Exam 2
If you hold 50 shares of a particular corporation's common stock and there are 5 directors to be elected, how many votes will you be allowed to cast under cumulative voting?
250
If there are nine directors that need to be elected, how many shares do you need to own in order to guarantee a seat on the board under straight voting?
50 percent of the stock + 1 share
Crossover bonds can also be called Blank______ bonds.
5B
Which of the following spreadsheet functions will calculate the $614.46 present value of an ordinary annuity of $100 per year for 10 years at 10 percent per year? Multiple choice question. = PV(0.10,10,-100,0,0) = PV(10,-100,0.1,0,0) = PV(100,0.1,0,10,0) = FV(0.1,10,100,0,0)
= PV(0.10,10,-100,0,0)
Which of the following spreadsheet functions will calculate the $614.46 present value of an ordinary annuity of $100 per year for 10 years at 10 percent per year? Multiple choice question. = PV(100,0.1,0,10,0) = PV(0.10,10,-100,0,0) = PV(10,-100,0.1,0,0) = FV(0.1,10,100,0,0)
= PV(0.10,10,-100,0,0)
What are municipal bonds?
Bonds that have been issued by state or local governments
What are crossover bonds?
Bonds that have both an investment grade and a junk bond rating
What are "fallen angel" bonds?
Bonds that have dropped from investment grade to junk bond status
Which of the following processes can be used to calculate the future value of multiple cash flows? Multiple select question. Find the future value of a single lump-sum amount. Calculate the future value of each cash flow first and then sum them. Discount all of the cash flows back to Year 0. Compound the accumulated balance forward one year at a time.
Calculate the future value of each cash flow first and then sum them. Compound the accumulated balance forward one year at a time.
As an investor in the bond market, why should you be concerned about changes in interest rates?
Changes in interest rates cause changes in bond prices.
What is a bond's current yield?
Current yield = Annual coupon payment/Price
R = Blank______.
D1/P0 + g
P1 = (______ + P2)/(1 + R)
D2 (little 2)
What is a discount bond?
Discount bonds are bonds that sell for less than the face value.
Which of the following represents the valuation of stock using a zero growth model?
Dividend/Discount rate = D/R
Which of the following are reasons that make valuing a share of stock more difficult than valuing a bond?
Dividends are unknown and uncertain. The required rate of return is unobservable Stock has no set maturity.
Which one of the following is true about dividend growth patterns?
Dividends may grow at a constant rate.
Which of the following is not a difference between debt and equity?
Equity is publicly traded, while debt is not.
True or false: Common stock has a set maturity.
FALSE: common stock has no maturity
True or false: A PE ratio that is based on estimated future earnings is called a regressive PE ratio.
False
True or false: All classes of stock issued by a firm must have equal voting rights.
False
True or false: For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed.
False
What is a real rate of return?
It is a percentage change in buying power. It is a rate of return that has been adjusted for inflation.
What is the nominal rate of return on an investment?
It is the actual percentage change in the dollar value of an investment unadjusted for inflation.
What is the bid price?
It is the price an investor will receive if he or she sells a bond to a dealer. It is the price at which a dealer is willing to buy securities.
What beneficial purpose does staggering serve?
It provides institutional memory.
What does a Treasury yield curve show?
It shows the yield for different maturities of Treasury notes and bonds.
Why is the bond market less transparent than the stock market?
Many bond transactions are negotiated privately.
Nasdaq has which of these features?
Multiple market maker system. Computer network of securities dealers.
The present value of an annuity due is equal to the present value of a(n) Blank______ annuity multiplied by (1 + r).
ordinary
Which of the following variables is not required to calculate the value of a bond? Multiple choice question. market yield to maturity coupon rate original issue price of bond remaining life of bond
original issue price of bond
Equity represents a(n) interest of a firm.
ownership
The first cash flow at the end of Week 1 is $100, the second cash flow at the end of Month 2 is $100, and the third cash flow at the end of Year 3 is $100. This cash flow pattern is a(n) Blank______ type of cash flow.
uneven
A debenture is a(n) Blank______ bond, for which no specific pledge of property is made.
unsecured
When long-term rates are higher than short-term rates, which of the following shapes will the term structure of interest rates usually have?
upward sloping
Most of the time, a floating-rate bond's coupon adjusts
with a lag to some base rate
If the growth rate (g) is zero, the capital gains yield is
zero
The cash flows of an annuity due are the same as those of an ordinary annuity except that there is an extra cash flow at Time
zero
To find the present value of an annuity of $100 per year for 10 years at 10 percent per year using the tables, find a present value factor of 6.1446 and multiply it by Blank______.
$100
ABC Co. issued 1 million 6 percent annual coupon bonds that mature in 10 years. The face value is $1,000 per bond. What are the expected cash flows from one of these bonds?
$60 in interest at the end of each year for 10 years and a $1,000 repayment of principal at the end of 10 years
Which of the following is the general formula for the EAR when m is the number of times interest is compounded in a year? Multiple choice question. (1 + m)m−1 (1 + m/quoted rate)r + 1 (m)^(1 + m)quoted rate−1 (1 + quoted rate/m)m − 1
(1 + quoted rate/m)m − 1
The formula for the present value of an annuity due is:
(1 + r) × (PV of an ordinary annuity).
To find the present value of an annuity of $100 per year for 10 years at 10 percent per year using the tables, find a present value factor of 6.1446 and multiply it by
100
Which of the following spreadsheet functions will result in the correct answer for the below annuity problem: You plan to deposit $100 per year for the next 10 years in an account paying 8 percent. How much will you have in this annuity? Multiple choice question. = FV(.08,10,100,0) = FV(8,10,100,0) = FV(.08,10,-100,0)
= FV(.08,10,-100,0)
What is a premium bond?
A bond that sells for more than face value
The general formula for Blank______ is (1 + quoted rate/m)m − 1.
EAR
When calculating annuity present values using a financial calculator, the amount is left blank
FV or future value
When interest rates in the market rise, we can expect the price of bonds to
decrease
One step in calculating an EAR is to the quoted rate by the number of times that the interest is compounded.
divide
Assume interest is compounded monthly. The Blank______ annual rate will express this rate as though it were compounded annually.
effective
In almost all multiple cash flow calculations, it is implicitly assumed that the cash flows occur at the Blank______ of each period.
end
True or false: If the interest rate is greater than zero, the value of an annuity due is always less than an ordinary annuity.
false
True or false: The annual percentage rate (APR) is calculated as the interest rate charged per period on a loan divided by the number of periods per year.
false
True or false: The annuity due calculation assumes cash flows occur evenly throughout the period.
false
True or false: The annuity present value factor equals one minus the discount rate all divided by the present value factor.
false
When interest rates in the market fall, bond values will increase because the present value of the bond's remaining cash flows Blank
increases
When finding the present or future value of an annuity using a spreadsheet, the Blank______ should be entered as a decimal
interest rate
When finding the present or future value of an annuity using a financial calculator, the Blank______ should be entered as a percentage.
interest value
What will happen to a bond's time to maturity as the years go by?
it will decline
Which of the following are real-world examples of annuities? Multiple select question. leases mortgages common stock dividends pensions
leases mortgages pensions
The bonds of a firm in financial distress may have a market value that is than the face value at maturity.
less
The bonds of a firm in financial distress may have a market value that is than the face value at maturity. (Enter only one word per blank.) Need help? Review these concept resources.
less
If a $1,000 par value bond is trading at a discount, it means that the market value of the bond is Blank______ $1,000.
less than
An ordinary annuity consists of a(n) Blank______ stream of cash flows for a fixed period of time.
level
Which one of the following is the most important source of risk from owning bonds?
market interest rate fluctuations
The entire principal of an interest-only loan is the:
original loan amount.
What four variables are required to calculate the value of a bond?
par value yield to maturity time remaining to maturity coupon rate
The for an annuity can be calculated using the annuity present value, the present value factor, and the discount rate.
payment
The for an annuity can be calculated using the annuity present value, the present value factor, and the discount rate.
payment or pmt
C/r is the formula for the present value of a(n)
perpetuity
True or false: When calculating the present value of an annuity using the financial calculator, you enter the cash flows of the annuity in the PMT key.
true
Which of the following are true about a bond's face value? Multiple select question. It is also known as the par value. It is the principal amount repaid at maturity. A bond's face value is the same for all corporations. It is the market value of the bond at the time of maturity.
It is also known as the par value. It is the principal amount repaid at maturity.
What is the definition of a bond's time to maturity?
It is the number of years until the face value is paid off.
You are solving a present value equation using a financial calculator and are given the number of years for compounding. This should be entered as the Blank______ value on the financial calculator.
N
Which of the following are ways to amortize a loan?
Pay the principal and interest every period in a fixed payment. Pay the interest each period plus some fixed amount of the principal.
Which of the following are ways to amortize a loan? Multiple select question. Pay only the interest every period and pay the principal off at maturity. Pay the principal and interest every period in a fixed payment. Pay the interest each period plus some fixed amount of the principal. Pay both interest and principal in one lump sum at maturity.
Pay the principal and interest every period in a fixed payment. Pay the interest each period plus some fixed amount of the principal.
Which of the following are true of bonds? Multiple select question. Bond principal does not have to be repaid. They are issued by both corporations and governments. They are normally interest-only loans.
They are issued by both corporations and governments. They are normally interest-only loans.
What is a corporate bond's yield to maturity (YTM)? Multiple select question. YTM is the expected return for an investor who buys the bond today and holds it to maturity. YTM is another term for the bond's coupon rate. YTM is the yield that will be earned if the bond is sold immediately in the market. YTM is the prevailing market interest rate for bonds with similar features.
YTM is the expected return for an investor who buys the bond today and holds it to maturity. YTM is the prevailing market interest rate for bonds with similar features.
Which of the following is a perpetuity? Multiple choice question. a growing stream of cash flows for a fixed period a constant stream of cash flows forever an undulating stream of cash flows forever a constant stream of cash flows for a fixed period
a constant stream of cash flows forever
A bond's coupon payment is:
a fixed amount of interest that is paid annually or semiannually by the issuer to its bondholders
The most common way to repay a loan is to pay Blank_
a single fixed payment every period
The interest rate charged per period multiplied by the number of periods per year is equal to on a loan.
annual percentage rate
The price of a share of common stock is equal to the present value of all ______ future dividends.
expected
What are the three components that influence the Treasury yield curve?
expected future inflation the interest rate risk premium the real rate of return
True or false: A debenture is a bond secured with collateral.
false
True or false: Bond ratings are concerned only with the possibility of price changes.
false
True or false: Bonds that have dropped into junk territory are called "trash" bonds.
false
True or false: Daily stock prices can only be found by looking up the stock in newspapers.
false
True or false: The effective annual rate is the interest rate expressed in terms of the interest payment made each period.
false
True or false: The higher the coupon rate, the greater the interest rate risk, all other things being equal.
false
True or false: The payment for an annuity can be calculated using the annuity present value, the present value factor, and the interest rate.
false
True or false: To find the annuity future value factor, you only need the cash flows and the discount rate.
false
True or false: When using a financial calculator to find the number of payments, the PMT value should be entered as a positive.
false
True or false: With interest-only loans, the principal is never repaid
false
Which of the following is not a way to amortize a loan? Multiple choice question. fixed payments interest plus fixed amount fixed interest payments only
fixed interest payments only
A limitation of bond ratings is that they
focus exclusively on default risk
A PE ratio that is based on estimated future earnings is known as a ______ PE ratio.
forward
When entering variables in a spreadsheet function (or in a financial calculator), the "sign convention" can be critical to achieving a correct answer. The sign convention says that outflows are negative values; inflows are positive values. For which variables is this a consideration? Multiple select question. future value interest rate number of periods payment present value
future value payment present value
It is the duty of the bond to manage the sinking fund so that bonds can be repaid.
trustee
Junk bonds have the following features:
they are rated below investment grade bonds
What is the purpose of a sinking fund?
to create a fund to repay bonds when they fall due
If a $1,000 par value bond is trading at a premium, the bond is:
trading for more than $1,000 in the market.
Because of Blank______ and Blank______, interest rates are often quoted in many different ways.
tradition and legislation
P1 Price in one year D1 Next expected dividend R Discount rate P0 Price today D0 Dividend just paid
true
The formula for the future value of an annuity factor is [(1 + r)t − 1]/r.
true
To find the future value of multiple cash flows, calculate the future value of each cash flow first and then sum them.
true
True or false: A put bond allows the holder to force the issuer to buy the bond back at a stated price.
true
True or false: All else being equal, a 1-year bond's price is less sensitive to interest rate changes as compared to that of a 10-year bond's price.
true
True or false: An ordinary annuity consists of a level stream of cash flows for a fixed period of time.
true
True or false: Current yield = Annual coupon payment/Price
true
True or false: Interest rates can be quoted in various ways.
true
True or false: Investors require a premium for the risk that issuers other than the Treasury may not make all promised payments on the issued bonds.
true
True or false: Long-term debt has maturities greater than one year.
true
Which of the following are true of dividends?
-they are taxable to individual shareholders. -they are paid at the discretion of the board of directors.
True or false: Longer-term bonds have greater interest rate sensitivity because a large portion of a bond's value comes from the face amount.
true
True or false: Low-grade bonds are rated below investment grade by the major rating agencies.
true
True or false: The government sells Treasury notes and bonds to the public every month.
true
If there are nine directors to be elected, what is the least number of shares you will need to guarantee a seat on the board under cumulative voting?
10 percent of the stock plus 1 share
True or false: The perpetuity present value can be found using the perpetual cash flow and the discount rate.
true
True or false: Zero coupon bond calculations use semiannual periods to be consistent with coupon bond calculations.
true
The model that precisely specifies the relationship between the nominal rate and the real rate is: R = the nominal rate r = the real rate h = the rate of inflation.
(1 + R) = (1 + r)×(1 + h)
The two most important stock markets in the United States are the New York Stock Exchange and
Nasdaq
Which of the following is true of zero coupon bonds?
No coupon payments are made on the bonds.
What is the formula for the present value of a growing perpetuity, where C1 is the net cash flow, R is the required return, and g is the growth rate?
P = C1/(R − g)
What are the cash flows involved in the purchase of a five-year zero coupon bond that has a par value of $1,000 if the current price is $800? Assume the market rate of interest is 5 percent.
Pay $800 today and receive $1,000 at the end of five years.
P0 = (D1 + P1)/(1 + ______)
R
What is the equation for approximating the nominal rate of return? R = the nominal rate of interest r = the real rate of interest h = the inflation rate.
R = r + h
What does historical data suggest about the nature of short-term and long-term interest rates?
Sometimes short-term rates are higher and sometimes long-term rates are higher.
If you are holding two identical bonds, except that one matures in 10 years and the other matures in 5 years, which bond's price will be more sensitive to interest rate risk?
The 10-year bond.
What are some features of the OTC market for bonds?
The OTC has no designated physical location. OTC dealers are connected electronically.
What does a bond's rating reflect?
The ability of the firm to repay its debt and interest on time
Multiple Choice Question If you are holding two bonds—one with a 5 percent coupon rate and the other with an 8 percent coupon rate—which one is more sensitive to interest rate risk, all other things being equal?
The bond with a 5 percent coupon rate.
Which of the following is true of classes of common stock?
The classes of common stock often have unequal voting rights. A primary reason for creating more than one class of stock is to maintain control.
What does the AAA rating assigned by S&P mean?
The firm is in a strong position to meet its debt obligations
As a general rule, which of the following are true of debt and equity? Multiple select question. Creditors generally have voting power. The maximum reward for owning debt is fixed. Debt and equity represent the same financial claims. Equity represents an ownership interest.
The maximum reward for owning debt is fixed. Equity represents an ownership interest.
Which of the following defines the primary market?
The primary market is where stocks are issued for the first time.
Which of the following statements are true of cumulative preferred dividends? (Select all that apply.)
They are carried forward as an arrearage. Preferred shareholders receive no interest on the cumulated dividends.
Which of the following are features of municipal bonds? Multiple select question. They are issued by state and local governments. They are not subject to default risk. The interest on municipal bonds is, in some cases, exempt from state taxes in the state of issue. The interest on municipal bonds is exempt from federal taxes. The interest on municipal bonds is always exempt from state taxes.
They are issued by state and local governments. The interest on municipal bonds is, in some cases, exempt from state taxes in the state of issue. The interest on municipal bonds is exempt from federal taxes.
In the Excel setup of a loan amortization problem, which of the following occurs? Multiple select question. To find the principal payment each month, you subtract the dollar interest payment from the fixed payment. To find the new balance, you subtract the dollar interest from the old balance. To find the dollar interest each month, you multiply the balance times the yearly interest rate. The payment is found with = PMT(rate, nper, -pv, fv).
To find the principal payment each month, you subtract the dollar interest payment from the fixed payment. The payment is found with = PMT(rate, nper, -pv, fv).
The U.S. government borrows money by issuing Blank
Treasury bonds Treasury notes
Which of these correctly identify differences between U.S. Treasury bonds and corporate bonds? Multiple select question. Treasury bonds offer certain tax benefits to investors that corporate bonds cannot offer. Treasury bonds are considered free of default risk, while corporate bonds are exposed to default risk. Treasury bonds are issued by the U.S. government, while corporate bonds are issued by corporations. Treasury bonds do not offer any tax benefits to investors, but corporate bonds do.
Treasury bonds offer certain tax benefits to investors that corporate bonds cannot offer. Treasury bonds are considered free of default risk, while corporate bonds are exposed to default risk. Treasury bonds are issued by the U.S. government, while corporate bonds are issued by corporations.
True or false: Total return is calculated by adding the dividend yield and the capital gains yield.
True
What are the two unique features of a U.S. federal government bond? Multiple select question. U.S. Treasury issues are exempt from federal income taxes. U.S. Treasury issues are exempt from state income taxes. U.S. Treasury issues are considered to be default-free. U.S. Treasury issues are exempt from state and federal income taxes.
U.S. Treasury issues are exempt from state income taxes. U.S. Treasury issues are considered to be default-free.
What is a corporate bond's yield to maturity (YTM)? Multiple select question. YTM is the yield that will be earned if the bond is sold immediately in the market. YTM is the expected return for an investor who buys the bond today and holds it to maturity. YTM is another term for the bond's coupon rate. YTM is the prevailing market interest rate for bonds with similar features.
YTM is the expected return for an investor who buys the bond today and holds it to maturity. YTM is the prevailing market interest rate for bonds with similar features.
A benchmark PE ratio can be determined using:
a company's own historical PEs. the PEs of similar companies.
The NYSE differs from the Nasdaq primarily because the NYSE has
a face-to-face auction market a physical location
Which of the following are bonds that have actually been issued?
a put bond a CoCo bond a convertible bond
The coupon payments on floating-rate bonds are
adjustable
A website that allows investors to trade directly with one another is called
an ECN
An annuity with payments beginning immediately rather than at the end of the period is called an
annuity due
To find the total bond value, add the present value of the amount paid at maturity to the Blank______ of the annual coupon payments.
annuity present value
If bonds for AT&T are quoted at 115, they can be purchased:
at 115 percent of par value plus accrued interest.
If a $1,000 face value U.S. Treasury bond is quoted at 99.5, then the bond can be purchased
at 99.5 percent of face value plus any accrued interest
An annuity due is a series of payments that are made
at the beginning of each period
A person who brings buyers and sellers together is called a(n)
broker
If a bond is issued with a provision it allows the issuer to repurchase part or all of the bond at defined prices and times.
call
A provision in the bond indenture giving the issuing company the option to repurchase the bonds before maturity is termed a
call provision
A corporate bond's yield to maturity:
changes over time. is usually not the same as a bond's coupon rate
When directors elected by common shareholders defer preferred dividends indefinitely,
common shareholders must also forego dividends
The effective annual rate (EAR) takes into account the Blank______ of interest that occurs within a year.
compounding
Three special case patterns of dividend growth discussed in the text include:
constant growth. nonconstant growth. zero growth.
A bond's payment is a fixed amount of interest that is paid annually or semiannually by the issuer to its bondholders.
coupon
Which of the following terms apply to a bond? Multiple select question. coupon rate par value dividend yield time to maturity
coupon rate par value time to maturity
Which of the following terms apply to a bond? Multiple select question. dividend yield coupon rate par value time to maturity
coupon rate par value time to maturity
The sensitivity of a bond's price to interest rate changes is dependent on which of the following two variables?
coupon rate time to maturity
If unpaid preferred dividends must be "caught up" before any common dividends can be paid, they are called Blank______ dividends.
cumulative
Identify the two types of preferred dividends:
cumulative and noncumulative
Someone who maintains an inventory of stocks and buys and sells those stocks is known as a
dealer
The bid-ask spread represents the
dealer's profit
All else constant, the dividend yield will increase if the stock price
decreases
What information do we need to determine the value of a stock using the zero growth model?
dividend discount rate
In the dividend growth model, the expected return for investors comes from which two sources?
dividend yield growth rate
Payments to shareholders that represent a return on the capital contributed to the corporation are referred to as
dividends
Which of the following are cash flows to investors in stocks?
dividends capital gains
The constant growth model assumes that
dividends change at a constant rate
Which three of the following are common shapes for the term structure of interest rates?
downward sloping humped upward sloping
Debt cannot be subordinated to
equity
If a bond is selling at a discount from its par value, the YTM must be Blank______ the coupon rate.
greater than
If the interest rate is greater than zero, the value of an annuity due is always Blank______ an ordinary annuity.
greater than
The ______ can be interpreted as the capital gains yield.
growth rate
The value of a firm is derived using the firm's Blank______ rate and its Blank______ rate.
growth; discount
More frequent compounding leads to Blank
higher EARs
A bond with a BB rating has a Blank______ than a bond with a BBB rating.
higher risk of default
"Inside quotes" represent the Blank______ and the Blank______.
highest bid price; lowest ask price
The nominal rate is found by adding the Blank______ and the real rate of return.
inflation
A key difference between interest payments and dividend payments is: Multiple select question. interest is not tax deductible. interest is tax deductible. dividends are not tax deductible. dividends are tax deductible.
interest is tax deductible. dividends are not tax deductible.
Stock price reporting has increasingly moved from traditional print media to the Blank______ in recent years.
internet
Indentures and loan agreements often contain protective covenants designed to protect the interests of
lenders
Electronic communication networks increase ____ and ___ in a market
liquidity and competition
Which of the following may increase the yield on corporate bonds as compensation to investors but will not impact Treasury bond yields?
liquidity premium default risk premium
The interest rate risk premium is the additional compensation demanded by investors for holding Blank______ bonds
longer-term
When using trial and error to compute the yield to maturity (YTM) for a 6 percent coupon bond that trades at a premium, the process can be shortened if the initial guess is Blank______ 6 percent.
lower than
A zero coupon bond is a bond that
makes no interest payments
A simple way to amortize a loan is to have the borrower pay the interest each period plus some fixed amount. This approach is common with -term business loans.
medium
The annuity present value factor equals one the present value factor all divided by the discount rate.
minus
Which of the following could not be evaluated as annuities or annuities due? Multiple select question. monthly rent payments within a lease monthly electric bills installment loan payments tips to a waiter
monthly electric bills tips to a waiter
When using a financial calculator to find the number of payments, the PMT value should be entered as a
negative
If a company's growth for Years 1 through 3 is 20 percent but stabilizes at 5 percent beginning in Year 4, its growth pattern would be described as
nonconstant
This type of growth describes a company that grows quickly at first, then slower in future years.
nonconstant
Using an Excel spreadsheet to solve for the payment in an amortized loan, enter the number of periods as the value.
nper
When voting for the board of directors, the number of votes a shareholder is entitled to is generally determined as follows:
one vote per share held
The fundamental business of the New York Stock Exchange is to attract
order flow
Preferred stock has preference over common stock in the:
payment of dividends. distribution of corporate assets.
The present value can be found using the perpetual cash flow and the discount rate.
perpetuity
The present value formula for a(n) Blank______ is PV = C/r, where C is the constant and regularly timed cash flow to infinity, and r is the interest rate
perpetuity
The formula for the Blank______ value interest factor of an annuity is [1 − 1/(1 + r)t]/r.
present
Initial public offerings of stock occur in the Blank______ market.
primary
Shares of stock are first brought to the market and sold to investors in the______market
primary
Amortization is the process of paying off loans by regularly reducing the
principal
The original amount of a loan is termed the loan
principal
What are the two major forms of long-term debt? Multiple select question. private issue public issue Canadian debt debentures
private issue public issue
A protective covenant is part of an indenture or loan agreement that limits certain actions a company may take during the term of the loan to the lender's interests.
protect
A protective covenant is part of an indenture or loan agreement that limits certain actions a company may take during the term of the loan to the lender's interests.
protect
A part of the indenture limiting certain actions during the term of the loan are termed
protective covenants
If you borrow $15,000 today at 5 percent annual interest to be repaid in one year as a lump sum, this is termed a Blank______.
pure discount loan
Which of the following is the simplest form of loan? Multiple choice question. a pure discount loan a partially amortized loan an amortized loan an interest-only loan
pure discount loan
Which three components determine the shape of the term structure of interest rates?
real interest rate interest rate risk premium inflation premium
The term structure of interest rates examines the
relationship between short-term and long-term interest rates
With typical interest-only loans, the entire principal is:
repaid at some point in the future.
If a bond is issued with a call provision, it allows the issuer to Blank______ part or all of the bond at defined prices and times.
repurchase
The trading of existing shares occurs in the Blank______ market.
secondary
Which type of debt is given preference in the event of default?
senior
New York Stock Exchange Designated Market Makers (DMMs) were formerly called
specialists
Institutional memory can be enhanced by
staggering board elections
Compounding during the year can lead to a difference between the rate and the effective rate.
stated
under a ____ voting mechanism, the minimum number of votes required to acquire a seat on a board is_____% PLUS ____
straight 50 1
Earnings over the coming year are expected to be $3 and a benchmark PE of 15 applies to earnings over the previous year. The Blank______, or forecast, price over the coming year is $45.
target
Using a benchmark PE ratio against current earnings yields a forecasted price called a Blank______ price.
target
The relationship between nominal rates, real rates, and inflation is called
the Fisher Effect
Bond ratings are based on the probability of default risk, which is the risk that
the bond's issuer may not be able to make all the required payments
The dividend yield is determined by dividing the expected dividend (D1) by:
the current price (P0).
Which of the following ratios might be used to estimate the value of a stock?
the price-earnings ratio
Which of the following are rights of common stock holders?
the right to share proportionally in any residual value in the event of liquidation. the right to share proportionally in any common dividends paid. the right to vote on matters of importance.
What right does a proxy give to a shareholder?
the right to vote on behalf of another shareholder
The degree of interest rate risk depends on Blank
the sensitivity of the bond's price to interest rate changes