Question 1) You are holding a stock which is currently in equilibrium. The required rate of return on the stock is 15 percent when the required return on the S&P 500 index is 10 percent. What will be the percentage change in the required return on the stock if the required return on the S&P 500 index increases by 30% while the risk free rate is unchanged? Your stock has a beta of 2.0.
a. +20%
b. +30%
c. +40%
d. +50%
e. +60%
Question 2) A 20 year bond with a par value of $1000 has a 9 percent annual coupon. The bond currently sells for $925. If the bond's yield to maturity remains at its current rate, what will be the price of the bond 5 years from now?
a. $966.79
b. $831.35
c. $1090.00
d. $933.09
e. $925.00
Question 3) Which of the following statements is most correct?
a. Assume that the required rate of return on a given stock is 13 percent. If the stock's dividend is growing at a constant rate of 5%, its expected dividend yield is also 5%.
b. The dividend yield on a stock is equal to the expected return less the expected capital gains yeild.
c. A stock's dividend yield cna never exceed the expected growth rate.
d. All of the answers above are correct.
e. Answers b and c are correct.