1. The duration of a ten-year, 6 percent coupon bond when the interest rate is 8 percent is 7.6 years. What happens to the price of the bond if the interest rate falls to 6 percent?
The price increases by 14.07%.
The price decreases by 14.07%.
The price increases by 2.00%.
The price decreases by 2.00%.
2. Which one of the following statement is true?
- A company’s sustainable growth rate is the minimum growth rate excluding any external equity financing while maintaining a constant debt-equity ratio.
- The sustainable growth rate assumes the debt-equity ratio is 1.0.
- The dividend payout ratio is defined as additions to retained earnings divided by net income.
- A company’s sustainable growth rate is the maximum growth rate achievable with unlimited debt financing.
- None of the above