# BUS 401 Week 2 Questions

1. Preferred stock is similar to a bond in the following way (Points : 1)preferred stock always contains a maturity date.both investments provide a stated income stream.both contain a growth factor similar to common stock.both provide interest payments.2. Positive Tronics Industries preferred stock has a par value of $100 and pays a dividend of $6.00 per share. It presently sells for $87 per share. What do investors require as a rate of return on this stock? Round off to the nearest .10%. (Points : 1)14.5%9.3%6.9%6.0%3. Assume that Brady Corp. has an issue of 18-year $1,000 par value bonds that pay 7% interest, annually. Further assume that todays required rate of return on these bonds is 5%. How much would these bonds sell for today? Round off to the nearest $1. (Points : 1)$1,233.79$1,201.32$1,134.88$1,032.564. You decide you want your child to be a millionaire. You have a son today and you deposit $15,000 in an investment account that earns 9% per year. The money in the account will be distributed to your son whenever the total reaches $1,000,000. How old will your son be when he gets the money (rounded to the nearest year)? (Points : 1)82 years74 years60 years49 years5. Lily Co. paid a dividend of $5.25 on its common stock yesterday. The companys dividends are expected to grow at a constant rate of 8.5% indefinitely. If the required rate of return on this stock is 15.5%, compute the current value per share of Lily Co. stock. (Points : 1)$81.38$76.43$56.23$43.906. Halverson, Inc. just issued $1,000 par 20-year bonds. The bonds sold for $936 and pay interest semi-annually. Investors require a rate of 7.00% on the bonds. What is the amount of the semi-annual interest payment on the bonds? (Points : 1)$64.50$55.00$32.00$21.757. What is the value of a preferred stock that pays a $4.50 dividend to an investor with a required rate of return of 10%? (Points : 1)$22.22$27.83$45$55.508. What is the value of a bond that matures in 17 years, makes an annual coupon payment of $50, and has a par value of $1,000? Assume a required rate of return of 6%. (Points : 1)$822.90$856.29$895.23$904.879. If two firms have the same current dividend and the same expected growth rate, their stocks must sell at the same current price or else the market will not be in equilibrium. (Points : 1)False, because the required return could be differentTrue, because we are using a dividend valuation modelTrue if markets are semi-strong form efficientTrue if investors are risk-averse10. Butler Corp paid a dividend today of $5 per share. The dividend is expected to grow at a constant rate of 6.5% per year. If Butler Corp stock is selling for $50.00 per share, the stockholders expected rate of return is (Points : 1)11.50%.13.56%.15.49%.16.50%.