Raising Capital and Securities Evaluation

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What is the primary reason for a company to raise capital through an Initial Public Offering (IPO)?

To decrease the company's valuation
To pay off debts and fund growth opportunities (correct)
To reduce the company's dependence on venture capital
To increase the company's market share

Which of the following is NOT a method of conducting an IPO on the London Stock Exchange (LSE)?

Offer for sale
Intermediaries offer
Offer for subscription
Private placement (correct)

What is the term for the date when the issuer repays the face value of a bond?

Yield date
Maturity date (correct)
Face value date
Coupon date

What is the primary difference between a bond and a share?

The ownership structure (D) Signup and view all the answers

What is the coupon rate of a bond?

The percentage of the face value that the bond pays in interest each year (D) Signup and view all the answers

What is the face value of a typical UK bond?

£100 (B) Signup and view all the answers

What is the term for the interest paid on a bond?

Coupon (B) Signup and view all the answers

Which of the following is an example of a company that has conducted an IPO?

Facebook (D) Signup and view all the answers

What is the relationship between the yield of a bond and its coupon rate when it is priced at a discount?

The yield is greater than the coupon rate (D) Signup and view all the answers

What is the formula for calculating the yield of a bond?

Y = (F - Pc) / t (B) Signup and view all the answers

What is the effect of changes in interest rates on the price of bonds with lower coupons?

The price of bonds with lower coupons decreases more than bonds with higher coupons (C) Signup and view all the answers

What is the yield of a bond that is priced at its face value?

The coupon rate (D) Signup and view all the answers

What is the name of the constant rate of interest that discounts the bond's future payments to its current price?

Yield to redemption (B) Signup and view all the answers

What is the method used to solve for the yield of a bond when t > 2?

Trial and error (D) Signup and view all the answers

What is the relationship between the price of a bond and its yield?

The price of a bond is inversely proportional to its yield (C) Signup and view all the answers

What is the formula for solving for x in the equation 106x2 + 6x - 98 = 0?

x = (-b + sqrt(b^2 - 4ac)) / 2a (B) Signup and view all the answers

What is the primary factor that determines the yield of a corporate bond?

Interest rate that discounts future payments to the current value (B) Signup and view all the answers

A bond sells at a premium when its coupon rate is _______ the current market interest rate

higher than (C) Signup and view all the answers

What is the formula for the present value of a share using the dividend discount model?

P0 = ∑ [dt / (1 + r)^t] from t=1 to ∞ (B) Signup and view all the answers

If a bond pays a coupon more than once a year, its _______ exceeds its nominal yield

effective yield (A) Signup and view all the answers

What is the value of P2 in the dividend discount model?

P1 / (1 + r) + d2 / (1 + r)^2 (B) Signup and view all the answers

What is the assumption made in the zero dividend growth model?

dt remains constant at any time (C) Signup and view all the answers

What is the formula for the present value of a perpetuity of d?

d / r (B) Signup and view all the answers

What is the estimated current price or value of the share in the dividend discount model?

P0 (B) Signup and view all the answers

What is the condition for the constant dividend growth model to make sense?

g < r (C) Signup and view all the answers

If the dividend growth rate is 8% and the required rate of return is 12%, what is the intrinsic value of the share if the current dividend is 25p?

166.67p (D) Signup and view all the answers

What is the formula for the intrinsic value of a share in the case of supernormal dividend growth?

P0 = d0 / (r - s) (C) Signup and view all the answers

What is the present value of a dividend stream that grows at a constant rate of 5% if the current dividend is 20p and the required rate of return is 15%?

133.33p (B) Signup and view all the answers

What is the intrinsic value of a share if the dividend growth rate is 10% and the required rate of return is 18%?

100p (A) Signup and view all the answers

What is the formula for the price of a share after 'n' years in the case of constant dividend growth?

Pn = Po (1 + g)^n (D) Signup and view all the answers

What is the present value of a dividend stream that grows at a supernormal rate of 20% for 3 years and then grows at a constant rate of 5% if the current dividend is 15p and the required rate of return is 12%?

210.53p (C) Signup and view all the answers

What is the condition for the supernormal dividend growth model to make sense?

s > r (C) Signup and view all the answers

What is the purpose of calculating the yield of a bond?

To determine the interest yield (A) Signup and view all the answers

What is the formula to calculate the present value of a bond's future cash flows?

PV = 10 / (1 + Y/2)^(n/2) (C) Signup and view all the answers

What is the effective yield of a bond with a nominal yield of 11.3374%?

11.659% (A) Signup and view all the answers

What is the market convention for calculating the yield of a bond in the UK?

As a flat rate of interest (D) Signup and view all the answers

What is the price of a 10% bond selling at a discount?

£95 (A) Signup and view all the answers

How often are coupons paid for a semi-annual coupon bond?

Every 6 months (A) Signup and view all the answers

What is the classification of government bonds with a maturity of less than 5 years?

Short-term bonds (A) Signup and view all the answers

What is the interest yield of a bond with a price of 98.90?

9.10% (A) Signup and view all the answers