FI 302 EXAM 2 UA

Trials Inc. has issued 30-year $1,000 face value, 10% annual coupon bonds, with a yield to maturity of 9.0%. The annual interest payment for the bond is

$100

If the equation E(ri)=rf+[E(rm)-rf]*i is the linear equation for the Security Market Line, what portion represents the market risk premium for a stock that does not have a beta of 1.0?

[E(rm)rf]

The measure of systematic risk is called ____

beta

Bonds are different from stocks because ___

bonds promise fixed payments for the length of their maturity

___ means that the percentage increase in the dividend is the same each year.

constant growth

The ___ is the regular interest payment of the bond.

coupon

The ___ is the interest rate printed on the bond.

coupon rate

When the ___ is less than the yield to maturity, the bond sells at a/the___ the par value.

coupon rate; discount to

The terms ___ and ___ mean the same thing.

diversifiable risk; unsystematic risk

The practice of not putting all of your eggs in one basket is a illustration of ___.

diversification

The holder of preferred stock is entitled to a constant dividend ___

every period

___ refers to how quickly information is reflected in the available prices for trading.

informational efficiency

Which of the statements below is TRUE?

investors want to maximize return and minimize return

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

long-term debt

A beta of 1.0 is the beta of the ___, while a beta of 0.0 is the measure for a ___

market; free-risk security

The ___ is the expiration date of the bond.

maturity date

___ has to do with the speed and accuracy of processing a buy or sell order at the best available price.

operational efficiency

The value of a financial asset is the ___

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

Zero-Coupon Bonds are

priced at a deep discount

The ___ is the market of first sale in which companies first sell their authorized shares to the public.

primary market

"Junk" bonds are a street name for ___ grade bonds.

speculative

Which of the following investments is considered to be default risk-free?

treasury bills

The type of risk that can be diversified away is called ___

unsystematic risk

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 misplaces stocks and routinely outperform the market.

weak-form efficient markets

The ___ is the return bondholder receives on the bond if held to maturity.

yield to maturity