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American University of Leadership Where Leaders are Born ! Course Code: Fin 350 Student’s Name: Pr AFAF AIT OMAR Part 1 : Essai (70 points) Unlike traditional mutual funds, CEF can issue debt and / or preferred shares to take advantage of their net assets. This leverage may increase distributions (income) but also increase the volatility of the net asset value. Please write a complete essay on the subject below. Part 2 : Multiple Choice Questions (30 points) 1 – If a firm experiences a financial l oss for the year, the loss is shared equally by the debt holders and equity holders: a- True b- False 2- If one uses the perpetuity model to value stock, one assumes that P0 = P1 = P3, etc., implying that the annual return from owning the stock is zero. a- True b- False 3- It is never possible to value a stock that has supernormal dividend growth. a. True b. False . 4- A bond that offers a coupon rate higher than the market is said to be sold at discount a- True b- False 5- A bond that offers a coupon rate lower than the market is said to be sold at discount a- True b- False 6- A bond that offers a coupon rate equal to the market is said to be sold at par a- True. b- False 7- A perpetuity cash flow means money that has a specific period when it begins and where it ends. a- True b- False. 8- What is the approximate yield to maturity (YTM) of a bond that is currently selling for $1,150 in the market place? The annual bond has 20 years remaining until maturity and . a 14% coupon. (Assume annual interest payments and discounting .) a. 14% b. 12% c. 7% d. 6% 9- What is the intrinsic value of a $1,000 face value, 8% coupon paying perpetual bond if an investor's required rate of return is 6%? (Assume annual interest payments and discounting.) a- $1,333.33 b- $1,000.00 c- $750.00 d- Impossible to value this bond since no final maturity date is provided. 10 - Which of the following best describes intrinsic value? a- The price a security "ought to have" based on all factors bearing on valuation . b- The amount a firm could be sold for as a continuing operating business. c- The amount of money that could be realized if an asset or a group of assets is sold separately from its operating organization. d- The market price at which an asset trades.