FINC 300 - Exam 2

increase in demand for bonds means decrease in

yield

The current yield is defined as the annual interest on a bond divided by the:

market price

Olivares, Incorporated, bonds mature in 17 years and have a coupon rate of 5.4 percent. If the market rate of interest increases, then the:

market price of the bond will decrease.

perpetuity will always be ____ than annuity

more

Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:

must still declare each dividend before it becomes an actual company liability.

examples of debt securities

notes, debentures, bonds

The stream of customer orders coming in to the NYSE trading floor is called the:

order flow.

annuity due =

ordinary annuity + (1+r)

National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar per share long into the future. Given this, one share of the firm's stock is:

priced the same as a $1 perpetuity.

is bond market more private or transparent than stock market?

private

A deferred call provision:

prohibits the bond issuer from redeeming callable bonds prior to a specified date.

With an interest-only loan the principal is:

repaid in one lump sum at the end of the loan period.

The dividend growth model:

requires the growth rate to be less than the required return.

what are government bonds exempt from?

state income taxes

YTM

the rate required in the market on a bond

term structure of interest rates

the relationship between nominal interest rates on default-free, pure discount securities and time to maturity; that is, the pure time value of money relationship between short and long term interest rates

interest rate risk

the risk that arises for bond owners from fluctuating interest rates

what is an indenture?

the written agreement between the corporation and the lender detailing the terms of the debt issue

what is the prupsoe of NYSE

to attract and process order flow (flow of customers orders to buy and sell stock)

why is NYSE considered hybrid

trading takes place both electronically and face to face

bond/debt securities

when corporation or government wishes to borrow money from the public on a long-term basis

The secondary market is best defined as the market:

where outstanding shares of stock are resold.

what are the 2 types of license holders for nyse

1. Designated market makers 2. floor brokers 3. supplementary liquidity providers

NYSE designated market makers:

act as dealers.

what is a coupon

the stated interest payment made on a bond

what are the 3 basic types of loans?

1. pure discount 2. interest only 3. amortized

stated value is usually $---- per share

100

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

Common

Which one of the following best describes Nasdaq?

Computer network of securities dealers

A corporation issued bonds three years ago. Which one of the following is most apt to be included in the bond's indenture?

List of collateral used as bond security

Last year, Lagunes Outdoor issued $1 million in unsecured, noncallable debt. This debt pays an annual interest payment of $55 and matures six years from now. The face value is $1,000 and the market price is $1,020. Which one of these terms correctly describes a feature of this debt?

Note

Which one of the following statements is correct? Stocks can only be assigned one dividend growth rate. Preferred stocks generally have variable growth rates. Dividend growth rates must be either zero or positive. All stocks can be valued using the dividend discount models. Stocks can have negative growth rates.

Stocks can have negative growth rates.

Buxbaum Corporation is preparing a bond offering with a coupon rate of 6 percent, paid semiannually, and a face value of $1,000. The bonds will mature in 10 years and will be sold at par. Given this, which one of the following statements is correct?

The bonds will sell at a premium if the market rate is 5.5 percent.

straight voting

a procedure in which a shareholder may cast all votes for each member of the board of directors

cumulative voting

a procedure in which a shareholder may cast all votes for one member of the board of directors

call provision

allows the company to repurchase, or "call," part or all of the bond issue at stated prices over a specific period

A note is generally defined as:

an unsecured bond with an initial maturity of 10 years or less.

perpetuity

annuity in which cash flows continue forever

Which one of the following statements related to annuities and perpetuities is correct? An ordinary annuity is worth more than an annuity due given equal annual cash flows for 10 years at 7 percent interest compounded annually. A perpetuity comprised of $100 monthly payments is worth more than an annuity of $100 monthly payments provided the discount rates are equal. Most loans are a form of a perpetuity. The present value of a perpetuity cannot be computed but the future value can. Perpetuities are finite but annuities are not.

b

Which one of the following statements related to loan interest rates is correct? Multiple Choice The annual percentage rate considers the compounding of interest. When comparing loans you should compare the effective annual rates. Lenders are most apt to quote the effective annual rate. Regardless of the compounding period, the effective annual rate will always be higher than the annual percentage rate. The more frequent the compounding period, the lower the effective annual rate given a fixed annual percentage rate.

b

floating rare bonds

coupon payments are adjustable

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:

face value

what are municipal notes and bonds exempt from?

federal income taxes

A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a:

floor broker.

proxy

grant of authority by s/h to someone else to vote on their share

The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will:

grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely.

As a bond's time to maturity increases, the bond's sensitivity to interest rate risk:

increases at a decreasing rate.

A loan that calls for periodic interest payments and a lump sum principal payment is referred to as a(n) ____ loan.

interest only

A "fallen angel" is a bond that has moved from:

investment grade to speculative grade.

what is a bond?

issuance of debt

should zero coupon bonds be offered at a price greater or less than stated value

less