1. Five years ago Two Towers Inc. issued bonds that pay a 5 percent coupon. At issue these bonds were AAA rated, but today they were downgraded to BBB. Which of the following is most likely based on this information?
The bonds carry a larger default premium than when issued.
The sinking fund has repurchased a majority of the bonds.
The bonds have more interest rate risk than when they were issued.
The bonds now trade at a premium to par.
The bonds have more liquidity risk than when issued.
2. Garret Freight will pay a $1 dividend next quarter, and the company is expected to increase this dividend by 5% in each subsequent quarter. A decrease in which of the following will increase the current stock value?
Number of future dividends, provided the number is less than infinite.
Dividend amount.
Discount rate.
Both the discount rate and the dividend growth rate.
Dividend growth rate.