FI 302 Exam 2 Concepts

Trials Inc. has issued 30-year $1000 face value, 10% annual coupon bonds, with a yield to maturity of 9.0%. The annual interest payment for the bond is.....

$100 = ($1000x.1)

______ means that the percentage increase in the dividend is the same each year.

Constant growth

If the Equation E(ri)= rf + [E(rm) - rf]xi si the linear equation for the Security Market Line, what portion represents the market risk premium for a stock that does not have a beta of 1.0?

E(rm)-rf

____ refers to how quickly information is reflected in the available prices for trading.

Informational efficiency

Which statement is TRUE?

Investors want to maximize return and minimize risk.

______ has to do with the speed and accuracy of processing a buy or sell order at the best available price.

Operational efficiency

______ is risk that cannot be diversified.

Systematic risk

which of the following investments is considered to be default risk-free?

Treasury bills

Beta is ______

a measure of systematic risk

which of the following is NOT a definition of beta?

a measure risk that can be avoided

Stocks differ from bonds because:

all of the above

Unsystematic risk ______

can be diversified away.

_______ means that the percentage increase in the dividend is the same each year.

constant growth

The ______ is the regular interest payment of the bond.

coupon

The ______ is the interest rate printed on the bond.

coupon rate

When the ______ is less than the yield to maturity, the bond sells at a/the _____ par value.

coupon rate; discount to

The terms _____ and ____ mean the same thing

diversifiable risk; systematic risk

The practice of not putting all of your eggs in one basket is an illustration of _______.

diversification

the holder of preferred stock is entitled to a constant dividend______

every period

The holder of preferred stock is entitled to a constant dividend _____

every period.

A bond is a _____ instrument by which a borrower of funds agrees to pay back the finds with interest on specific dates in the future.

long-term debt

A beta of 1.0 is the beta of the _____, while a beta of 0.0 is the measure for a _______.

market; risk-free security

The ______ is the expiration date of the bond.

maturity date

The value of a financial asset is the ______

present value of all of the future cash flows that will be received.

Zero-coupon bonds are.....

priced at a deep discount.

The _______ is the market of first sale in which companies first sell their authorized shares to the public.

primary market

The ________ is the intercept on the Security Market Line

risk-free rate

you can think of the ________ as the "used stock" market because these shares have been owned or "used" previously"

secondary market

In ______, current prices already reflect the price history and volume of the stock as well as all available public information.

semi-strong-form efficient markets

"Junk" bonds are a street name for _______ grade bonds.

speculative

Bonds are different from stocks because ________

stocks, unlike bonds, represent residual ownership

in _________, current prices reflect the price history and trading volume of teh stock. it is of no use to chart historical stock prices to predict future stock prices such that you can identify mispriced stocks and routinely outperform the market

weak-form efficient markets

The ______ is a market derived interest rate used to discount the future cash flows of the bond.

yield to maturity