FI 302 Test 2

stocks differ from bonds because

-bond cash flows are known while stock cash flows are uncertain -firms pay bond cash flows prior to paying taxes while stock cash flows are after tax -the ending par value of a bond is known at purchase while the ending value of a share of stock is unknown at purchase answer: all of the above

which of the statements below is TRUE? -investors want to minimize return and minimize risk -investors want to maximize return and maximize risk -investors want to maximize return and minimize risk -investors want to minimize return and maximize risk

-investors want to maximize return and minimize risk

beta is -a measure of nondiversifiable risk -the appropriate measure of risk for a well-diversified portfolio -a measure of systematic risk -all of the above

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 a/the ______ the par value.

coupon rate; premium over

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

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

informational efficiency

a bond is a ______ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates int he 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

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

operational efficiency

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

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

the type of risk that can be diversified away is called

unsystematic risk

the ______ is the yield an individual would receive if the individual purchased the bond today and held the bond to the end of its life.

yield to maturity

which of the following investments is considered to be default risk-free? -common stock -treasury bills -currency options -AAA rated corporate bonds

treasury bills