FIN 301 Exam 2
T/F a 2 year zero corporate bond and 2 year zero treasury bond should be traded at the same price today because they have the same future cash flow
false
T/F constant dividend growth model can be used to value startup companies
false
T/F if a company never paid any dividend, then its stock is worth nothing
false
T/F investment grade bonds are better investments than junk bonds
false
T/F rating companies such as Moody's rate bonds based on the total risk of bonds
false
T/F rating for a bond never changes during the term of the bond
false
T/F suppose the dividends of company A are growing at constant rate of 4% per year indefinitely, the capital gains yield is also growing at 4% per year
false
T/F term structure captures relation between interest rate and default risk
false
T/F term structure is always upward sloping
false
T/F term structure is constructed using yields and zero coupon corporate bonds
false
T/F treasury bonds do not have interest rate risk
false
T/F when term structure is non-flat, all bonds in market have the same yield
false
Which of the following represents the capital gains yield as used in the dividend growth model?
g
which statement related to preferred stock is correct?
preferred stock has pre-determined stated liquidating value per share
the fisher effect is defined as the relationship between which of the following variables?
real rates, inflation rates, and nominal rates
T/F bonds with AAA rating have low probability of default, therefore yield to mature is also low
true
T/F default risk is different for different bonds
true
T/F dividends are not liabilities of a company
true
T/F dividends are paid out from earnings after taxes
true
T/F if a company is not expected to pay any dividend over the next year, then the return to investor over the next year is equal to the capital gains of a stock
true
T/F real rate, inflation premium, and interest rate risk premium are the three components determining term structure
true
T/F term structure is changing as time passes
true
Which of the following statements about dividends or stock valuation is true?
Constant dividend growth model is typically used to value mature companies
Mary just purchased a bond which pays $60 a year in interest. What is this $60 called?
Coupon
company has 2 open seats on its board of directors, there are 6 candidates up for these 2 positions. there will be a single election to determine winner of both seats. as owner of 100 shares of stock, you will receive one vote per open seat. you decide to cast all 200 of your votes for a single candidate. what type of voting is this called?
Cumulative
Which of the following statements are false for a bond? a. zero coupon bond is always sold at discount B. when the price of a bond decreases suddenly, its yield to maturity increases C. 2 year zero coupon treasury bond has lower interest rate risk compared to 5 year zero coupon treasury bond D. when interest rate increases, all bond prices will go down. Therefore the interest rate risk is the same for all bonds E. a 10 year zero coupon treasury bond has higher interest rate risk compared to 10 year treasury bond with coupon rate of 6% F. bond price is the face value of a bond; it is changing throughout the term of the bond G. When the yield to maturity of a bond is higher than the coupon rate of the bond, the bond is sold at premium
D, F, G
Which of the following is computed by dividing next year's annual dividend by the current stock price?
Dividend yield
A bond's coupon rate is equal to the annual interest divided by which o the following?
Face Value
Bert owns a bond that will pay him $75 each year in interest plus a $1000 principle payment at maturity. What is the $1000 called?
Face Value
Which of the following is true
Junk bonds are also called high yield bond because those bonds have higher yield compared to investment grade bonds
Which of the following statements about term structure is true?
Real rate, inflation premium, and interest rate risk premium are the three components that determine terms structure
You cannot attend shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. what is the granting of this authority called?
Voting by proxy
Which of the following is not specified in the bond indenture? A. maturity date B. face value C. coupon rate D. yield to maturity E. how often coupon payment will be made
Yield to maturity
which of the following permits minority participation?
cumulative voting
which one of the following risk premiums compensates for the possibility of nonpayment of the bond issuer
default risk
