In 2000 Jenson Inc issued bonds with an 8 percent coupon rate and a 1,000 face value. The bonds
mature on March 1, 2025.
If an investor purchased one of these bonds on March 1, 2012, determine
the yield to maturity if the investor paid 1,100 for the bond.
A) The yield to maturity must be greater than 8 because the price paid for the bond exceeds the
face value.
B) 7
C) The yield to maturity is 900 (1,000 interest less 100 capital loss).
D) 5.4
Question 2
Using the dividend valuation method, an analyst determines the value of Company A's stock to be
10 and the value of Company B's stock to be 14. Based on this information, which of the following
statements is most accurate?
A) Company B's required rate of return is higher than Company A's required return.
B) Other things being equal, if Company A and Company B have the same firm value, Company
A may have more shares of stock outstanding than Company B.
C) Company B must be riskier than Company A, and risk requires a reward.
D) Other things being equal, if Company A and Company B have the same firm value, Company
B must have more debt, thus leveraging its returns for the benefit of shareholders.
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