1. Jordan bought a? 4% semi−annual coupon bond with 25 years to maturity at par value of? $1,000. If the required rate of return? (yield to maturity? )of this bond increases to? 4.25%, by how much does the value of the bond? change?
A. minus? $38.04
B. minus? $38.27
C. plus? $39.28
D. The value does not change if Jordan intends to hold the bond to maturity.
2. Which of the following statements is true of flotation costs?
A. Flotation costs decrease the cost of preferred stock to the issuing firm.
B. Flotation costs are added to the issue price of preferred stock to compute the cost of preferred stock.
C. Floatation costs are added to the cost of debt to compute the weighted average cost of capital of a firm.
D. Floatation costs increase the rate the issuing firm must earn to pay the preferred dividend.