FI 302 test 2
Trials Inc. has issued 30-year $1,000 face value, 10% annual coupon bonds, with a yield to maturity of 9.0%. The annual interest payment for the bond is?
$1000 * .10 = $100
_____ means that the percentage increase in the dividend is the same each year.
Constant growth
_____ refers to how quickly information is reflected in the available prices for trading.
Informational efficiency
Which of the following statements is true?
Investors want to maximize return and minimize risk.
If the equation E(ri)=rf +[E(rm)-rf]*i is the linear equation for the Security Market Line, what portion represents the market risk premium for a stock that does not have a beta of 1.0?
[E(rm)-rf]
Bonds are different from stocks because ________
bonds promise fixed payments for the length of their maturity
Unsystematic risk
can be diversified away
The ____ is the regular interest payment of the bond.
coupon
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 flows 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 terms ____ and ___ mean the same thing
diversifiable risk; unsystematic risk
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
The ____ is the expiration date of the bond
maturity date
____ has to do with the speed and accuracy of processing a buy or sell order at the best available prices
operational efficiency
The value of a financial asset is the _____
present value of all of the future cash flows that will be received
Zero-coupon bonds are _____
priced at a deep discount.
You can think of the ____ as the "used stock" market because these shares have been owned or "used" previously.
secondary market
Which of the following investments is considered to be default risk-free?
treasury bills
In _____, current prices reflect the price history and trading volume of the stock. It is of no use to chart historical stock pries to predict future stock prices such that you can identify mispriced stocks and routinely outperform the market.
weak-form efficient markets
The ___ is the return the bondholder receives on the bond if held to maturity.
yield to maturity
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
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
Beta is _____. a) the appropriate measure of risk for a well-diversified portfolio b) a measure of nondiversifiable risk c) a measure of systematic risk d) all of the above
d) all of the above
A beta of 1.0 is the beta of the _____, while a beta of 0.0 is the measure of a _________.
market; risk-free security
"Junk" bonds are a street name for ____ grade bonds.
speculative
The appropriate rate to use to discount the cash flows of a bond in order to determine the current price is the??
yield to maturity
The ____ is a market derived interest rate used to discount the future cash flows of the bond.
yield to maturity.
