# Which of the following is true of the structure of a zero-coupon bond?

March 13, 2016

1. Which of the following statements is NOT true about future values? (Points : 1)

All else equal, the higher the interest rate, the larger the future value.

All else equal, the lower the interest rate, the larger the future value.

All else equal, the longer the investment time, the larger the future value.

All else equal, the larger the starting amount, the larger the future value.

2. In an amortized loan, the principal portion: (Points : 1)

increases with every payment and is zero with the last payment.

increases with every payment and completely repays the loan with the last payment.

increases with every payment but at a decreasing rate.

does not change with every payment.

3. Compounding means that: (Points : 1)

dollar interest the first year is multiplied by the number of years to get total interest.

the same dollar amount of interest is paid each period.

interest is paid on interest earned in earlier periods.

the rate of interest grows over time.

4. The Rule of 72 says: (Points : 1)

an amount doubles in 72 periods.

an amount triples in 1 year at 72%.

an amount doubles when the product of the rate and number of periods is 72.

an amount triples when the sum of the rate and number of periods is 72.

5. Which of the following is true of the structure of a zero-coupon bond? (Points : 1)

an annuity of interest payments and a single principal payment at maturity

no interim interest payments but a variable payment at maturity, depending on interest rates

an annuity of payments comprised of both interest and principal

no interim interest payments and a single payment at maturity

6. Zeta Corporation just paid a \$2.00 dividend. Analysts believe that Zeta Corporation’s dividend will grow by 20% next year, and then settle into a constant growth regime at 5% per year into the future. If investors assign a required rate of return of 12% to Zeta’s stock, what should the stock sell for today? (Points : 1)

\$30.00

\$32.14

\$34.29

\$36.00

7. The cash flows for a perpetuity continue into the future indefinitely. An example of a perpetuity is: (Points : 1)

preferred stock.

corporate bonds.

a home mortgage.

a consumer loan.

8. The great majority of stock trades occur: (Points : 1)

in the secondary markets.

in the primary market.

as IPOs (initial public offerings).

directly between the company and investors.

9. The longer we have to wait for a future amount to be received: (Points : 1)

the lower its present value will be.

the higher its present value will be.

Time does not affect present value, so it doesn’t matter how long we have to wait.

Beyond 10 years the value doesn’t change anymore because 10 years might as well be 20 years.

10. GMX Resources, an independent oil and gas exploration and production company, has a 9.25% preferred stock outstanding, which pays an annual dividend of \$2.3125. If investors require a return of 15% on small companies in this sector, what will this preferred stock sell for? (Points : 1)

\$14.11

\$14.72

\$15.41

\$28.58

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