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Supplementary objective test questions

CHAPTER 1 – LONG TERM FINANCE

1.1 Jax Ltd purchased 5% irredeemable bonds. The yield to maturity was calculated
as 13.45%.

Calculate the market value of the bond. Give your answer to 2 decimal
places.

1.2 Which one of the following statements is incorrect?

A Cumulative preference share dividends must be paid every year.

B Equity shares are considered more expensive than debt in periods of
strong performance.

C Venture capitalists could be used as a source of finance for new starter
companies.

D The calculation of the yield to maturity for irredeemable debt uses the ex
div market price.

1.3 Wid Ltd plans to raise finance via a 1 for 3 rights issue. The price of the new
shares would be $4.25. The current share price is $4.65.

Calculate the theoretical ex rights price. Give your answer to 2 decimal
places.

1.4 Nes Ltd has invested in 200,000 redeemable 4% bonds with a par value of
$100. They were issued at par. They are redeemable in 4 years’ time at a
premium of 10%.

Calculate the yield to maturity of these bonds to 2 decimal places.

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