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Assume that the price of a bond is $901.50. The coupon rate of the bond is 7% and the face value of the bond is $1,000. The bond matures in 10 years and the principal is repaid at the end of the tenth year. Assume semi-annual interest payments. The effective annual yield of the bond is approximately: A) 7% B) 7.12% C) 8.48% D) 8.66% E) None of the above Bryen, Inc. is financed solely with equity. The firm is considering utilizing debt in its capital structure to finance a new project. If the firm issues debt, the credit rating will be AAA. The firm should increase its financial leverage (the use of increased debt) because A) Interest payments are tax deductible B) With taking on a little debt, the probability of default should be extremely low, so the expected cost of bankruptcy is very low. C) If management currently owns 50% of the stock, then by issuing debt, management can maintain control of the firm. D) All of the above. The stock of Martin Industries has a beta of 1.43. The risk-free rate of return is 3.6% and the market risk premium is 9%. What is the expected rate of return on Martin Industries stock? A) 16.47% B) 18.03% C) 14.17% D) 11.32% E) None of the above You are considering two mutually exclusive projects with the following cash flows. Will your choice between the two projects differ if the required rate of return is 8% rather than 11%? If so, what should you do? A) yes; Select B at 8% and A at 11%. B) yes; Select A at 8% and select neither at 1% C) yes; Select A at 8% and B at 11%. D) none of the above

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