FI Exam 2

_____ has to do with the speed and accuracy of processing a buy or sell order at the best available price. a) informational efficiency b) operational efficiency c) mechanical efficiency d) market efficiency

B) operational efficiency

_____ means that the percentage increase in the dividend is the same each year a) A constant cash flow b) inconsistent growth c) no growth d) constant growth

D) constant growth

_______ refers to how quickly information is reflected in the available prices for trading a) market efficiency b) mechanical efficiency c) operational efficiency d) informational efficiency

D) informational efficiency

"Junk" bonds are a street name for ______ grade bonds. a) investment b) extremely speculative c) speculative and investment d) speculative

D) speculative

Which of the following is NOT a definition of beta? a) a measure of risk that can be avoided b) a statistical measure of an individuals asset's or portfolio's co-movement with the return of the market c) a measure of systematic risk d) a measure of nondiversifiable risk

a) a measure of risk that can be avoided

Bonds are different from stocks because ______. a) bonds promise fixed payments for the length of their maturity b) bonds give payments only after others owners are paid c) bonds do not have maturity dates d) bonds promise growth in earnings

a) bonds promise fixed payments for the length of their maturity

The ______ is the interest rate printed on the bond. a) coupon rate b) semiannual coupon rate c) yield to maturity d) compound rate

a) coupon rate

The terms ____ and _____ mean the same thing a) diversifiable risk; unsystematic risk b) total risk; unique risk c) nondiversifiable risk; unsystematic risk d) diversifiable risk; systematic risk

a) diversifiable risk; unsystematic risk

The practice of not putting all your eggs in one basket is an illustration of...... a) diversification b) portion control c) expected return d) variance

a) diversification

Zero-coupon bonds are _______. a) priced at a deep discount b) priced using semiannual instead of annual pricing formula c) sold at a premium d) tax exempt

a) priced at a deep discount

The ______ is the intercept on the Security Market Line. a) risk-free rate b) market rate of return c) prime rate d) beta

a) risk free rate

Stocks are different from bonds because __________. a) stocks, unlike bonds, represent residual ownership b) stocks, unlike bonds, are major sources of funds c) stocks, unlike bonds, give owners legal claims to payments d) bonds, unlike stocks, represent voting ownership

a) stocks, unlike bonds, represent residual ownership

The appropriate rate to use to discount the cash flows of a bond in order to determine the current price is the ______. a) yield to maturity b) par rate c) current yield d) coupon rate

a) yield to maturity

The holder of preferred stock is entitled to a constant dividend _______. a) only when earnings are positive b) every period c) only when the stock price increases d) only when earnings are positive and only when the stock price increases

b) every period

in ____, current prices already reflect the price history and volume of the stock as well as all available public information a) semi-strong form efficient markets b) operationally efficient markets c) strong-form efficient markets d) weak-form efficient markets

b) operationally efficient markets

The value of a financial asset is the _________. a) present value of just the capital gains but not the dividends b) present value of all the future cash flows that will be received c) sum of all previous cash flows received d) future value of just the capital gains but not the dividends

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

You can think of the _____ as the "used stock" market because these shares have been owned or "used" previously. a) initial public offering market b) secondary market c) primary market d) NYSE market

b) secondary market

The type of risk that can be diversified away is called _________. a) system-wide risk b) nondiversifiable risk c)diversifable risk; unsystematic risk d) diversifiable risk; systematic risk

c) diversifiable risk; unsystematic risk

the ____ is the market of first sale in which companies first sell their authorized shares to the public a) Nasdaq market b) both primary and secondary market c) primary market d) secondary market

c) primary market

Trials Inc has issues 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 _____. a) $90 b) $45 c) $50 d) $100

d) $100

Which of the following investments is considered to be default risk-free? a) currency options b) common stock c) AAA rated corporate bonds d) Treasury bills

d) Treasury bills

Beta is ______ a) a measure of nondiversifiable risk b) a measure of systematic risk c) the appropriate measure of risk for a well-diversified portfolio d) all of the above

d) all of the above

Stocks differ from bonds because a) the ending par value of a bond is known at purchase while the ending value of a share of stock is unknown at purchase b) firms pay bond cash flows prior to paying taxes while stock cash flows are after tax c) bond cash flows are known while stock cash flows are uncertain d) all of the above

d) all of the above

Unsystematic risk a) is equal to 2 times the systematic risk b) is system-wide risk c) is also known as nondiversifiable risk d) can be diversified away

d) can be diversified away

The _______ is the regular interest payment of the bond. a) dividend b) par c) coupon rate d) coupon

d) coupon

When the _______ is less than the yield to maturity, the bond sells at a/the _____ the par value. a) time to maturity; same price as b) time to maturity; discount to c) coupon rate; premium over d) coupon rate; discount to

d) coupon rate; discount to

Which of the statements below is TRUE? a) Investors want to minimize return and minimize risk. b) Investors want to minimize return and maximize risk c) Investors want to maximize return and maximize risk d) Investors want to maximize return and minimize risk

d) investors want to maximize return and minimize risk

A bond is a _____ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates in the future. a) long term equity b) derivative c) short term equity d) long term debt

d) long term debt

A beta of 1.0 is the beta of the _______, while a beta of 0.0 is the measure for a _______. a) risk-free security; market b) market; single security held on its own c) risk-free security; single security held on its own d) market; risk-free security

d) market; risk-free security

The ______ is the expiration date of the bond. a) future value b) coupon c) yield to maturity d) maturity date

d) maturity date

in ______, current prices reflect the price history and trading volume of the stock. It is no use to chart historical stock prices to predict future stock prices such that you can identify mispriced stocks and routinely outperform the market. a) semi-strong-form efficient markets b) strong-form efficient markets c) operational efficient markets d) weak-form efficient markets

d) weak form efficient markets