finance

Calculate the compound annual return on an investment that was purchased at $20 and sold 5 years later for $40.

14.9%

If Apple's stock is trading at $120 per share, what is the time value of a call option with a strike price of $110 if the option is trading at $25?

15

With hedging, an investor________: Buys a lot of stock within the same sector Fixes the sale price of an asset Can reduce unsystematic risk Can reduce systematic risk Increases the correlation between the stocks in his portfolio

fixes the sale price of an asset

Discounted cash flow is a type of ______ analysis. Modern portfolio theory Fundamental Technical Capital markets Interest rate

fundamental

Which of the following analysts believes that a stock's price will eventually equal its underlying value?

fundamental

Who would be most likely to value a stock based on the Discounted Cash Flow valuation technique?

fundamental analyst

payback using

gross CF

Which of the following is true regarding hedges? Futures contracts grant the right but not the obligation to buy or sell an asset A European option gives the owner the right to exercise at any point prior to expiration Forward contacts are similar to options but are traded on exchanges A put option gives the owner the right to buy an underlying asset at a given price Hedges are used to minimize downside risk by giving up any upside potential

hedges are used to minimize downside risk by giving up any upside potential

Which of the following would NOT increase the intrinsic value of a Stock with all else constant? Higher working capital as a % of sales Higher Revenue Growth Rate Lower Beta Lower risk free interest rate Lower Tax Rate

higher working capital as a % of sales

What is true about bonds? Floating rate bonds have significant interest rate risk Higher default risk leads to a lower spread to treasury If a bond has a call option, it will have a lower spread than a similar bond with no call option Interest payments received on Corporate Debt is tax-free Corporate debt is considered risk free

if the bond has a call option it will have a lower spread than a similar bond w no call option

Which is definitely true regarding stock valuation? If interest rates decline and risk increases, the value of a stock will increase If expectations of future cash flows decline and risk decreases, the value of a stock will decrease If expectations of future cash flows increase and interest rates rise, the value of a stock will increase If risk increases and interest rates rise, the value of a stock will decrease If risk decreases and interest rates fall, the value of a stock will decrease

if the risk increases and the interest rates rise, the value of the stock will decrease

In an efficient capital market, stock prices react to news ______ and _________.

immediately and randomly

Which of the following types of risk is most difficult to evaluate? Reinvestment risk Interest rate risk Prepayment risk Coupon risk Default risk

interest rate

Which of the following is the risk that changes in market rates will affect the value of a bond?

interest rate risk

Under which scenario is an issuer MOST likely to call their bonds?

interest rates go down

Which of the following is NOT a way to manage risk? Diversification Hedging Insurance Investing in stocks that are highly correlated Selling off assets

investing in stocks that are highly correlated

An upward sloping yield curve means that: Investors require lower returns for longer maturity Treasuries. Investors require higher returns for longer maturity Treasuries. Investors require higher returns for shorter maturity Treasuries. Investors require the same return for both short and long-term Treasuries. The yield curve is not related to required return on Treasuries.

investors higher returns for longer maturity treasuries

According to _________________, most investors prefer to hold short-term securities, which is why longer-term securities must pay higher yields. the pure expectations hypothesis the liquidity preference theory the market segmentation hypothesis the random walk hypothesis the efficient markets theory

liquidity preference

Which of the following is true concerning the duration of a bond? a. Bonds with longer durations are always preferable to bonds with shorter durations. b. The duration of a par bond is equal to the current time to maturity. c. The longer the duration, the more sensitive a bond's value to interest rate fluctuations. d. Bonds with the same time to maturity will always have the same duration e. Duration is a measure of the price volatility of an asset given a change in the coupon rate.

longer duration, more sensitive to bonds value to interest fluctuations

The _______ the maturity of a bond and the _______ the coupon of a bond, the greater the risk.

longer, lower

Which of the following would cause a stock's price to increase? a. Company ABC losing $10 million in the quarter versus expectations of a $5 million loss b. Company ABC reporting a revenue growth rate of 10%, in line with expectations c. Company ABC reporting an operating profit margin of 15% versus expectations of 20% d. Company ABC losing $5 million in the quarter versus expectations of a $10 million loss e. Company ABC reporting an operating profit margin of 10%, in line with expectations

losing $5mil in quarter versus expectations of losing $10 mil

Which of the following is true concerning the interest rate risk of bonds? The higher the coupon of a bond, the higher the interest rate risk of that bond The shorter the maturity of a bond, the higher the interest rate risk of that bond The longer the maturity of a bond, the lower the interest rate risk of that bond The length of maturity of a bond does not affect interest rate risk The lower the coupon of a bond, the higher the interest rate risk of that bond

lower coupon, higher interest rate

With all else constant, which would result in a lower intrinsic value per share of a company's stock? Lower Market Risk Premium Lower Investment as % of Revenue Higher Revenue Growth Lower Profit Margins Lower Risk Free Rate

lower profit margins

Calculate the alpha of an investment that returned 10% if the market return is 10%, the risk free rate is 2%, and the investment's Beta is 1.1?

-0.8

If two stocks have a correlation of -1, what would you expect Stock B to return if Stock A returned 5%?

-5%

What is the value of a $1,000 30-year bond that pays coupon rate of 10% if interest rates in the market for similar bonds are at 8%?

1,226.23

Which of the following two stocks provide the most risk reduction? Stocks A&B: Correlation=0.0 Stocks A&C: Correlation=1.0 Stocks B&D: Correlation=0.5 Stocks C&D: Correlation= 0.75 Stocks D&E: Correlation= 0.25

0

John currently owns Stock X and wants to diversify his portfolio to reduce his exposure to unsystematic risk. Given the correlation of Stock X with the following stocks, which stock should he own along with Stock X? Stock A: Correlation=1.0 Stock B: Correlation=0.2 Stock C: Correlation=0.1 Stock D: Correlation= 0.3 Stock E: Correlation= 0.7

0.1

Value a 15-yr non-callable bond that pays coupons of 7% assuming market interest rates are 4%. $1,200

1,336

Value a 20 year, $1,000 bond with a coupon rate of 6% that is callable after 10 years at a 101% of par. Assume market yields are 5%.

1,084.05

If the market returns 8%, PennCo's stock returns 12%, if the market returns -8%, PennCo's stock returns -12%. What is PennCo's Beta?

1.5

Calculate the taxable equivalent bond yield of a municipal bond with an interest rate of 6% for an investor in the 40% tax bracket.

10

Given the following, calculate the intrinsic value per share of Company XYZ's stock: Corp. Value - $26 million Bonds Outstanding - $10 million ST Liabilities - $350 thousand LT Growth Rate - 6% Beta - 1.2 Shares Outstanding - 1.5 million

10.43

A bond ($1,000 face) pays an 8% coupon, semi-annually, with a maturity of 10 years. Interest rates are 8%. What is the present value of this bond?

1000

Calculate the value of a non-callable 10-year bond with a face value of $1,000 and a coupon rate of 9% compounded semi-annually if you expect 7% yield on the bond. $1,142 $1,212 $1,782 $735 $1,042

1142

A bond with a $1,000 face value pays a 7% coupon, semi-annually, with a maturity of 12 years. If interest rates are 5%, what is the present value of this bond?

1179

Given the following information, calculate the present value of the following bond that pays semi-annual coupons. Par value: $1,000. Coupon Rate: 7%. Interest Rate: 3%. Maturity: 5 years.

1184

Calculate the return to shareholders for the following stock: Beginning Price: $55, Ending Price: $60, Dividends: $2

12.7

Assume that a 16-year, 9% bond is callable after 10 years at 105% of par value and the discount rate in today's market is 6%. Using the price-to-worst method, what is the value of this bond?

1251

What is the expected return of an investment if the market return is 12%, the risk free rate is 5%, and the investment's Beta is 1.2?

13.4 %

Calculate the rate of return on an investment that you bought for $50, received a $3 dividend, and sold one year later for $55?

16%

If a firm's observed return was 10%, calculate the firm's alpha given the following information: S&P 500: 13%, T-Bills: 3%, Beta: 0.5

2%

Calculate security ABC's expected return using the capital asset pricing model. Risk Free Rate: 5%, Market Return: 15%, Beta: 1.5

20%

Studies have shown about _____ stocks in a portfolio are sufficient to reduce risk.

20-25

Calculate the firm's expected return: S&P 500: 15%, T-Bills: 4%, Beta: 1.5

20.5 %

If you buy a stock at the beginning of the year at a price of $60, the company pays two quarterly dividends to $2 and then raises their dividend to $3 for the last two quarters of the year, and you sell the stock at the end of the year for $63, what was your return?

21.7%

What is value of a perpetuity that pays $6 quarterly with a cost of capital of 10%?

240

Calculate the value of a perpetuity that has $2 million in annual cash flows with a discount rate of 8%.

25 mil

Given the following information, calculate the Fund's alpha: T-Bill Return: 2% S&P 500 Return: 10% Beta: 1.25 Fund's Return: 15%

3%

if you bought a stock for $75 and sold it for $90 after a year, you also received a dividend of $10 in that year. What was the RETURN you received over the year? 11.8% 15.0% 45.0% 10.0% 33.3%

33.3

If a company pays 100% of its profits in dividends and is expected to pay a $0.70 per quarter dividend in perpetuity, what is the value of the company's stock if the cost of capital is 8%?

35

Calculate value of a perpetuity with even annual cash flows of $25,000 with 5% discount rate.

500,000

The price volatility of the average stock is ______.

49%

If GE's stock is trading at $25 per share, what is the intrinsic value of a put option with a strike price of $30 if the option is trading at $8?

5

If the risk free rate is 2% and the yield on a bond is 7%, what is the spread to treasury assuming the bond is not callable or convertible?

5%

Calculate the standard deviation of stock PSU over the last three years. Year 1: 10%, Year 2: -3%, Year 3: 5%

6.55 %

Calculate the value of a zero coupon 10-year bond (semi-annual) with a face value of $1,000. Assume the market rate is 4.5%. $702 $377 $866 $641 $752

641

A 10-year, 8% bond pays semi-annual coupon payments. If the face value is $1,000 but the bond sells for $1,050, what is the annualized yield on the bond?

7.3

Calculate the taxable equivalent yield of a Muni Bond that yields 6% if the tax rate is 30%.

8.6

Preston is in the 35% tax bracket and he holds a municipal bond that pays a tax-exempt interest rate of 6%. What is the taxable equivalent bond yield?

9.23

Value a 10 year, $1,000 bond with a coupon rate of 8% if market yields rise to 9%

934.96

Given the following Betas for three similar investments, rank the expected return from highest to lowest. Investment A - 1.2 Investment B - 1.5 Investment C - 0.8

B,A,C

as beta decreases

CAPM decreases as well -lower beta, lower level of risk and return

The ________ helps us to predict the expected return of a risky asset.

Capital Asset Pricing Model

Which of the following represents unsystematic risk? Market returns are poor Raising the corporate income tax A company loses an important patent The economy shows poor growth There is a worldwide recession

a company loses an important patent

which of the following examples best describes efficient capital markets? a. There are many opportunities to find mispriced stocks b. it is easy to determine good vs. bad investments c. All investments are accurately priced d. Investments do not always offer its expected risk adjusted return e. An asset with a high beta will not necessarily offer a high return

all investments are accurately priced

Which of the following is best describes interest rate risk? a. Interest payments received on a floating rate bond fall as rates fall b. Interest received may need to be reinvested at lower yields if rates fall c. As rates rise, the value of a fixed rate bond falls d. As rates fall, the value of a fixed rate bond falls e. A bond that is callable can be refinanced with a lower rate bond

as rates risk, the value of a fixed rate bond falls

Who is responsible for overseeing interest rate policy in the United States? U.S. Treasury Senate House of Representatives Federal Reserve Investment Banks

fed reserve

A fund that invested based on the strategies put forth in the Fama and French study would typically invest in: a. Assets with high Beta's b. Assets with low P/E ratios International stocks c. It doesn't matter because all information is taken into consideration d. Large cap stocks

assets with low P/E ratios

Which bond rating would you expect to have the highest spread to treasury?

b

A believer in modern portfolio theory would spend the majority of their time looking at:

beta

In a WACC calculation, which of the following measures risk? Risk free rate Market return Beta CAPM Debt to equity ratio

beta

hich of the following is NOT necessary to project free cash flow to the firm? Revenue Growth Operating Profit Margin Beta Working Capital Investment Tax Rate

beta

Which of the following bonds would require the greatest yield? Bond 1: AAA rating, Bond 2: BBB Rating, Bond 3: B Rating Bond 1 Bond 2 Bond 3 There is no difference in the bonds' yields Cannot be determined

bond 3

Which of the following is true regarding bond prices? Premium bonds have the best returns. Bonds are cheaper in a falling interest rate environment. Bonds are more expensive in a rising interest rate environment. Bond prices move inversely to changes in interest rates. The movement of bond prices does not relate to interest rates at all.

bond prices inversely change with interest rates

Which of the following is TRUE regarding fixed rate premium bonds? The bond's coupon rate is lower than the yield that it offers. The bond's coupon rate is higher than the yield that it offers. The bond's coupon rate is equal to the yield that it offers. The market value of the bond is less than its par value. The market value of the bond is equal to its par value.

bonds coupon rate is higher than the yield it offers

which of the following is true of bonds? Bonds are an equity investment. Bonds repay the principal to the investor in semi-annual payments only. Bonds don't have default risk. Bonds are only issued by governments and municipalities. Bonds pay principal at maturity.

bonds pay principal at maturity

Which of the following is definitely true when interest rates are lower than a bond's coupon rate? Bond will sell at a premium Bond will see at a discount Bond will sell at par Coupon rate will be decreased to current interest rate Principal to be repaid will decrease

bonds will sell at a premium

Which of the following positions has the right to sell a stock at the strike price?

buyer of a put option

You have the right to buy 100 shares of Apple Stock at $90 / share. What is this hedge instrument called?

call option

Prepayment risk on bonds is usually associated with?

call options

Which is true about callable bonds when compared to similar non-callable bonds? Callable bonds generally have higher credit ratings than similar non-callable bonds. Callable bonds generally have lower yields. Callable bonds usually have higher yields Callable bonds and non-callable bonds generally have the same yield. Callable bonds are subject to less prepayment risk.

callable bonds usually have higher yields

Which of the following is NOT a type of risk associated with investing in fixed-income securities? Prepayment risk Collateral risk Reinvestment risk Default risk Interest rate risk

collateral

Which of the following is an example of a systematic risk? Company XYZ being investigated by the SEC Company A losing a major contract to a competitor Demand for a Company's product declining A Company having to pay higher taxes because of a new corporate tax code Company ABC's CEO unexpectedly resigning

company having pay higher taxes bc new corporate tax code

With all else being constant, which of the following is true? Callable bonds will have lower yields than non-callable bonds As interest rates rise, the value of bonds increase A convertible bond will have a lower yield than a non-convertible bond Longer term bonds will have lower yields than shorter term bonds Lower coupon rate bonds will be less risky than higher coupon bonds

convertible bond has a lower yield

Which of the following is NOT one of the types of risk associated with fixed-rate debt obligations? Reinvestment risk Default risk Prepayment risk Coupon risk Interest risk

coupon risk

Which of the below is/are considered the risk(s) that the bond issuer will not pay interest or principal?

default

If a corporate bond has a coupon rate of 3% and the market interest rate is 5%, the bond is classified as a_______:

discount

If the yield on a bond is above its coupon rate, it is called a:

discount

Which of the following stock valuation approaches would a fundamental analyst use? Comparing stock price movements on charts Discounted Cash Flow analysis Comparing changes in the volume of a stock Only focusing on an investor's desired level of risk Diversifying assets to an acceptable level of risk

discounted cash flow analysis

Which of the following types of analysis would a Fundamental Analyst use? Historical trading volumes Historical stock price movements Trends in trading patterns The crowd's psychology and emotions Discounted Cash Flow Analysis

discounted cash flow analysis

Which of the following is true about the dividend policy of a company? The dividend policy of a company should not affect the future value of a stock The dividend policy of a company must change every year The dividend policy should not affect the current value of a stock A conservative dividend policy always gives investors dividends and higher stock price Companies investing heavily in new projects typically pay a higher dividend

dividend policy should not affect the current value of a stock

In the long run, stock returns are influenced by growth in _________.

earnings

Which of the following is NOT a step in discounted cash flow valuation? Forecast expected cash flows Estimate the discount rates Calculate the enterprise value of a company Calculate the per share price of a stock Estimate the current ratio

estimate the current ratio

Which is not required to value a stock using the discounted cash flow methodology? Estimating the weighted average cost of capital Forecasting expected cash flows Evaluate recent changes and patterns in stock price Calculate enterprise value Calculate intrinsic stock value

evaluate recent changes in patterns in stock price

A fund's positive net investment performance versus its benchmark index is a good indicator of positive future performance.

false

The higher the correlation between assets in a portfolio, the greater the risk reduction.

false

The value of a stock is equal to the present value of its earnings.

false

True or False: A call option is in the money if Strike Price is greater than the current market price.

false

True or False: A company that pays 100% of its profits in dividends will likely be valued higher in the future than a company that reinvests 100% of its profits because investors want the certainty of dividends.

false

True or False: A fundamental analyst believes that the price of a stock is always equal to its value.

false

True or False: A rational investor will require a higher return on treasury bonds than stocks.

false

True or False: A technical analyst will spend most of their time evaluating cash flows and relative valuation metrics.

false

True or False: Derivative markets are less liquid and less efficient that spot markets.

false

True or False: Fixed rate bonds typically have a lower yield than floating rate bonds because the the investor in the bond has no interest rate risk.

false

True or False: If a company's earnings are in line with expectations, the stock price will increase significantly.

false

True or False: If the coupon rate of a bond is lower than the market yields for similar securities, it's price will be higher than the par value.

false

True or False: Systemic risk can be diversified away with a proper diversification strategy.

false

True or False: The higher the duration of a bond, the lower the risk of the bond

false

True or False: To best diversify non-systematic risk, portfolio managers typically buy assets that have high correlations.

false

True or False: With all fundamentals the same, a tech company will have a higher valuation than a non-tech company.

false

True or False: Yields are based on a spread over the comparable maturity Municipal Bond Index.

false

true or false: there is an indirect relationship between risk and return.

false

A callable bond: a. would usually have a lower yield than a similar non-callable bond. b. is attractive to the buyer because the immediate receipt of principal and premium usually produces a higher return. c. is more apt to be called when interest rates are high because the interest savings will be greater. d. generally has a higher credit rating than a similar non-callable bond. e. is attractive to the issuer because it allows the issuer to prepay outstanding debt if new debt can be issued at lower rates.

is attractive to the issuer because it allows the issuer to prepay outstanding debt if new debt can be issued at lower rates

Under which scenario is an issuer LEAST likely to call their bonds? Bond prices go up The issuer's credit rating improves The issuer's credit rating deteriorates Interest rates remain the same The company's cash reserve increases

issuers credit rating deteriorates

Which of the following is true of the yield curve? a. It is a chart of implied forward rates over time b. The pure expectations hypothesis is that the shape is a function of supply and demand c. The liquidity preference hypothesis assumes investors are risk neutral d. The yields included are adjusted with expectations of future inflation e. It can be upward or downward sloping

it can be upward or downward sloping

Which of the following is true about technical analysis? It generally involves holding stock for a long period of time It involves charting historic stock price movements and trading volumes It is possible to beat the market with technical analysis if strong form efficiency holds true Its underlying assumption is that a company's stock has a true or intrinsic value to which its price is anchored. It involves evaluating overall economic, industry, and company data to estimate a stock's value.

it involves charting historic stock price movements and trading volumes

Which of the following dictates that the futures price of an asset and the spot price of the asset must be the same on the day future contracts expire? Arbitrage law The law of one price The efficient frontier The Security market line The random walk hypothesis

law of one price

Who determines the stock price of a company? Management Board of Directors Investment Banks The Market The Government

market

What is the calculation for the market risk premium?

market return minus risk free rate

Which of the following is not an input to the valuation of a derivative? The spot price of the underlying asset The risk free rate The market risk premium Time until expiration Volatility of the underlying asset

market risk premium

What is the primary advantage of investing in Municipal Bonds?

muni bonds exempt from fed taxes

What is the primary advantage of investing in a municipal bond? Municipal bonds have no interest rate risk Municipal bonds have very high yields Municipal bonds are exempt from federal taxes Municipal bonds usually have very short maturities Municipal bonds have very high coupon rates

municipal bonds are exempt from taxes

Which of the following best characterizes an insurance instrument? Forwards Futures Interest rate swap Currency swap Options

options

The amount that is originally borrowed or the amount that is repaid when the bond matures is known as ___________. Indenture Par value Annual amount Interest Semi-annual amount

par value

What is true about the excess return period? It is the period in which a firm is able to earn returns on new investments that are greater than its cost of capital due to competitive advantage of the firm over others A higher cost of capital will result in a company having a lower excess return period Strong economies of scale typically mean a lower excess return period The excess return period is the timeframe historically that a company was able to outperform the market The intrinsic value of a company will be lower if it has a higher excess return period

period in which a firm is able to earn returns on new investments that are greater than its cost of capital due to competitive advantage of the firm over others

An asset that has a stream of even cash flows that continue to infinity is known as a _________. Perpetuity Dividend stock Bond Annuity Growth company

perpetuity

Which of the following types of bonds has a coupon rate on the bond that is higher than the market yield? Fixed-rate par bond with call option Fixed-rate par bond Fixed-rate discount bond Zero coupon bond Fixed-rate premium bond

premium

According to _________________, the yield curve represents a series of expected future short-term interest rates.

pure expectations

According to _________________, the yield curve represents a series of expected future short-term interest rates

pure expectations hypothesis

Which of the following is NOT a risk associated with bonds? Default Risk Reinvestment Risk Prepayment Risk Interest Rate Risk Ratings Upgrade Risk

ratings upgrade risk

In the CAPM equation, what does a beta measure?

risk that you are paid to take

Which of the following forms of efficient markets is characterized by stock prices reflecting all publically available information?

semi strong

Which of the following asset classes would you expect to have the highest expected return and standard deviation?

small company stocks

The difference between the yield on a non-callable US Treasury bond and the yield on a non-callable corporate bond with identical maturities is known as ______. Coupon premium Interest premium Market premium Spread to treasuries Interest spread

spread to treasuries

Which of the following is a common measure of risk of a stock? Average return Standard deviation of returns Market returns Rate of return of risk free rate Diversification

standard deviation of returns

Which would stock would be the best buying opportunity? Stock A: intrinsic value - $40, price - $45 Stock B: intrinsic value - $60, price - $40 Stock C: intrinsic value - $100, price - $90 Stock D: intrinsic value - $40, price - $20 Stock E: intrinsic value - $40, price - $60

stock D

According to the Random Walk Hypothesis, in efficient markets, ________. Stock prices are not random. Stock prices can be predicted solely on the basis of past movements. There is a predictable trend in stock prices. Stock prices are random and cannot be predicted solely on the basis of past movements. Stock prices are not random and they can be predicted by past movements.`

stock prices are random and cannot be predicted solely on the basis of past movements

An increase in _________ risk in the market place was a major factor is the latest financial crisis. Systematic

systematic

Which of the following type of risk cannot be diversified away?

systematic

_________ analysis tends to be more a short-term trading approach to buying and selling stocks.

techincal

_________ believe that stock prices are influenced more by investor psychology and emotions of the crowd than by changes in the fundamentals of the company.

techincal

Which of the following analysts do not agree with weak form market efficiency? a. Fundamental analysts b. Investment bankers c. Mutual fund managers d. Technical analysts e. Hedge fund analysts

technical analysts

If a company purchases a futures contract to buy 100 barrels of oil at $80 / barrel, which of the following is true? The company will not exercise unless the market price is greater than $80 / barrel The company will not exercise unless the market price is less than $80 / barrel The strike price on the contract depends on oil market volatility The contract was negotiated between two parties and cannot be traded on an exchange The company is obligated to pay $80 / barrel regardless of the spot price of oil

the company is obligated to pay 80/ barrel regardless of the spot price of oil

Which of the following is true about bonds? The bond rating being changed from BBB+ to A would result in a higher required yield The primary advantage to municipal bonds is lower reinvestment risk Callable bonds require higher yields than non-callable bonds because of higher default risk Treasury securities are priced once per month while other bond prices fluctuate daily ` The issuer retains interest rate risk on floating rate bonds

the issuer retains interest rate risk on floating rate bonds

Which of the following is NOT true concerning the interest rate risk while investing in fixed-coupon debt obligations? The lower the coupon on a bond, the higher the volatility of bond prices, the greater the interest rate risk Interest rate risk is the most difficult risk to assess, among the four types of risks. The longer the maturity of a bond, the lower the volatility of bond prices, the smaller the risk. Interest rate risk is the risk that a change in market interest rates will affect the value of the bond. Fluctuations in market levels of interest rates would affect the price a bond.

the longer the maturity of a bond, the lower the volatility of bond prices, the smaller the risk

If a market is efficient, the price of the investment will equal the value of an investment. a. The price would gradually increase b. The investment would move below the CAPM line c. Beta would decrease to below 1.0 d. Nothing, because technical analysts had already uncovered the pattern e. The price would increase immediately

the price would increase immediately

Which of the following is true about the spread to treasuries of a bond? a. The higher the credit rating, the higher a bond's spread to treasuries b. The spread to treasuries is the difference in yield between a bond and a U.S. treasury of the same maturity c. The lower the credit rating, the lower a bond's spread to treasuries d. A bond's spread to treasuries is not dependent on credit ratings e. A bond with a low spread to treasuries is more risky than a bond with a high spread to treasuries

the spread to treasuries is the difference in yield between a bond and a US treasury w the same maturity

A bond that is selling at a discount requires which of the following to be TRUE: The yield must be less than the discount rate. The yield must be greater than the coupon rate. The yield must be equal to the coupon rate. The yield must be less than the coupon rate. The yield must be zero.

the yield must be greater than the coupon rate

What is true about interest rates and stock prices? a. There is a direct relationship between interest rates and stock prices b. There is an inverse relationship between interest rates and stock prices c. Stock prices are only affected by interest rates over the long term d. Stock prices are not affected by interest rates e. Interest rates only affect stock prices in the short-term

there is an inverse relationship between interest rates and stock prices

Which of the following types of risk can be diversified away?

unsystematic

A fundamental analyst will typically use all of the following except: P/E ratios Discounted Cash Flow Techniques Price Targets Relative Valuation Metrics Trading Volume Data

trading volume

A callable bond will have a higher interest rate than its otherwise identical, non-callable bond.

tru

True or False: In the event of default, subordinated debt takes priority over senior debt with regards to payment.

tru

A company's residual value generally represents the majority of its stock value.

true

Achieving the highest return for certain level of risk is known as investing on the efficient frontier.

true

If a market is efficient, the price of the investment will equal the value of an investment.

true

If interest rates are 7%, a bond with a 6% coupon and maturity of six years will be riskier than a bond with a coupon rate of 6% and a maturity of 3 years.

true

The dividend policy of a company does not affect its current value of its stock. True False

true

The market for U.S. Treasury securities is the largest and most liquid of any financial markets.

true

The value of a company is equal to the present value of its expected future cash flows, discounted for timing and risk.

true

True or False: A company that operates in a high-tech industry would typically have a longer excess return period than a company in a commoditized industry.

true

True or False: Using net returns, a diversified mutual fund with a Beta of zero will have an expected negative alpha that is equal to its expense ratio.

true

Using a higher risk-free rate in your WACC calculation will yield a lower value in a discounted cash flow analysis.

true

What is true about efficient capital markets? a. A mutual fund will typically exceed market returns because of fees b. Technical analysis is based on the theory of efficient capital markets c. Unsystematic risk can be diversified away d. It may take several days for market prices to reflect new information e. There is a clear trend in short term historical price data

unsystematic risk can be diversified away

Which of the following types of investors would most likely favor a municipal bond?

wealthy individuals

Which of the following statements regarding the yield curve is true? Bonds with longer maturities usually have a lower yield. The yield curve usually is upward sloping which means that investors require higher returns for longer maturity Treasury securities. The yield curve displays the relationship between the yield to maturity of corporate bonds and default risk. The yield curve displays the relationship between the risk and return of a stock. The yield curve is the relationship between the risks and the maturities on municipal bonds.

yield curve usually is upward sloping which means that investors require high returns for longer maturity treasury securities

which of the following is true about bonds Interest is typically paid annually Yields on Treasury Bonds are the basis for all other yields The longer the maturity on a bond, the lower the yield A bond with a yield below its coupon rate is called a discount bond Bond investors are typically risk takers seeking large returns.

yields on treasury bonds are basis for all other yields