Author Question: Which of the statements below is TRUE regarding interest rates in the period 1950-1999? A) ... (Read 64 times)

ahriuashd · **on:** Jul 10, 2018

Which of the statements below is TRUE regarding interest rates in the period 1950-1999?

A) Inflation averaged 1.18.
B) The real rate averaged 4.05.
C) The default premium averaged 7.05.
D) The maturity premium averaged 1.28 (for twenty-year maturity differences).

Question 2

Assume that Plavor Brands, Inc has 10,000,000 common shares outstanding that have a par value
of 2 per share. The stock is currently trading for 30 per share. The firm reported a net profit
after-tax of 25,000,000.

All else equal, what will happen to earnings per share if the company
issues a 10 stock dividend?
A) Earnings per share will increase because the dividend increases the value of the company.
B) Earnings per share will remain the same since a stock dividend does not create an expense.
C) Earnings per share will decrease because the number of shares outstanding will go up.
D) The impact cannot be determined without additional information on the new price per share.

fauacakatahaias · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer: D
Explanation: D) For the period 1950-1999, inflation averaged 4.05, the real rate averaged 1.18, the maturity premium averaged 1.28 (for twenty-year maturity differences), and the default premium averaged 0.49 (for AAA over government bonds).

Answer to Question 2

C