Finance Test #2

The actual interest rate on a loan that is compounded monthly but expressed as an annual rate is referred to as the _____ rate. Multiple Choice stated periodic monthly effective annual discounted annual consolidated monthly

effective annual

An ordinary annuity is best defined as: Multiple Choice equal payments paid at the beginning of regular intervals for a limited time period. equal payments paid at the end of regular intervals over a stated time period. increasing payments paid forever. increasing payments paid for a definitive period of time. equal payments that occur at set intervals for an unlimited period of time.

equal payments paid at the end of regular intervals over a stated time period.

Dilan owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the: Multiple Choice discount. yield. dirty price. coupon. face value.

face value.

A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a: Multiple Choice dealer. specialist. supplemental liquidity provider. floor broker. designated market maker.

floor broker.

Which one of the following represents the capital gains yield as used in the dividend growth model? Multiple Choice g D1/P0 D1 P0 g/P0

g

When using the two-stage dividend growth model,: Multiple Choice g1 cannot be negative. g1 can be greater than R. g1 must be greater than g2. R must be less than g1 but greater than g2. Pt = Dt/R.

g1 can be greater than R.

Which one of following is the rate at which a stock's price is expected to appreciate? Multiple Choice Capital gains yield Dividend yield Coupon rate Total return Current yield

Capital gains yield

A $1,000 par value corporate bond that pays $45 annually in interest was issued last year. Which one of these would apply to this bond today if the current price of the bond is $989.42? Multiple Choice The coupon rate has increased to 7 percent. The bond is currently selling at a premium. The bond is selling at par value. The current yield exceeds the yield to maturity. The current yield exceeds the coupon rate.

The current yield exceeds the coupon rate

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called? Multiple Choice Straight voting Alternative voting Cumulative voting Indenture voting Voting by proxy

Voting by proxy

A bond that has only one payment, which occurs at maturity, defines which one of these types of bonds? Multiple Choice Floating-rate Junk Callable Debenture Zero coupon

Zero coupon

The interest rate that is most commonly quoted by a lender is referred to as the: Multiple Choice annual percentage rate. compound rate. effective annual rate. simple rate. common rate.

annual percentage rate.

An agent who arranges a transaction between a buyer and a seller of equity securities is called a: Multiple Choice dealer. principal. capitalist. floor trader. broker.

broker

A call-protected bond is a bond that: Multiple Choice can never be called. is guaranteed to be called. is callable at any time. is currently being called. cannot be called during a given period of time.

cannot be called during a given period of time.

Which one of the following is the price at which a dealer will sell a bond? Multiple Choice Bid price Call price Bid-ask spread Asked price Par value

Asked price

Chavez & Hwang just issued 15-year, 6.4 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms? Multiple Choice Note Debenture Callable Discounted Zero coupon

Debenture

What are the distributions of either cash or stock to shareholders by a corporation called? Multiple Choice Capital payments Retained earnings Diluted profits Dividends Coupon payments

Dividends

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity. Multiple Choice a premium; equal to a discount; less than par; less than a premium; less than a discount; higher than

a discount; less than

Ana just received the semiannual payment of $35 on a bond she owns. This is called the ______ payment. Multiple Choice coupon call premium discount face value yield

coupon

An agent who maintains an inventory from which he or she buys and sells securities is called a: Multiple Choice principal. dealer. broker. trader. capitalist.

dealer

A highly illiquid bond that pays no interest but might entitle its holder to rental income from an asset is most apt to be a: Multiple Choice sukuk. convertible bond. structured note. put bond. contingent callable bond.

sukuk

Which one of these statements related to preferred stock is correct? Multiple Choice Preferred shareholders normally receive one vote per share of stock owned. Preferred stock normally has a stated liquidating value of $1,000 per share. Preferred shareholders determine the outcome of any election that involves a proxy fight. Cumulative preferred shares are more valuable than comparable noncumulative shares. Preferred shareholders are considered to be the residual owners of a corporation.

Cumulative preferred shares are more valuable than comparable noncumulative shares.

An amortized loan: Multiple Choice requires that all payments be equal in amount and include both principal and interest. requires that all interest be repaid on a monthly basis while the principal is repaid at the end of the loan term. repays both the principal and the interest in one lump sum at the end of the loan term. requires the principal amount to be repaid in even increments over the life of the loan. may have equal or increasing amounts applied to the principal from each loan payment.

may have equal or increasing amounts applied to the principal from each loan payment.

The owner of a trading license for the NYSE is called a(n): Multiple Choice member. agent. broker. dealer. specialist.

member.

The bond market requires a return of 6.2 percent on the 15-year bonds issued by Mingwei Manufacturing. The 6.2 percent is referred to as the: Multiple Choice call rate. face rate. coupon rate. yield to maturity. current yield.

yield to maturity.

Protective covenants: Multiple Choice only apply to privately issued bonds. are primarily designed to protect bondholders. are a feature found only in government-issued bond indentures. apply to short-term debt issues but not to long-term debt issues. only apply to bonds that have a deferred call provision.

are primarily designed to protect bondholders.

A bond that is payable to whomever has physical possession of the bond is said to be in: Multiple Choice new-issue condition. registered form. collateral status. debenture status. bearer form.

bearer form.

Today, Hannah paid a total of $1,176, including accrued interest, to purchase a 20-year bond that has 6 years left until maturity. This price is referred to as the: Multiple Choice dirty price. call price. quoted price. clean price. spread price.

dirty price.

A "fallen angel" is a bond that has moved from: Multiple Choice senior status to junior status for liquidation purposes. investment grade to speculative grade. being publicly traded to being privately traded. being a long-term obligation to being a short-term obligation. being a premium bond to being a discount bond.

investment grade to speculative grade.

A bond's principal is repaid on the ________ date. Multiple Choice yield coupon dirty maturity clean

maturity

A perpetuity is defined as: Multiple Choice payments of equal amounts that are paid irregularly but indefinitely. unending equal payments paid at either equal or unequal time intervals. varying amounts that are paid at even intervals forever. unending equal payments paid at equal time intervals. a limited number of equal payments paid in even time increments.

unending equal payments paid at equal time intervals.