FINAN 5000 Mid Term

Which one of the following bonds is the least sensitive to interest rate risk?

3 year, 6% coupon

Which of the following accounts are included in working capital management?

Accounts Payable, Accounts Receivable, and Inventory

Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

Agency Problem

Which institution transforms the savers' short-term capital into the users' long term capital (loans)?

Commercial Bank

Which form of business structure is most associated with agency problems?

Corporation

Which one of these is a working capital management decision?

Determining the minimum level of cash to be kept in a checking account

A zero coupon bond:

Has more interest rate risk than a comparable coupon bond.

Which of the following help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.

I. Compensation based on the value of the stock. II. Stock option plans. III. Threat of a company takeover. IV. Threat of a proxy fight.

The Fisher effect primarily emphasizes the effects of _____________________ on an investor's rate of return.

Inflation

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

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:

Limited Partner

A Treasury yield curve plots Treasury interest rates relative to which one of the following?

Maturity

Which one of the following best states the primary goal of financial management?

Maximize the current value per share

Which one of the following rates represents the change, if any, in your purchasing power as a result of owning a bond?

Real Rate

A business owned by a solitary individual who has unlimited liability for its debt is called a:

Sole Proprietorship

Bonds issued by the U.S. government:

are considered to be free of default risk

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

coupon rate decreases and the time to maturity increases

Which one of the following is an agency cost?

hiring outside accountants to audit the company's financial statements

A 6% bond trades at 104 before a credit rating upgrade. After the upgrade, it is most likely that:

its price will increase to 106 Credit rating DOES NOT affect Yield!

If a bond is downgraded by a rating agency, it is likely that:

its yield will go up and its price will go down

Which one of the following is a primary market transaction?

sale of a new share of stock to an individual investor

The pure time value of money is known as the:

term structure of interest rates

Which one of the following statements is correct?

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

Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:

was facilitated in the secondary market