Chapter 7 Exam study

The ______ determines the fixed interest payment of the bond A. Dividend B. Par C. coupon rate D. yield to maturity

C. Coupon Rate

The ________ is the expiration date of the bond. A. Future Value B. Yield to maturity C. maturity date D. Coupon

C. Maturity Date

The appropriate rate to use to discount the cash flows of a bond in order to determine the current price is the ________. A. Yield to maturity B. coupon rate C. par rate D. current yield

A. Yield to maturity

A bond is a ________ instrument by which a borrower of funds agrees to pay back the funds with interest on a specific dates in the future A. long-term equity B. long-term debt C. short-term debt D. Short-term Equity

B. Long-term debt

The _______ is the face value of the bond A. Coupon Rate B. Maturity Date C. Par Value D. coupon

B. Maturity Date

The _________ is the yield an individual would receive if the individual purchased the bond today and held the bond to the end of its life A. Current Yield B. Yield to maturity c. Prime Rate D. Coupon Rate

B. Yield to maturity

Most consumer loans payments are quarterly

False

Which of the following bond types may the issuer buy back before maturity? A. Callable Bond B. Putable Bond C. Convertible bond D. Zero-coupon bond

A. Callable Bond

What are the differences among authorized, issued, and outstanding shares?

Authorized Shares- the number of shares that a corporation is legally allowed to issue, while out standing shares have already been issued. - issued stock is the shares of a company that have been distributed

The __________ is the annual coupon payment divided by the current price of the bond, and is not always an accurate indicator. A. Current yield B. yield to maturity C. Bond discount rate D. Coupon Rate

Current Yield

What are potential repercussions in the investment banker does not perform the due diligence task?

Due diligence is the process of evaluating business from all aspects before making a purchase decision. It's often performed when buying a business but there are many other situations in which due diligence may be necessary.

Nominal interest rates equals the real rate plus inflation plus (real rate x inflation)

False

When Interest rates are stated or given for loan repayments, it is not assumed that they are annual percentage rates (APRs) unless specifically stated otherwise.

False

How is operational efficiency different from informational efficiency?

Operational efficiency - It determines the speed by virtue of which selling or buying process of shares is carried out. It reflects the accuracy of the tasks that need to be processed so that buying and selling of shares is carried out fast without any wastage of time.

What is the difference between preferred stock and common stock?

Preferred stock is a form of financing where the owner receives a preset dividend based on the par value of the preferred stock. Common Stock's dividends are set by the board and will change over time. Preferred stock must receive its dividends prior to dividends sent to common stockholders.

What are the three Key features of common stock?

Residual Claim - the common stock shareholder is entitled to all assets and cash flow of the company after the liabilities have been satisfied. - No maturity date, the stock never pays out a principal at maturity and is considered permanent financing - Votes, shares allow owners to vote on activities, charter changers, board members.

What is a bid price, and what is an ask price?

The bid price is the price offered by a willing buyer for the stock. The ask price is the price requested by a willing seller of the stock.

What is the role of the investment banker in the primary sale of common stock?

The investment banker is the partner to the company in the sale of common stock in the primary market. The investment banker serves as the distributor of information to potential buyers, the expert to the company on pricing and timing of the sale and the marketer of the sale

What is the function of a specialist in the secondary market?

To oversee stock exchange and acts as the market maker to facilitate the trading of a given stock

An annual percentage rate must be converted to the appropriate periodic rate when compounding is more frequent than once a year

True

Differences in borrowing rates can generally be explained be explained by the level of risk of the investment or loan and by the length of the investment or loan

True

The "Truth in Savings Law" requires banks to advertise their rates on investments such as CD's and savings accounts as annual percentage yields (APY)

True

The maturity premium would not be higer on a 10-year treasury bond than on a 30 day treasury bill

True

The most common shape for a yield curve is upward sloping

True

We assign a very low probability of default to the U.S. Treasury and thus assume that all Treasury bills will be paid in full at maturity and thus have a zero default premium.

True