MBA 702 Module 3

A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market?

over-the-counter

Municipal bonds:

pay interest that is federally tax-free

A deferred call provision:

prohibits the bond issuer from redeeming callable bonds prior to a specified date.

What is the model called that determines the market value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?

Constant-growth model

Allison just received the semiannual payment of $35 on a bond she owns. Which term refers to this payment?

Coupon

A floor broker on the NYSE does which one of the following?

Executes orders on behalf of customers

Which one of the following relationships is stated correctly?

Decreasing the time to maturity increases the price of a discount bond, all else constant

Which one of the following rights is never directly granted to all shareholders of a publicly held corporation?

Determining the amount of the dividend to be paid per share

A decrease in which of the following will increase the current value of a stock according to the dividend growth model?

Discount rate

Bert owns a bond that will pay him $45 each year in interest plus $1,000 as principal payment at maturity. What is the $1,000 called?

Face value

Which one of the following statements is correct?

The real rate must be less than the nominial rate given a positive rate of inflation

Which one of these equations applies to a bond that currently has a market price that exceeds par value?

Yield to maturity < Coupon rate

Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:

a decrease in all stocks values

An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

broker

A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called the:

call premium

Which one of the following is the rate at which a stock's price is expected to appreciate?

capital gains yield

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

common

Which one of the following statements related to corporate dividends is correct?

corporate shareholders may receive tax break on a portion of their dividend income

The price sensitivity of a bond increases in response to a change in the market rate of interest as the:

coupon rate decreasies and the time to maturity increases

An agent who maintains an inventory from which he or she buys and sells securities is called a:

dealer

A sinking fund is managed by a trustee for which one of the following purposes?

early bond redemption

Which one of the following represents that capital gains yield as used in the dividend growth model?

g

A zero coupon bond:

has more interest rate risk than a comparable coupon bond

Road Hazards has 12-year bonds outstanding. The interest payments on these bonds are sent directly to each of the individual bondholders. These direct payments are a clear indication that the bonds can accurately be defined as being issued:

in registered form

Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond?

interest rate risk

Supernormal growth is a growth rate that:

is unsustainable over the long term.

A bond's principal is repaid on the ____________ date

maturity

The dividend growth model:

requires the growth rate to be less than the required return.

The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the:

spread

A highly illiquid bond that pays no interest but might entitle its holder to rental income from an asset is most apt to be a:

sukuk

The yields on a corporate bond differ from those on a comparable Treasury security primarily because of:

taxes and default risk