fin ex2

investment grade bonds

A, BBB

speculative grade bonds/junk bonds

BB & lower

t/f a takeover is an attempt by a person or a group to gain control of a firm by getting its stockholders to grant that person or group the authority to vote its shares to replace the current management

FALSE

t/f preferred stock is as hybrid--a sort of cross between common stock and a bond-- in the sense that it pays dividends that normally increase annually like a stock but its payments are contractually guaranteed like interest on a bond

FALSE

t/f the corporate valuation model can be used only when a company doesn't pay dividends

FALSE

t/f a proxy is a document giving one party the authority to act for another party, including the power to vote shares of common stock. proxies can be important tools relating to control of the firms

TRUE

t/f classified stock differentiates various classes of common stock, & using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control

TRUE

t/f founders' shares are a type of classified stock where the shares are owner by the firm's founders, and they generally have more votes per share than the other classes of common stock

TRUE

t/f in equilibrium, a stock's price should equal its "true" or intrinsic value

TRUE

t/f intrinsic value is a long-run concept

TRUE

t/f managers should about actions that reduce intrinsic value

TRUE

t/f some class or classes of common stock are entitled to more voters per share than other classes

TRUE

t/f when a new issue of stock is brought to market, it is the marginal investor who determines the price at which the stock will trade

TRUE

t/f a bond's interest rate determines whether a bond will trade at par, below par, or above par

false

t/f before it matures, the price of any bond is always less than its face value

false

t/f callable bonds generally offer a slightly lower YTM

false

t/f the only cash payments the investor will receive from a zero coupon bond are the interest payments that are paid up until the maturity date

false

t/f treasury bonds have original maturities from 1 to 10 years, which treasury notes have original maturities of more than 10 years

false

t/f treasury bills are US government bonds with a maturity of up to one year

treu

t/f a bond will trade at a discount if its coupon rate is less than its YTM

true

t/f a bond's coupon rate determines whether a bond will trade at par, below par, or above par

true

t/f bonds with a high risk of default generally offer high yields

true

t/f if market interest rates rise to 5%, the value of the bond drops, and the bond will trade below par because the bond is paying a lower interest rate to its bondholders compared to the higher interest rate of 5% of other bonds in the market

true

t/f premium bonds are more likely to be called than discount bonds

true

t/f the amount of each coupon payment is determined by the coupon rate of the bond

true

t/f the bond certificate indicates the amounts and dates of all payments to be made

true

t/f the bond certificate type specifies that the coupons will be paid periodically until the maturity date of the bond

true

t/f the face value of a bond is repaid at maturity

true

t/f the par value is the amount of money a bond issuer promises to prepay bondholders at maturity. bondholders essentially loan money to the bond issuer

true

t/f yield to call is the price that will be paid if the issuer of a callable bond opts to pay it off early

true

t/f zero coupon bonds are also called pure discount bonds

true