FIN 320 Exam Two

Which one of the following must equal zero if a firm pays a constant annual dividend?

Capital gains yield

Which one of the following types of securities has no priority in a bankruptcy proceeding?

Common Stock

Which one of the following generally pays a fixed dividend, receives the first priority in dividend payment, and maintains the right to a dividend payment, even if that payment is deferred?

Cumulative Preferred

The internal rate of return is the:

Discount rate that results in a zero net present value for the project

John owns a stock with a market price of $35 per share. This stock pays the same annual dividend of $0.60 per share. If the price of the stock suddenly increases to $38 a share, you would expect the:

Dividend yield to decrease (II only)

The relationship between nominal returns, real returns, and inflation is referred to as the:

Fisher Effect

Greensboro, NC issues 10 year semi-annual bonds in an effort to install new streetlamps throughout the city and has been approved to tax residents to cover this expense. Which form of bond was issued?

General Obligation Bond

If shareholders are granted a preemptive right they will:

Have priority in the purchase of any newly issued shares

Which one of the following will increase the current value of a stock?

Increase in the capital gains yield

Over the period of 1925-2014, list the following investments in order of least to most volatile

Inflation, Treasury Bills, Long-Term Government Bonds, Large Company Stocks, Small Company Stocks

On which one of the following dates is the principal amount of a bond repaid?

Maturity Date

Any person who owns a license to trade on the NYSE is called a:

Member

Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. Which one of the following terms best describes the relationship between Project A and Project B?

Mutually Exclusive

The dividend yield is defined as:

Next year's expected cash dividend divided by the current market price per share

Kate could not attend the last shareholders' meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which one of the following terms is used to describe the method by which Kate's shares were voted?

Proxy

Noro-Labs just announced that it has received a patent for a product that will eliminate all flu viruses. This news is totally unexpected and viewed as a major medical advancement. Which one of the following reactions to this announcement indicates the market for Noro-Labs stock is efficient?

The price of Noro Labs stock increases rapidly to a higher price and then remains at that price

Which one of the following terms applies to a bond that initially sells at a deep discount and pays no interest payments?

Zero Coupon

The net present value of an investment represents the difference between the investment's:

cost and its market value

A note is:

unsecured debt that is generally payable within less than 15 years

A normal distribution is defined as:

A symmetrical bell-shaped frequency curve, composed of 3 standard deviations to the right and left of average