Question

5. Suppose you buy a Baa rated corporate bond today for $1,000 with a maturity of ten years and a yield to maturity of 7% and sell it one year from now for $1,150. Which of the following is (are) true? A. Your holding period return will be less than the yield to maturity B. Your holding period return will be equal to the yield to maturity C. Your holding period return will be greater than the yield to maturity D. Insufficient information to determine which will be higher E. Both A and D 6. Why is it best to hold zero coupon bonds in a tax-deferred account like a 401K? A. Zero coupon bonds are tax exempt B. The IRS requires the holders of zero-coupon bonds to pay taxes on the interest that accrues, even though they aren't receiving coupon payments C. The IRS allows investors to defer paying taxes on all zero-coupon bonds D. The SEC mandates are zero coupon bonds be held in tax deferred accounts E. Both C and D 7. Why do corporate bonds pay a higher risk premium than municipal bonds? A. Neither corporations nor state and local governments can levy taxes B. State and local governments can print money, whereas corporations cannot C. Corporations can levy higher taxes than state and local governments D. State and local governments can levy taxes, whereas corporations cannot E. None of the above 8. According to the Dividend Discount Model, if the growth rate of a company's dividends increases, holding all else equal, then the value of the company's stock will A. Increase B. Decrease C. Stay the same D. Insufficient information E. None of the above

questions 5-8please

Answer 1

Q5:

option C: Holding period return = (1150-1000)/1000 = 15% which is higher than yield to maturity given

Q6:

option B: Even though there is no actual interest payment, we need to pay taxes on interest accrued for Zero coupon bonds

Q7:

option E: risk premium is higher for corporate bonds because its credit rating will be lower compared to Municipal bonds

Q8:

Option A; If dividend growth increases, stock price increases considering all other factors remains same,