1. If a bond is selling at a premium (i.e., at a price more than its face value), which of the following is true?
Interest rates must have gone up since the bond was issued.
The coupon rate is higher than the yield to maturity.
The bond must be a zero-coupon bond.
The coupon rate is lower than the yield to maturity.
The bond must have been issued by the U.S. Treasury.
2. Show calculations please
Charlatan Used Auto World, Inc. earned $78 million last year and paid out 30 percent of earnings in dividends.
a. By how much did the company’s retained earnings increase?
b. With 20 million shares outstanding and stock price of $52, what was the dividend yield? (Hint: First compute dividends per share.)
c. Based on the information given, what is the firm’s ‘Retention Ratio’?
3. Shares of Hot Donuts common stock are currently selling for $32.35. The last annual dividend paid was $1.10 per share and the market rate of return is 10.7 percent. At what rate is the dividend growing? Please do NOT use excel to answer this question.