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An asset characterized by cash flows that increase at a constant rate forever is called a: Growing perpetuity Growing annuity Common annuity Perpetuity due Preferred stock

growing annuity

The written, legally binding agreement between the corporate borrower and the lender detailing the terms of a bond issue is called the: Indenture Covenant Terms of trade From 5140 Call provision

indenture

The rate of return required by investors in the market for owning a bond is called the: Coupon Face value Maturity Yield to maturity Coupon rate

yield to maturity

Biogenetics, Inc. plans to retain and reinvest all of its earnings for the next 30 years. Beginning in year 31, the firm will begin to pay a $30 per share dividend. The dividend will not subsequently change. Given a required return of 18%, what should the stock sell for today? $1.16 $2.09 $8.31 $82.90 $152.04

1.16

Cornerstone Industries has a $1,000 par value bond outstanding with an 8% coupon rate and a market price of $874.68. If the bond matures in 6 years and interest is paid semiannually, what is the yield to maturity? 5.5% 6.5% 8.5% 10.9% 12.9%

10.9

Yost Enterprises issues bonds with a $1,000 face value that make coupon payments of $30 every 3 months. What is the coupon rate? 0.30% 3.00% 9.00% 12.00% 30.00%

12

The voting procedure whereby shareholders may cast all of their votes for one member of the board of a company is called: Democratic voting Cumulative voting Straight voting Deferred voting Proxy voting

cumulative voting

The annual coupon payment of a bond dividend by its market price is called the: Coupon rate Current yield Yield to maturity Bid-ask spread Capital gains yield

current yield

McGonigal's Meats, Inc. currently pays no dividends. The firm plans to begin paying dividends in 3 years. The first dividend will be $1.50 and dividends will grow at 6% per year thereafter. Given a required return of 14%, what would you pay for the stock today? $13.42 $14.42 $16.37 $17.61 $21.37

14.42

Yost Enterprises wants to issue 20-year, $1,000-face value zero-coupon bonds. If each bond will have a yield to maturity of 7%, what is the minimum number of bonds Yost must sell if it wishes to raise $5 million from the sale? (ignore issuance costs.) $17,290 $19,349 $20,164 $23,880 $26,159

19,349

When you were born, your dear old Aunt promised to deposit $500 into a savings account bearing a 5% compounded annual rate on each birthday, beginning with your first. You have just turned 21 and want the money. However, it turns out that dear old Aunt make no deposits on your fifth and eleventh birthday. How much is in the account right now? $10,500.00 $15,953.74 $16,768.19 $17,859.63 $21,000.00

$16,768.19

You just won the lottery. You and your heirs will receive $40,000 per year forever, with the first payment received immediately. What is the present value at a 9% discount rate, compounded annually? $182,500 $375,222 $400,000 $444,444 $484,444

$484,444

Use the following information to answer the next 2 questions: Rob and Laura wish to buy a new home. The price is $387,500 and they plan to put 20% down. New Rochelle Savings and Loan will lend them the remainder at a 9% fixed APR, compounded monthly, for 30 years, with monthly payments to begin in one month. How much will their monthly payments be? $2,494.33 $2,825.99 $3,512.56 $3,645.45 $3,760.45 What will the outstanding balance of the loan be after ten years (i.e right after their 120th payment), assuming they make the first 120 payments exactly on time? $99,610 $135,467 $277,232 $239,144 $170,509

2,494.33 277,232

Keven's Keys, Inc. just paid a $2 annual dividend. Investors believe that dividends will grow at a rate of 20% next year, at a rate of 12% annually for the two years after that, and at a rate of 6% annually thereafter. Assume the required rate of return is 10%. What is the current market price of the stock? $54.90 $60.80 $66.60 $69.30 $75.20

66.60

Llano's stock is currently selling for $40.00. The expected dividend one year from now is $2 and the required return is 13%. What is the firm's dividend growth rate assuming the constant dividend growth model is appropriate? 8% 9% 10% 11% 12%

8

Which bond would most likely possess the least degree of interest rate risk? 8% coupon rate; 10 years to maturity 10% coupon rate; 10 years to maturity 12% coupon rate; 10 year to maturity 8% coupon rate; 20 years to maturity 12% coupon rate; 20 years to maturity

8% coupon rate; 20 years to maturity

King Noodles' bonds have a 9% coupon rate and a $1,000 par value. Interest is paid quarterly and the bonds have a maturity of 10 years. If the appropriate yield to maturity is 10% on similar bonds, what is the price of King Noodles' bonds? $937.24 $938.55 $971.27 $989.63 $991.27

937.24

A bond with a face value of $1,000 has annual coupon payments of $100 and was issued 10 years ago. The bond currently sells for $1,000 and has 8 years remaining in maturity. This bond's _____ must be 10%. Yield to maturity Current yield Coupon rate A only A and B only C only A and C only A, B, and C

A and C only

A bond indenture may include which of the following? a)Bond yield to maturity b)Sinking fund provisions c)Protective covenants d)Security or collateral provisions A and B only A, B, and C only A, B, and D only B, C, and D only A, B, C, and D

B, C, and D only

Which of the following is a true statement regarding publicity-traded equity securities? Common stock valuation is typically simpler than the valuation of preferred stock. The market price of a stock is greater than the present value of all future dividends. Future stock dividends are a legally-binding liability of the corporation. A share of preferred stock represents a liability of a corporation. Cumulative voting encourages those with smaller amounts of stock to participate in corporate matters, like electing directors to the board.

Cumulative voting encourages those with smaller amounts of stock to participate in corporate matters, like electing directors to the board.

Which of the following is most true The dividend growth model only holds if, at some point in time, the dividend growth rate exceeds the stock's required return. Holding everything else constant, an increase in the dividend growth rate will increase a stock's market value. Holding everything else constant, an increase in the required return on a stock will increase its market value.

Holding everything else constant, an increase in the dividend growth rate will increase a stock's market value.

Which of the following is false regarding the difference between debt and common stock? Equity is ownership in a firm, but debt is not Stockholders have voting power, while creditors do not Periodic payments made to either class of security are tax deductibles for the issuer Interest payments are legally binding, while dividend payments generally are not Debt payments are made before shareholders are entitled to any cash flow

Periodic payments made to either class of security are tax deductibles for the issuer

You have $800 that you would like to invest. You have 2 choices: Savings account A, which earns 8% compounded annually, or Savings account B, which earns 7.90% APR compounded semiannually. Which savings account should you choose and why? Savings account A, because it has a higher effective annual rate Savings account A, because it has the higher quoted rate (APR) Savings account B, because it has a higher effective annual rate Savings account B, because the future value in one year is lower Savings account B, because it has a higher quoted rate (APR)

Savings account B, because it has a higher effective annual rate

You are evaluating two annuities. They are identical in every way, except that one is an ordinary annuity and one is an annuity due. Which of the following is false? The ordinary annuity must have a lower present value than the annuity due The ordinary annuity must have a lower future value than the annuity due The annuity due must have the same present value as the ordinary annuity The two annuities will differ in present value by the factor (1 +r) The annuity due and the ordinary annuity will make the same number of total payments over time

The annuity due must have the same present value as the ordinary annuity

Which of the following cannot be calculated? The present value of a perpetuity The interest rate on a perpetuity given the present value and payment amount. The present value of an annuity due The future value of an annuity date The future value of a perpetuity

The future value of a perpetuity

Which of the following statements about dividends is true? Common stock dividends are often paid when income is insufficient to allow preferred stock dividends to be paid Dividend are the only source of return that investors earn on common stock investments The payment of dividends is at the discretion of the board of directors The payment of dividends by the corporation is a tax-deductible business expense A corporation can be sued for not paying undeclared common stock dividends

The payment of dividends is at the discretion of the board of directors

You win the lottery and are given the option of receiving $250,000 now or an annuity of $25,000 at the end of each year for 30 years. Which of the following is correct? (ignore taxes) You cannot choose between the two without first calculating future values You will always choose the lump sum ($250,000) regardless of interest rates You will choose the annuity payment if interest rates are 7% You will always choose the annuity Comparing the future value of the 2 alternatives will lead to a different decision than you will reach from a comparison of the present values

You will choose the annuity payment if interest rates are 7%

Which of the following statements regarding dividend yields is true? They measure how much the stock's price will increase in a year They incorporate the par value of the stock into the calculation They are analogous (i.e., conceptually similar) to the current yields for bonds They are always greater than the stock's capital gains yield They measure the total annual return an investor can expect to earn by owning the stock

they are analogous (i.e., conceptually similar) to the current yields for bonds

A bond that makes no coupon payments, and which is thus initially priced at a discount, is called a ______ bond. Treasury Municipal Floating rate Junk Zero coupon

zero coupon