OC 60 O d none of the above QUESTION 19 Other things remaini

OC. $60 O d none of the above QUESTION 19 Other things remaining the same, higher is the required return O a lower is the value of à bond O b.higher is the value of a stock OC lower is the value of a stock O d. both a and c QUESTION 20 M-1000, n-20, coupon rate .08, discount rate - .06. The value of the bond is approximately O a. 1229.4 b. 917.6 C: 1129.4 d none of the above SAVE AND SUBMIT Click Save and Submit to save and submit. Click Save All Answers to save all answers.

Solution

Answer to Question 19 is d.

Value of a stock and a bond are calculated by presenting future cash flows using required return.

Value of stock and bond is inversely related to required return.

So, higher the required return, lower the value of stock or bond.

Answer to Question 20 is a.

M = 1000
n = 20
Coupon Rate = 0.08
Annual Coupon = 0.08 * 1000 = 80
discount rate = 0.06

Value of Bond = 80 * PVIFA(0.06, 20) + 1000 * PVIF(0.06, 20)
Value of Bond = 80 * (1 - (1/1.06)^20) / 0.06 + 1000 / 1.06^20
Value of Bond = 1,229.4