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CA Final Bond Valuation — practice questions — page 2

Explore 65 free Bond Valuation questions in CA Final Strategicfinancialmanagement. Open each question or exercise to read its content, reference answers and available explanation.

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Bond Valuation questions and exercises with answers

Showing questions 31–60 of 65.

A 10% preference share, face Rs 100, is redeemable at par in 3 years. At 12% required return, its value is?Read the answer and worked solution →What happens in the Gordon model when the growth rate is zero?Read the answer and worked solution →A zero-coupon bond bought at Rs 800 pays Rs 1,000 after one year. The yield is?Read the answer and worked solution →What happens to the constant-growth value when g gets very close to r?Read the answer and worked solution →When is a two-stage dividend discount model usually used?Read the answer and worked solution →A 2-year bond (face 100) pays coupon 5 a year. Discount factors are 0.95 and 0.90. Fair price?Read the answer and worked solution →How can a share with no dividend be valued in a dividend model?Read the answer and worked solution →A share costs Rs 50, next dividend is Rs 2 and dividends grow 6%. Total expected return is?Read the answer and worked solution →Preferred stock is generally considered which kind of instrument?Read the answer and worked solution →In ranking of claims, where does preferred stock stand?Read the answer and worked solution →A perpetual bond pays Rs 50 a year and the market yield is 8%. Its value is?Read the answer and worked solution →How must preferred dividends be paid relative to common dividends?Read the answer and worked solution →A share pays a flat Rs 5 dividend and investors need 12.5%. Its value is?Read the answer and worked solution →What does a cumulative preferred share promise if a dividend is missed?Read the answer and worked solution →A bond with a 12% coupon has a 9% YTM. The bond will trade at what?Read the answer and worked solution →What happens to unpaid dividends on non-cumulative preferred stock?Read the answer and worked solution →What right does putable preferred stock give the holder?Read the answer and worked solution →How can convertible preferred stock be exchanged for common stock?Read the answer and worked solution →Most preferred shares carry what kind of voting rights?Read the answer and worked solution →When may cumulative preferred shares gain voting rights?Read the answer and worked solution →Why are preferred stock ratings generally lower than bond ratings?Read the answer and worked solution →What does a call provision let the issuer of preferred shares do?Read the answer and worked solution →Which preferred stock has no fixed date for returning capital?Read the answer and worked solution →How is the dividend on preferred shares usually specified?Read the answer and worked solution →What kind of claim do common shareholders have on liquidation proceeds?Read the answer and worked solution →Which preferred stock may pay extra dividends if financial goals are met?Read the answer and worked solution →Does a preferred share's stated dividend guarantee payment?Read the answer and worked solution →Which preferred stock carries an embedded option to swap into another security?Read the answer and worked solution →In the DDM, the dividend growth rate serves as a proxy for what?Read the answer and worked solution →How does the term-structure approach discount a bond's cash flows?Read the answer and worked solution →

Worked practice questions

A 10% preference share, face Rs 100, is redeemable at par in 3 years. At 12% required return, its value is?

  1. Rs 100.00
  2. Rs 95.20
  3. Rs 104.80
  4. Rs 88.00
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Correct answer: B. Rs 95.20

Dividends of Rs 10 for 3 years at 12% are worth about 24.02 and the Rs 100 redemption about 71.18, totalling about Rs 95.20.

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What happens in the Gordon model when the growth rate is zero?

  1. Value becomes infinite
  2. The model needs two stages
  3. The dividend is capitalized
  4. Value equals book value
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Correct answer: C. The dividend is capitalized

With g = 0 the formula reduces to dividend divided by required return, capitalising a level dividend.

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A zero-coupon bond bought at Rs 800 pays Rs 1,000 after one year. The yield is?

  1. 20%
  2. 12.5%
  3. 80%
  4. 25%
Show answer and solution

Correct answer: D. 25%

The gain of Rs 200 on an outlay of Rs 800 is 25% over the year.

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