42

Section: 4.7 The default-risk structure of interest rates

43. One reason that the required rate of return on shares is generally more than on interest-yielding

securities is because:

A. borrowers may default on payments.

B. the returns on shares are higher than on interest-yielding securities. C. debtholders rank ahead of shareholders in case of default.

D. shareholders rank ahead of debtholders in case of default.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #43

Section: 4.8 Other factors affecting interest rate structures

44. The promised yield on a non-interest-bearing security with one year to maturity, a face value of $100,

a 20% chance of default and an expected market rate of return of 10%, is: A. 7.8%.

B. 37.5%.

C. 25%.

D. 10%.

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #44

Section: 4.7 The default-risk structure of interest rates

45. Immunisation can best be described as:

A. the ability of investors to choose a bond investment that minimises reinvestment risk.

B. the ability of investors to choose a bond investment that minimises interest rate risk.

C. the ability of investors to choose a bond investment that matches cash inflows with outflows. D.the ability of investors to choose a bond investment that achieves some future target regardless of

changes to interest rates.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-06 Apply the concept of duration to immunise a bond investment Peirson Chapter 04 #45

Section: A4.1 (Appendix)

46. The best security to achieve immunisation is: A. a zero-coupon bond.

B. a low-coupon bond with maturity that matches an investors target maturity. C. a zero-coupon bond with maturity that matches an investors target maturity. D. a high-coupon bond with maturity that matches an investors target maturity.

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-06 Apply the concept of duration to immunise a bond investment Peirson Chapter 04 #46

Section: A4.1 (Appendix)

47. Interest rate elasticity refers to:

A. the response in interest rates to a change in monetary policy. B. the response in bond price to a change in interest rates.

C. bonds that pay flexible interest rates.

D. the response in interest rates to a change in bond price.

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-06 Apply the concept of duration to immunise a bond investment Peirson Chapter 04 #47

Section: A4.1 (Appendix)

48. Which statement regarding bond prices is false?

A. If interest rates rise, bond prices will fall.

B. All bond prices respond to changes in interest rates in the opposite direction, but they do not all

respond to the same extent.

C. Bond prices and interest rates are negatively correlated. D. If bond prices rise, interest rates will fall.

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #48

Section: 4.5 Interest rate risk

49. The yield to maturity on a 1-year bond purchased for $980 with a maturity value of $1100 is:

A. 10.05% B. 12.24% C. 13.50% D. 14.23%

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #49

Section: 4.7 The default-risk structure of interest rates

50. According to the expectations theory of the term structure of interest, if the 1-year bond rate today is

6% p.a. and the 2-year bond rate today is 7% p.a., what is the 1-year bond rate next year? A. 6%

B. 6.75%

C. 7.5%

D. 8%

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #50

Section: 4.6 The term structure of interest rates

51. According to the expectations theory of the term structure of interest, if the 1-year bond rate today is 7% p.a. and the 1-year bond rate in one years time is 9% p.a., what is 2-year bond rate today? A. 6%

B. 7.5%

C. 8% D. 10%

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #51

Section: 4.6 The term structure of interest rates

52. According to the expectations theory of the term structure of interest, if the 1-year bond rate today is

6% p.a. and the 3-year bond rate today is 7.5% p.a., what is the 2-year bond rate next year? A. 7.25%

B. 7.75%

C. 8.25%

D. 8.75%

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #52

Section: 4.6 The term structure of interest rates

53. The ________________ of interest rates is the relationship between the interest rates and time to

maturity. term structure

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #53

Section: 4.6 The term structure of interest rates

54. An increase in interest rates results in a _________ in the price of a bond.

reduction

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #54

Section: 4.4 Valuation of debt securities

55. When interest rates increase, interest receipts can be rolled over into a new investment with a higher

interest rate. This is known as the _____________ effect. reinvestment

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #55

Section: 4.5 Interest rate risk

56. Once a bond has been issued, its promised future cash flows are ___________. fixed

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #56

Section: 4.4 Valuation of debt securities

57. Two common methods of share valuation are dividend growth models and the _________________

ratio. price-earnings

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #57

Section: 4.3 Valuation of shares

58. The higher the markets assessment of the probability of default, the ___________ the required rate of

return on the debt. higher

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #58

Section: 4.5 Interest rate risk

59. A company just paid a dividend of $1.20. If this is expected to increase by 3% p.a. indefinitely, and

the required rate of return is 8%, then the theoretical share price is $15.

FALSE

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-02 Apply the dividend growth model to value ordinary shares Peirson Chapter 04 #59

Section: 4.3 Valuation of shares

60. Financial assets such as bonds and shares can be valued by discounting their future cash flows and

summing these present values.

TRUE

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #60

Section: 4.2 Financial asset valuation under certainty 61. The price effect and reinvestment effect are both sources of interest rate risk.

TRUE

AACSB: Analytic Blooms: Knowledge Difficulty: Easy EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #61

Section: 4.5 Interest rate risk

62. Downward-sloping yield curves are inconsistent with the liquidity premium theory. FALSE

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #62

Section: 4.6 The term structure of interest rates

63. All other things being equal, an investor will buy a security of high marketability only if the yield is

greater than that on a security of low marketability.

FALSE

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Peirson Chapter 04 #63

Section: 4.8 Other factors affecting interest rate structures

64. As debtholders rank ahead of shareholders it is expected that the required rate of return on debt will be

less than the required rate of return on shares.

TRUE

Section: 4.7 The default-risk structure of interest rates

65. FBH Limited has just paid a dividend of $0.75. The required rate of return is 16% p.a.

a. What is the expected share price if this dividend remains constant for the foreseeable future?

b. What is the expected share price if this dividend is expected to grow by 5% p.a. indefinitely?

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #65

Section: 4.3 Valuation of shares

66. FBH Limited has just paid a dividend of $0.75 and your required rate of return is 16% p.a. If FBH

Limited retains 30% of its earnings each year, which are then reinvested to earn a 20% rate of return, what is the value of FBH Limited shares?

AACSB: Analytic Blooms: Application Difficulty: Hard EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #66

Section: 4.3 Valuation of shares

67. Consider a $2000 government bond that matures in two years with a coupon rate of 12% p.a. interest

paid twice yearly. What will be the expected price of the bond if the required rate of return is 14% p.a.?

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #67

AACSB: Analytic Blooms: Knowledge Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-04 Explain the nature of interest rate risk Peirson Chapter 04 #64

Section: 4.4 Valuation of debt securities

68. Consider a $5000 government bond with a coupon rate of 8% p.a. interest paid twice yearly. The current yield on the bond is 6% p.a. and has 4 years to maturity.

a. How much would you expect to pay for the bond?

b. Why does the value of the bond differ from the face value?

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #68

Section: 4.4 Valuation of debt securities

69. Consider a $1000 government bond that matures in five years, with a coupon rate of 10% p.a. interest

paid twice yearly.

(a) If the current yield on government bonds is 12% p.a. what is the current price of the bond?

(b) If the expected inflation rate is currently 5.5% p.a., what is the implied real rate of interest?

AACSB: Analytic Blooms: Application Difficulty: Medium EQUIS: Apply knowledge Graduate Attributes: Problem-solving Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Peirson Chapter 04 #69

Section: 4.4 Valuation of debt securities

4 Summary Category

AACSB: Analytic

Blooms: Application

Blooms: Knowledge

Difficulty: Easy

Difficulty: Hard

Difficulty: Medium

EQUIS: Apply knowledge

Graduate Attributes: Problem-solving

Learning Objective: 04-01 Use the tools of financial mathematics to value debt and equity securities Learning Objective: 04-02 Apply the dividend growth model to value ordinary shares

Learning Objective: 04-04 Explain the nature of interest rate risk

Learning Objective: 04-05 Understand the theories that are used to explain the term structure of interest rates Learning Objective: 04-06 Apply the concept of duration to immunise a bond investment

Peirson Chapter 04

Section: 4.2 Financial asset valuation under certainty

Section: 4.3 Valuation of shares

Section: 4.4 Valuation of debt securities

Section: 4.5 Interest rate risk

Section: 4.6 The term structure of interest rates

Section: 4.7 The default-risk structure of interest rates

Section: 4.8 Other factors affecting interest rate structures

Section: A4.1 (Appendix)

# of Questions

69

28

42

27

14

28

69

69

30

7

14

15

3

69

7

21

7

8

13

7

3

3

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