FIN 300 Study Set

12) Which of the statements below is FALSE? A) The payment of cash dividends to shareholders is a deductible expense for the company. B) Unlike coupon payments on bonds, which are treated as an interest expense of the firm, common stock dividends are considered a return of capital to shareholders and not an expense of the firm. C) For the shareholder, receipt of dividends is a taxable event. D) A typical practice of many companies is to distribute part of the earnings to shareholders through cash dividends.

A) The payment of cash dividends to shareholders is a deductible expense for the company.

6) When the ________ is less than the yield to maturity, the bond sells at a/the ________ the par value. A) coupon rate; premium over B) coupon rate; discount to C) time to maturity; discount to D) time to maturity; same price as

B) coupon rate; discount to

3) Bonds are sometimes called ________ securities because they pay set amounts on specific future dates. A) variable-income B) fixed-income C) bully D) real

B) fixed-income

2) 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) long-term debt C) short-term debt D) short-term equity

B) long-term debt

16) Preferred stock ________. A) reflects residual ownership of a company B) represents a preferential claim on dividends C) will be "paid" before the bondholders D) always has a legal and specific claim to a fixed amount (listed as a liability)

B) represents a preferential claim on dividends

8) Which of the following statements about the relationship between yield to maturity and bond prices is FALSE? A) When the yield to maturity and coupon rate are the same, the bond is called a par value bond. B) A bond selling at a premium means that the coupon rate is greater than the yield to maturity. C) When interest rates go up, bond prices go up. D) A bond selling at a discount means that the coupon rate is less than the yield to maturity.

C) When interest rates go up, bond prices go up.

18) Tom purchased Hampton Industries Inc. stock for $14.65 and sold it 6 months later for $17.38 after receiving a $0.25 dividend. What Tom's holding period return (HPR), Annual Percentage Rate (APR), and Effective Annual Rate (EAR)? A) 20.34%, 40.68%, 9.70% B) 18.63%, 37.27%, 40.74% C) 17.15%, 34.29%, 37.23% D) 20.34%, 40.68%, 44.82%

D) 20.34%, 40.68%, 44.82%

1) A bond may be issued by ________. A) companies B) state governments C) the federal government D) All of the above

D) All of the above

14) Which of the statements below is FALSE? A) The profits for common stock owners come before payment to employees, suppliers, government, and creditors. B) Shareholders elect the board of directors, which ultimately selects the management team that runs the day-to-day operations of the company. C) Stock is a major financing source for public companies. D) Common stock's ownership claim on the assets and cash flow of a company is often referred to as a residual claim.

A) The profits for common stock owners come before payment to employees, suppliers, government, and creditors.

10) Which of the following are issued with the shortest time to maturity? A) Treasury bills B) Treasury notes C) Treasury bonds D) Treasury stocks

A) Treasury bills

5) 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. A) current yield B) yield to maturity C) prime rate D) coupon rate

B) yield to maturity

9) As the rating of a bond increases (for example, from A, to AA, to AAA), it generally means that A) the credit rating increases, the default risk increases, and the required rate of return decreases. B) the credit rating increases, the default risk decreases, and the required rate of return increases. C) the credit rating increases, the default risk decreases, and the required rate of return decreases. D) the credit rating decreases, the default risk decreases, and the required rate of return decreases.

C) the credit rating increases, the default risk decreases, and the required rate of return decreases.

13) There are two typical ways to alter the one vote-one share standard. One way is ________. A) to have companies buy back nonvoting common stock B) to not have companies pay dividends C) to have companies issue classes of stock whereby one or more classes have super voting rights D) to not have companies issue bonds

C) to have companies issue classes of stock whereby one or more classes have super voting rights

15) Which of the statements below is FALSE? A) For common stock, there is no maturity date and the promised cash flow is not stated on the asset, but is determined at a later date by the board of directors. B) An equity claim is a claim to all the assets and cash flows of a company once debt claimants have been paid. C) Like a bond, common stock entitles the owner to some of the cash flow of a company. D) Bond ownership gives the right to participate in the management of the company.

D) Bond ownership gives the right to participate in the management of the company.

7) MicroMedia Inc. $1,000 par value bonds are selling for $832. Which of the following statements is TRUE? A) The bonds must have more than six years to maturity. B) The bonds are selling at a premium to the par value. C) The coupon rate is greater than the yield to maturity. D) None of the above is true.

D) None of the above is true.

11) Bonds are different from stocks because ________. A) bonds promise fixed payments for the length of their maturity B) bonds give payments only after other 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

4) The ________ is the annual coupon payment divided by the current price of the bond, and is not always an accurate indicator. A) current yield B) yield to maturity C) bond discount rate D) coupon rate

A) current yield

17) In ________, current prices reflect the price history and trading volume of the 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. A) weak-form efficient markets B) strong-form efficient markets C) semi-strong-form efficient markets D) operational efficient markets

A) weak-form efficient markets