Finance Final
Which of the following statements about bonds is true? A. If market interest rates are below a bond's coupon interest rate, then the bond will sell above its par value. B. As the maturity date of a bond approaches, the market value of a bond will become more volatile. C. Bond prices move in the same direction as market interest rates. D. Longminusterm bonds have less interest rate risk than do shortminusterm bonds.
A. If market interest rates are below a bond's coupon interest rate, then the bond will sell above its par value.
Which of the following statements about bonds is true? A. If market interest rates are above a bond's coupon interest rate, then the bond will sell below its par value. B. As the maturity date of a bond approaches, the market value of a bond will become more volatile. C. Longminusterm bonds have less interest rate risk than do shortminusterm bonds. D. Bond prices move in the same direction as market interest rates.
A.If market interest rates are above a bond's coupon interest rate, then the bond will sell below its par value.
The P/E ratio is calculated by dividing A. the current stock price by earnings per share. B. the current stock price by stockholders' equity. C. total assets by net income. D. the current stock price by operating cash flow per share.
A.the current stock price by earnings per share.
Quirk Drugs sold an issue of 30-year, $1,000 par value bonds to the public that carry a 10.85% coupon rate, payable semiannually. It is now 10 years later, and the current market rate of interest is 9.00%. If interest rates remain at 9.00% until Quirk's bonds mature, what will happen to the value of the bonds over time? A. The bonds will sell at a discount and fall in value until maturity. B. The bonds will sell at a premium and decline in value until maturity. C. The bonds will sell at a premium and rise in value until maturity. D. The bonds will sell at a discount and rise in value until maturity.
B. The bonds will sell at a premium and decline in value until maturity
If current market interest rates fall, what will happen to the value of outstanding bonds? A. It will remain unchanged. B. It will rise. C. It will fall. D. There is no connection between current market interest rates and the value of outstanding bonds.
B.It will rise.
Which of the following statements about bonds is true? A. As the maturity date of a bond approaches, the market value of a bond will become more volatile. B. The market value of a bond moves in the opposite direction of market interest rates. C. If market interest rates are higher than a bond's coupon interest rate, then the bond will sell above its par value. D. Longminusterm bonds are less risky than shortminusterm bonds. E. None of the above.
B.The market value of a bond moves in the opposite direction of market interest rates.
ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is 12%. (Round your answer to the nearest $1.) A. $7,621 B. $6,577 C. $4,568 D. $1,056
B.$6,577
Interest rates have increased by 50 basis points (0.5%). Which of the following bonds will decline most in price? All of the bonds have AA ratings. A. A bond that matures in 5 years B. A bond that matures in 10 days C. A bond that matures in 10 years. D. All of the bonds will decline in price by approximately the same amount.
C. A bond that matures in 10 years.
Which of the following statements about bonds is true? A. Longminusterm bonds are less risky than shortminusterm bonds. B. If market interest rates are higher than a bond's coupon interest rate, then the bond will sell above its par value. C. If market interest rates change, longminusterm bonds will fluctuate more in value than shortminusterm bonds. D. Bond prices move in the same direction as market interest rates. E. None of the above
C. If market interest rates change, long-term bonds will fluctuate more in value than short-term bonds.
If current market interest rates rise, what will happen to the value of outstanding bonds? A. It will rise. B. It will remain unchanged. C. It will fall. D. There is no connection between current market interest rates and the value of outstanding bonds.
C. It will fall.
Evidence exists that directors A. are quick to replace or reduce the compensation of underperforming CEOs. B. aggressively represent the interests of shareholders. C. often represent the interests of the managers who nominated them for directorships. D. are vigilant in requiring that the firm's assets be used efficiently.
C.often represent the interests of the managers who nominated them for directorships.
If the market price of a bond increases, then A. the yield to maturity increases. B. the coupon rate increases. C. the yield to maturity decreases. D. none of the above.
C.the yield to maturity decreases.
ABC, Inc. just paid a dividend of $2. ABC expects dividends to grow at 10%. The return on stocks like ABC, Inc. is typically around 12%. What is the most you would pay for a share of ABC stock? A. $100 B. $130 C. $120 D. $110
D. $110
Which of the following statements is true? A. The legal document that describes all of the terms and conditions of a bond issue is called a debenture agreement. B. A zero coupon is a bond that is secured by a lien on real property. C. A bond that has a rating of AA is considered to be a junk bond. D. A bond will sell at a premium if the prevailing required rate of return is less than the bond's coupon rate.
D. A bond will sell at a premium if the prevailing required rate of return is less than the bond's coupon rate.
Evidence that agency costs exists A. because they are shown in footnotes to the financial statements. B. because management often pursues risky but profitable opportunities rather than safer, less profitable opportunities. C. because underperforming CEO's are frequently voted out by shareholders. D. because stock prices increase when an underperforming CEO is unexpectedly replaced.
D. because stock prices increase when an underperforming CEO is unexpectedly replaced.
A bond investor seeking capital gains should purchase A. bonds with distant maturity dates when interest rates are expected to rise. B. bonds with short maturity dates when interest rates are expected to rise. C. bonds with short maturity dates when interest rates are expected to decline. D. bonds with distant maturity dates when interest rates are expected to decline.
D. bonds with distant maturity dates when interest rates are expected to decline.
The nominal interest rate A. does not include inflation. B. ignores the Fisher effect. C. is the rate at which banks lend money to other banks. D. includes inflation and the real rate of interest.
D. includes inflation and the real rate of interest.
CEOs naming friends to the board of directors and paying them more than the norm is an example of the A. proxy fights. B. majority voting feature. C. preemptive right. D. agency problem.
D.agency problem
Common stockholders expect greater returns than bondholders because A. they have no legal right to receive dividends. B. they bear greater risk. C. in the event of liquidation, they are only entitled to receive any cash that is left after all creditors are paid. D. all of the above.
D.all of the above.
Which of the following factors will influence a firm's P/E ratio? A. General market conditions B. Firm investment opportunities C. The investors' required rate of return D. All of the above
D.all of the above.
A bond's "spread" refers to the difference between it's Moody's rating and its Standard & Poors rating. True False
False
Bonds cannot be worth less than their book value. True False
False
Shorter-term bonds have greater interest rate risk than do longer- term bonds. True False
False
A AAA rated bond's yield to maturity will be very close to it's expected yield. True False
True
A basis point is equal to one hundredth of a percentage point. True False
True
As bond approaches maturity, discounts and premiums become less and less significant. True False
True
Debentures are unsecured long-term debt. True False
True
The longer the time to maturity, the more sensitive a bond's price to changes in market interest rates. True False
True
The sensitivity of a bond's value to changing interest rates depends on both the bond's time to maturity and its pattern of cash flows. True False
True