Fin 370

Exam2 FIN370 Fall 2011 Key Version B

1. A call provision in a bond agreement grants the issuer the right to:
A. repurchase the bonds prior to maturity at a pre-specified price.
B. change the coupon rate provided the bondholders are notified in advance.
C. replace the bonds with equity securities.
D. buy back the bonds on the open market prior to maturity.
E. call the bondholder to determine if he or she would like to extend the term of the bond agreement.

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 006 #13
SECTION: 6.2
TOPIC: CALL PROVISION
TYPE: DEFINITIONS

2. An 8 percent semiannual coupon bond is priced at $1,204.60. The bond has a $1,000 face value and a yield to maturity of 4.88 percent. How many years will it be until this bond matures?
A. 15.91 years
B. 8.00 years
C. 8.65 years
D. 17.29 years
E. 16.00 years

BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 006 #84
SECTION: 6.1
TOPIC: TIME TO MATURITY
TYPE: PROBLEMS

3. Which one of the following is a correct method of computing the Du Pont identity?
A. (Return on equity) [pic] (Equity multiplier)
B. (Return on assets) [pic] (Total asset turnover)
C. (Equity multiplier) [pic] (Profit margin) [pic] (Return on assets)
D. (Profit margin) [pic] (Capital intensity ratio) [pic] (Equity multiplier)
E. (Profit margin) [pic] (1 / Capital intensity ratio) [pic] (1 + Debt-equity ratio)

BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 003 #28
SECTION: 3.3
TOPIC: DU PONT IDENTITY
TYPE: CONCEPTS

4. A $1,000 face value bond currently has a yield to maturity of 8.89 percent. The bond matures in 7 years and pays interest annually. The coupon rate is 9 percent. What is the current price of this bond?
A. $1,005.56
B. $989.12
C. $1,268.95
D.