FIN questions
Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond? A. Real rate risk B. Interest rate risk C. Default risk D. Liquidity risk E. Taxability risk
interest rate risk
The owner of a trading license for the NYSE is called a: A. Broker. B. Member. C. Agent. D. Specialist. E. Dealer.
member
The Blue Marlin is owned by a group of 5 shareholders who all vote independently and who all want personal control over the firm. What is the minimum percentage of the outstanding shares one of these shareholders must own if he or she is to gain personal control over this firm given that the firm uses straight voting? A. 17 percent B. 20 percent plus one vote C. 25 percent plus one vote D. 50 percent plus one vote E. 51 percent
50 percent plus one vote
You own 600 shares of a NASDAQ listed stock that you wish to sell. Which of the following are options available to you for this purpose? I. sell the shares to a dealer at the dealer's bid price II. sell directly to another individual via an ECN III. offer the shares yourself on NASDAQ via an ECN IV. have a broker offer the shares for sale on the NYSE A. I and II only B. III and IV only C. II and III only D. I, II, and III only E. II, III, and IV only
I, II and III only
The dividend growth model: I. assumes that dividends increase at a constant rate forever. II. can be used to compute a stock price at any point in time. III. can be used to value zero-growth stocks. IV. requires the growth rate to be less than the required return. A. I and III only B. II and IV only C. I, III, and IV only D. I, II, and IV only E. I, II, III, and IV
I, II, III, and IV
Which of the following features do preferred shareholders and bondholders frequently have in common? I. lack of voting rights II. conversion option into common stock III. annuity payments IV. fixed liquidation value A. I and II only B. III and IV only C. II, III, and IV only D. I, III, and IV only E. I, II, III, and IV
I, II, III, and IV
An increase in which of the following will increase the current value of a stock according to the dividend growth model? I. dividend amount II. number of future dividends, provided the current number is less than infinite III. discount rate IV. dividend growth rate A. I and II only B. III and IV only C. I, II, and III only D. I, II, and IV only E. I, II, III, and IV
I, II, and IV only
Which of the following are negative covenants that might be found in a bond indenture? I. The company shall maintain a current ratio of 1.10 or better. II. No debt senior to this issue can be issued. III. The company cannot lease any major assets without approval by the lender. IV. The company must maintain the loan collateral in good working order. A. I and II only B. II and III only C. III and IV only D. II, III, and IV only E. I, II, and III only
II and III only
Who can access Level 3 of NASDAQ's information? A. Only NASDAQ regulators. B. Customers who pay an access fee. C. NASDAQ market makers. D. There is no Level 3. E. Anyone with internet access.
NASDAQ market makers
Graphing the crossover point helps explain: A. why one project is always superior to another project. B. how decisions concerning mutually exclusive projects are derived. C. how the duration of a project affects the decision as to which project to accept. D. how the net present value and the initial cash outflow of a project are related. E. how the profitability index and the net present value are related.
how decisions concerning mutually exclusive projects are derived
Hot Foods has an investment-grade bond issue outstanding that pays $30 semiannual interest payments. The bonds sell at par and are callable at a price equal to the present value of all future interest and principal payments discounted at a rate equal to the comparable Treasury rate plus .50 percent. Which one of the following correctly describes this bond? A. The bond rating is B. B. Market value is less than face value. C. The coupon rate is 3 percent. D. It has a "make whole" call price. E. Variable Interest payments are variable.
it has a "make whole" call price
Which one of the following risk premiums compensates for the inability to easily resell a bond prior to maturity? A. Default risk. B. Taxability. C. Liquidity. D. Inflation. E. Interest rate risk.
liquidity
Which one of these is most apt to be included in a bond's indenture one year after the bond has been issued? A. Current yield. B. Written record of all the current bond holders. . C. List of collateral used as bond security. D. Current market price. E. Price at which a bondholder can resell the bond to another bondholder
list of collateral used as bond security
Which bond would you generally expect to have the highest yield? A. Risk-free Treasury bond B. Nontaxable, highly liquid bond C. Long-term, high-quality, tax-free bond D. Short-term, inflation-adjusted bond E. Long-term, taxable junk bond
long-term, taxable junk bond
Which one of the following statements applies to NASDAQ? A. Composed of four separate markets. B. Exchange floor located in Chicago. C. Provides two levels of information access. D. DMM system. E. Multiple market maker system.
multiple market maker system
Municipal bonds: A. Are totally risk free. B. Generally have higher coupon rates than corporate bonds. C. Pay interest that is federally tax free. D. Are rarely callable. E. Are free of default risk.
pay interest that is federally tax free
Which one of the following characteristics is most associated with financing type projects? A. Long payback period. B. Multiple internal rates of return. C. Cash inflows that equal cash outflows when ignoring the time value of money. D. Prepaid services. E. Conventional cash flows.
prepaid services
Which one of the following methods of analysis provides the best information on the cost-benefit aspects of a project? A. net present value B. payback C. internal rate of return D. average accounting return E. profitability index
profitability index
A deferred call provision is which one of the following? A. Requirement that a bond issuer pay the current market price, plus accrued interest, should the firm decide to call a bond. B. Ability of a bond issuer to delay repaying a bond until after the maturity date should the issuer so opt. C. Prohibition placed on an issuer which prevents that issuer from ever redeeming bonds prior to maturity. D. Prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date. E. Requirement that a bond issuer pay a call premium that is equal to or greater than one year's coupon should that issuer decide to call a bond.
prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date
Preferred stock may have all of the following characteristics in common with bonds with the exception of: A. The lack of voting rights. B. A possible conversion option into common stock. C. Annuity payments. D. A fixed liquidation value. E. Tax-deductible payments.
tax-deductible payments
Which one of the following statements is false concerning the term structure of interest rates? A. Expectations of lower inflation rates in the future tend to lower the slope of the term structure of interest rates. B. The term structure of interest rates includes both an inflation premium and an interest rate risk premium. C. The term structure of interest rates and the time to maturity are always directly related. D. The real rate of return has minimal, if any, affect on the slope of the term structure of interest rates. E. The interest rate risk premium increases as the time to maturity increases.
the term structure of interest rates and the time to maturity are always directly related
Which of the following are definite indicators of an accept decision for an independent project with conventional cash flows? I. positive net present value II. profitability index greater than zero III. internal rate of return greater than the required rate IV. positive internal rate of return A. I and III only B. II and IV only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV
I and III only
An 8 percent corporate bond that pays interest semi-annually was issued last year. Which two of the following most likely apply to this bond today if the current yield-to-maturity is 7 percent? I. a structure as an interest-only loan II. a current yield that equals the coupon rate III. a yield-to-maturity equal to the coupon rate IV. a market price that differs from the face value A. I and III only B. I and IV only C. II and III only D. II and IV only E. III and IV only
I and IV only
Which of the following increase the price sensitivity of a bond to changes in interest rates? I. increase in time to maturity II. decrease in time to maturity III. increase in coupon rate IV. decrease in coupon rate A. II only B. I and III only C. I and IV only D. II and III only E. II and IV only
I and IV only
Hardy Lumber has a capital structure which includes bonds, preferred stock, and common stock. Which of the following rights have most likely been granted to the preferred shareholders? I. right to share in company profits prior to other shareholders II. right to elect the corporate directors III. right to vote on proposed mergers IV. right to all residual income after the common dividends have been paid A. I only B. I and III only C. I and IV only D. II, III, and IV only E. I, II, III, and IV
I only
Which one of the following indicates an accept decision for an independent project with conventional cash flows? A. PI greater than 1.0. B. AAR lower than the required rate. C. NPV equal to the initial cash outflow. D. Required discount rate greater than the IRR. E. Discounted payback period less than the payback period.
PI greater than 1.0
A project with financing type cash flows is typified by a project that has which one of the following characteristics? A. conventional cash flows B. cash flows that extend beyond the acceptable payback period C. a year or more in the middle of a project where the cash flows are equal to zero D. a cash inflow at time zero E. cash inflows which are equal in amount
a cash inflow at time zero
Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect: A. An increase in all stock values. B. All stock values to remain constant. C. A decrease in all stock values. D. Dividend-paying stocks to maintain a constant price while non-dividend paying stocks decrease in value. E. Dividend-paying stocks to increase in price while non-dividend paying stocks remain constant in value.
a decrease in all stock values
NYSE designated market makers: A. Execute trades on behalf of their clients. B. Are guaranteed a profit on every stock purchased and resold. C. Act as dealers. D. Provide a one-sided market. E. Are also referred to as "$2 brokers.
act as dealers
If you sell a 6 percent bond to a dealer when the market rate is 7 percent, which one of the following prices will you receive? A. Call price. B. Par value. C. Bid price. D. Asked price. E. Bid-ask spread.
bid price
Which one of these statements is correct? A. Most long-term bond issues are referred to as unfunded debt. B. Bonds provide tax benefits to issuers. C. The risk of a firm financially failing decreases when a firm issues bonds. D. All bonds are treated equally in a bankruptcy proceeding. E. A debenture is a senior secured debt.
bonds provide tax benefits to issuers
High Country Builders currently pays an annual dividend of $1.35 and plans on increasing that amount by 2.5 percent each year. Valley High Builders currently pays an annual dividend of $1.20 and plans on increasing its dividend by 3 percent annually. Given this information, you know for certain that the stock of High Country Builders' has a higher ______ than the stock of Valley High Builders. A. market price. B. dividend yield. C. capital gains yield. D. total return. E. The answer cannot be determined based on the information provided.
capital gains yield
The person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a(n): A. floor trader. B. dealer. C. specialist. D. executor. E. commission broker.
commission broker
The interest rate risk premium is the: A. Additional compensation paid to investors to offset rising prices. B. Compensation investors demand for accepting interest rate risk. C. Difference between the yield to maturity and the current yield. D. Difference between the market interest rate and the coupon rate. E. Difference between the coupon rate and the current yield.
compensation investors demand for accepting interest rate risk
Which one of the following best describes NASDAQ? A. Dealer price at which they will buy is listed as the asked price. B. Market where the DMM's are located at posts. C. Computer network of securities dealers. D. Market with three physical trading floors. E. Largest U.S. stock market in terms of dollar trading volume.
computer network of securities dealers
Today, June 15, you want to buy a bond with a quoted price of 98.64. The bond pays interest on January 1 and July 1. Which one of the following prices represents your total cost of purchasing this bond today? A. clean price B. dirty price C. asked price D. quoted price E. bid price
dirty price
Which one of the following applies to the dividend growth model? A. An individual stock has the same value to every investor. B. Even if the dividend amount and growth rate remain constant, the value of a stock can vary. C. Zero-growth stocks have no market value. D. Stocks that pay the same annual dividend will have equal market values. E. The dividend growth rate is inversely related to a stock's market price.
even if the dividend amount and growth rate remain constant, the value of a stock can vary
A floor broker on the NYSE does which one of the following? A. supervises the commission brokers for a financial firm B. trades for his or her personal inventory C. executes orders on behalf of a commission broker D. maintains an inventory and takes the role of a specialist E. is charged with maintaining a liquid, orderly market
executes orders on behalf of a commission broker
Municipal bonds: A. are totally risk-free. B. generally have higher coupon rates than corporate bonds. C. pay interest that is federally tax-free. D. are rarely callable. E. are free of default-risk.
pay interest that is federally tax-free
Sue is considering purchasing a bond that will only return its principal at maturity if the stock market declines. However, if the stock market increases in value during the bond term, at maturity, she will receive both the bond principal and a percentage of the stock market gain. What type of bond is this? A. NoNo bond. B. Put bond. C. Contingent, callable bond. D. Structured note. E. Sukuk.
structured note
The yields on a corporate bond differ from those on a comparable Treasury security primarily because of: A. Interest rate risk and taxes. B. Taxes and default risk. C. Default and interest rate risks. D. Liquidity and inflation rate risks. E. Default, inflation, and interest rate risks.
taxes and default risk
The pure time value of money is known as the: A. Liquidity effect. B. Fisher effect. C. Term structure of interest rates. D. Inflation factor. E. Interest rate factor.
term structure of interest rates
An agent who arranges a transaction between a buyer and a seller of equity securities is called a: A. broker. B. floor trader. C. capitalist. D. principal. E. dealer.
broker
Which one of the following premiums is compensation for expected future inflation? A. default risk B. taxability C. liquidity D. inflation E. interest rate risk
inflation
Which one of the following statements is correct? A. The capital gains yield is the annual rate of change in a stock's price. B. Preferred stocks have constant growth dividends. C. A constant dividend stock cannot be valued using the dividend growth model. D. The dividend growth model can be used to compute the current value of any stock. E. An increase in the required return will decrease the capital gains yield.
the capital gains yield is the annual rate of change in a stock's price
Which one of these is a negative covenant that might be found in a bond indenture? A. The company shall maintain a current ratio of 1.1 or higher. B. The company cannot lease any major assets without bondholder approval. C. The company must maintain the loan collateral in good working order. D. The company shall provide audited financial statements in a timely manner. E. The company shall maintain a cash surplus of $100,000 at all times.
the company cannot lease any major assets without bondholder approval
Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect: A. an increase in all stock values. B. all stock values to remain constant. C. a decrease in all stock values. D. dividend-paying stocks to maintain a constant price while non-dividend paying stocks decrease in value. E. dividend-paying stocks to increase in price while non-dividend paying stocks decrease in value.
a decrease in all stock values
Bonds issued by the U.S. government: A. Are considered to be free of interest rate risk. B. Generally have higher coupons than comparable bonds issued by a corporation. C. Are considered to be free of default risk. D. Pay interest that is exempt from federal income taxes. E. Are called "munis."
are considered to be free of default risk
Bonds issued by the U.S. government: A. are considered to be free of interest rate risk. B. generally have higher coupons than those issued by an individual state. C. are considered to be free of default risk. D. pay interest that is exempt from federal income taxes. E. are called "munis".
are considered to be free of default risk
U. S. Treasury bonds: A. Are highly illiquid. B. Are quoted as a percentage of par. C. Are quoted at the dirty price. D. Pay interest that is federally tax-exempt. E. Must be held until maturity.
are quoted as a percentage of par
Recently, you discovered a convertible, callable bond with a 5 percent semiannual coupon. If you purchase this bond you will have the right to: A. Force the issuer to repurchase the bond prior to maturity. B. Convert the bond into equity shares. C. Defer all taxable income until the bond matures. D. Convert the bond into a 5 percent perpetuity. E. Have the principal amount adjusted for inflation.
convert the bond into equity shares
An agent who maintains an inventory from which he or she buys and sells securities is called a: A. broker. B. trader. C. capitalist. D. principal. E. dealer.
dealer
Which one of the following risk premiums compensates for the possibility of nonpayment by the bond issuer? A. default risk B. taxability C. liquidity D. inflation E. interest rate risk
default risk
Which one of the following players on the floor of the NYSE can be likened to part-time help because they are called to duty only when others are fully employed? A. floor trader B. specialist C. dealer D. floor broker E. commission broker
floor broker
An individual on the floor of the NYSE who owns a trading license and buys and sells for his or her personal account is called a: A. floor trader. B. exchange customer. C. specialist. D. floor broker. E. market maker.
floor trader
Treasury bonds are: A. Issued by any governmental agency in the U.S. B. Issued only on the first day of each fiscal year by the U.S. Department of Treasury. C. Bonds that offer the best tax benefits of any bonds currently available. D. Generally issued as semiannual coupon bonds. E. Totally risk-free.
generally issued as semiannual coupon bonds
A newly issued bond has a 7 percent coupon with semiannual interest payments. The bonds are currently priced at par. The effective annual rate provided by these bonds must be: A. 3.5 percent. B. Greater than 3.5 percent but less than 7 percent. C. 7 percent. D. Greater than 7 percent. E. Less than 3.5 percent.
greater than 7 percent
A project has a discounted payback period that is equal to the required payback period. Given this, which of the following statements must be true? A. The project will not be acceptable under the payback rule. B. The project must have a profitability index that is equal to or greater than 1.0. C. The project must have a zero net present value. D. The project's internal rate of return must equal the required return. E. The project will still be acceptable if the discount rate is increased.
the project must have a profitability index that is equal to or greater than 1.0