FI 302 Exam 2 (concepts)

Trials Inc. has issued 30-year $1000 face value, 10% annual coupon bonds, with a yield to maturity of 9.0%. The annual interest payment for the bond is ____________. A. $100 B. $45 C. $50 D. $90

A. $100 (Coupon = coupon rate x face value)

Bonds are different from stocks because _____________. A. bonds promise fixed payments for the length of their maturity B. bonds do not have maturity dates C. bonds promise growth in earnings D. bonds give payments only after other owners are paid

A. bonds promise fixed payments for the length of their maturity

________________ means that the percentage increase in the dividend is the same each year. A. constant growth B. inconsistent growth C. a constant cash flow D. no growth

A. constant growth

When the _________ is less than the yield to maturity, the bond sells at a/the _________ the par value. A. coupon rate; discount to B. coupon rate; premium over C. time to maturity; discount to D. time to maturity; same price as

A. coupon rate; discount to

The holder of preferred stock is entitled to a constant dividend _____________. A. every period B. only when earnings are positive C. only when the stock prices increases D. only when earnings are positive and only when the stock price increases

A. every period

____________ refers to how quickly information is reflected in the available prices for trading. A. market efficiency B. operational efficiency C. mechanical efficiency D. informational efficiency

A. informational efficiency

Zero-coupon bonds are _____________ A. priced at a deep discount B. priced using semiannual instead of annual pricing formula C. tax exempt D. sold at a premium

A. priced at a deep discount

You can think of the _________ as the "used stock" market because these shares have been owned or "used" previously: A. secondary market B. primary market C. NYSE market D. initial public offering market

A. secondary market

The type of risk that can be diversified away is called________ A. unsystematic risk B. systematic risk C. system-wide risk D. nondiversifiable risk

A. unsystematic risk

The __________ is a market derived interest rate used to discount the future cash flows of the bond. A. yield to maturity B. semiannual coupon rate C. compound rate D. coupon rate

A. yield to maturity

The terms _______ and ______ mean the same thing A. nondiversifiable risk; unsystematic risk B. diversifiable risk; unsystematic risk C. total risk; unique risk D. diversifiable risk; systematic risk

B. diversifiable risk; unsystematic risk

The practice of not putting all of your eggs in one basket is an illustration of ________ A. portion control B. diversification C. variance D. expected return

B. diversification

The value of a financial asset is the _____________. A. sum of all previous cash flow received B. present value of all the future cash flow that will be received C. present value of just the capital gains but not the dividends D. future value of just the capital gains but not the dividends

B. present value of all future cash flow that will be received

The ____is the market of the first sale in which companies first sell their authorized shares to the public. A Nasdaq market B primary market C secondary market D both primary and secondary markets

B. primary market

"Junk" bonds are a street name for __________ grade bonds. A. investment B. speculative C. extremely speculative D. speculative and investment

B. speculative

The measure of systematic risk is called_______ A. covariance B. correlation C. beta D. variance

C. beta

The ____________ is the expiration date of the bond. A. coupon B. yield to maturity C. maturity date D. future value

C. maturity date

Beta is ______ A. measure of nondiversifiable risk B. measure of systematic risk C. the appropriate measure of risk for a well-diversified portfolio D. all of the above

D. all of the above

Stocks differ from bonds because: A. the ending par value of a bond is known at purchase while the ending value of a share of stock is unknown at purchase B. firms pay bond cash flow prior to paying taxes while stock cash flows are after tax C. bond cash flows are known while stock cash flows are uncertain D. all of the above

D. all of the above

The measure of systematic risk is called________ A. correlation B. variance C. covariance D. beta

D. beta

Unsystematic risk A. is also known as nondiversifiable risk B. is equal to 2 times the systematic risk C. is system-wide risk D. can be diversified away

D. can be diversified away

The _______ is the regular interest payment of the bond. A. par B. coupon rate C. dividend D. coupon

D. coupon

The ________ is the interest rate printed on the bond. A. compound rate B. semiannual coupon rate C. yield to maturity D. coupon rate

D. coupon rate

Which of the statements below is TRUE? A. investors want to minimize return and minimize risk B. investors want to minimize return and maximize risk C. investors want to maximize return and maximize risk D. investors want to maximize return and minimize risk

D. investors want to maximize return and minimize risk

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

D. long-term debt

A beta of 1.0 is the beta of the ___________, while a beta of 0.0 is the measure for ______. A. market; single security help on its own B. risk-free security; market C. risk-free security; single security held on its own D. market; risk-free security

D. market; risk-free security

_________ has to do with the speed and accuracy of processing a buy or sell order at the best available price. A. market efficiency B. mechanical efficiency C. informational efficiency D. operational efficiency

D. operational efficiency

Which of the following investments is considered to be default risk-free? A. AAA rated corporate bonds B. currency options C. common stock D. treasury bills

D. treasury bills

In ___________, current prices reflect to price history and trading volume of the stock. It is of no use to chart historical stock prices to predict future stock prices such that you can identify mispriced stocks and routinely outperform the market. A. operational efficient markets B. strong-form efficient markets C. semi-strong-form efficient markets D. weak-form efficient markets

D. weak-form efficient markets