FI 302 Test 2
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 ____
$100
The _____ is the intercept on the Security Market Line.
risk-free rate
You can think of the "used stock" market because these shares have been owned or "used" previously
secondary market
"Junk" bonds are a street name for ____ grade bonds
speculative
Which of the statements below is True?
Investors want to maximize return and minimize risk
Bonds are different from stocks because
bonds promise fixed payments for the length of their maturity
The ______ is the regular interest payment of the bond
coupon
The _____ is a market derived interest rate used to discount the future cash flows of the bond
coupon rate
The _____ is the interest rate printed on the bond.
coupon rate
When the _____ is less than the yield to maturity, the bond sells at a/the ______ the par value
coupon rate; discount to
Which of the below is NOT a major component of interest rate?
d. inflation premium
The practice of not putting all of your eggs in one basket is an illustration of _____.
diversification
The holder of preferred stock is entitled to a constant dividend ______
every period
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.
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; risk free security
The ______ is the expiration date of the bond
maturity date
Which of the statements below is false?
d. reducing principal at a faster pace increases the overall interest paid on a loan
Zero coupon bonds are
priced at a deep discount
Which of the following investments is considered to be default risk-free?
treasury bills
The type of risk that can be diversified away is called
unsystematic risk
In ______, current price reflects the 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.
weak-form efficient markets
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
yield to maturity
Beta is
-a measure of nondiversifiable risk -the appropriate measure of risk for a well-diversified portfolio -a measure of systematic risk
Stocks differ from bonds because
-bond cash flows are known while stock cash flows are uncertain -firms pay bond cash flows prior to paying taxes while stock cash flows are after tax -the ending par value of a bond is known at purchase while the ending value of a share of stock is unknown at purchase
_____ Means that the percentage increase in the dividend is the same each year.
Constant Growth
Which of the statements below is true?
The frequency of bankruptcy for a high tech up start firm is lower than for a blue chip form, so we see higher borrowing rates for start ups than for mature firms
Which of the following is NOT a definition of beta?
a measure of risk that can be avoided
______ has to do with the speed and accuracy of processing a buy or sell order at the best available price
operational efficiency
The value of a financial asset is the ______
present value of all the future cash flows that will be recieved
The _____ is the market of first sale in which companies first sell their authorized shares to the public
primary market
In _____, current prices already reflect the price history and volume of the stock as well as all available public information.
semi strong form efficient markets
_____ Is risk that cannot be diversified away
systematic risk
