FIN3402 Exam 2 Gunter

A bond that is payable to whomever has physical possession of the bond is said to be in: A. New-issue condition. B. Registered form. C. Bearer form. D. Debenture status. E. Collateral status.

C. Bearer form

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.

C. Bid price.

Mutually exclusive projects are best defined as competing projects that: A. Would need to commence on the same day. B. Have the same initial start-up costs. C. Both require the total use of the same limited resource. D. Both have negative cash outflows at time zero. E. Have the same life span.

C. Both require the total use of the same limited resource.

A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called the: A. Dirty price. B. Redemption value. C. Call premium. D. Original-issue discount. E. Redemption discount.

C. Call premium

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.

C. Term structure of interest rates.

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity. A. a premium; less than B. a premium; equal to C. a discount; less than D. a discount; higher than E. par; less than

C. a discount; less than

A forward PE is based on: A. the last dividend payment multiplied by 2. B. historical earnings. . C. estimated future earnings. D. industry averages. E. the last four quarterly dividend payments.

C. estimated future earnings.

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

C. list of collateral used as bond security

The present value of an investment's future cash flows divided by the initial cost of the investment is called the: A. Net present value. B. Internal rate of return. C. Average accounting return. D. Profitability index. E. Profile period.

D. Profitability index.

The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as: A. .05 / (1 - t*) = .07. B. .05 - (1 - t*) = .07. C. .07 + (1 - t*) = .05. D. .05 ×(1 - t*) = .07. E. .05 ×(1 + t*) = .07.

A. .05 / (1 - t*) = .07

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.

A. Broker.

Allison just received her semiannual payment of $35 on a bond she owns. Which term refers to this payment? A. Coupon. B. Face value. C. Discount. D. Call premium. E. Yield.

A. Coupon

Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond's interest or principal payments as expected? A. Default risk. B. Taxability. C. Liquidity. D. Inflation. E. Interest rate risk.

A. Default risk.

Which one of the following is an advantage of the average accounting return method of analysis? A. Easy availability of information needed for the computation, B. Inclusion of time value of money considerations, C. The use of a cutoff rate as a benchmark, D. The use of pre-tax income in the computation, E. Use of real, versus nominal, average income

A. Easy availability of information needed for the computation,

Which one of the following statements related to the NYSE is correct? A. Exchange members must purchase trading licenses. B. NYSE shareholders currently own "seats" on the exchange. C. DMM's buy at the asked price. D. The NYSE is privately owned by an investment firm. E. Electronic trading has increased the demand for floor brokers.

A. Exchange members must purchase trading licenses.

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.

A. Floor trader.

Real rates are defined as nominal rates that have been adjusted for which of the following? A. Inflation. B. Default risk. C. Accrued interest. D. Interest rate risk. E. Both inflation and interest rate risk.

A. Inflation.

Net present value: A. Is the best method of analyzing mutually exclusive projects. B. Is less useful than the internal rate of return when comparing different sized projects. C. Is the easiest method of evaluation for nonfinancial managers to use. D. Cannot be applied when comparing mutually exclusive projects. E. Is very similar in its methodology to the average accounting return.

A. Is the best method of analyzing mutually exclusive projects.

A project has an initial cost of $27,400 and a market value of $32,600. What is the difference between these two values called? A. Net present value. B. Internal return. C. Payback value. D. Profitability index. E. Discounted payback.

A. Net present value.

Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm? A. Net present value. B. Discounted payback. C. Internal rate of return. D. Profitability index. E. Payback.

A. Net present value.

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.

A. PI greater than 1.0.

Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders? A. Right to share in company profits prior to other shareholders. B. Right to elect the corporate directors. C. Right to vote on proposed mergers. D. Right to all residual income after the common dividends have been paid. E. Right to a permanent seat on the board of directors.

A. Right to share in company profits prior to other shareholders.

Applying the discounted payback decision rule to all projects may cause: A. Some positive net present value projects to be rejected. B. The most liquid projects to be rejected in favor of the less liquid projects. C. Projects to be incorrectly accepted due to ignoring the time value of money. D. A firm to become more long-term focused. E. Some projects to be accepted which would otherwise be rejected under the payback rule.

A. Some positive net present value projects to be rejected.

Which one of the following bonds is the least sensitive to interest rate risk? A. 3-year; 4 percent coupon. B. 3-year; 6 percent coupon. C. 5-year; 6 percent coupon. D. 7-year; 6 percent coupon. E. 7-year; 4 percent coupon.

B. 3-year; 6 percent coupon.

Al is retired and his sole source of income is his bond portfolio. Although he has sufficient principal to live on, he only wants to spend the interest income and thus is concerned about the purchasing power of that income. Which one of the following bonds should best ease Al's concerns? A. 6-year coupon bonds B. 5-year TIPS C. 20-year coupon bonds 220 D. 5-year municipal bonds E. 7- year income bonds

B. 5-year TIPS

When the present value of the cash inflows exceeds the initial cost of a project, then the project should be: A. Accepted because the payback period is less than the required time period. B. Accepted because the profitability index is greater than 1. C. Accepted because the profitability index is negative. D. Rejected because the internal rate of return is negative. E. Rejected because the net present value is positive.

B. Accepted because the profitability index is greater than 1.

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.

B. Are quoted as a percentage of par.

Which one of the following is the price at which a dealer will sell a bond? A. Call price B. Asked price C. Bid price D. Bid-ask spread E. Par value

B. Asked price

Roger's Meat Market is considering two independent projects. The profitability index decision rule indicates that both projects should be accepted. This result most likely does which one of the following? A. Conflicts with the results of the net present value decision rule. B. Assumes the firm has sufficient funds to undertake both projects. C. Agrees with the decision that would also apply if the projects were mutually exclusive. D. Bases the accept/reject decision on the same variables as the average accounting return. E. Fails to provide useful information as the firm must reject at least one of the projects.

B. Assumes the firm has sufficient funds to undertake both projects.

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.

B. Bonds provide tax benefits to issuers.

A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond? A. Par value. B. Callable. C. Senior. D. Subordinated. E. Unsecured.

B. Callable

Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project? A. Reduction in the cash outflow at time zero. B. Cash inflow in the final year of the project. C. Cash inflow for the year following the final year of the project. D. Cash inflow prorated over the life of the project. E. Not included in the net present value.

B. Cash inflow in the final year of the project.

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.

B. Compensation investors demand for accepting interest rate risk.

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.

B. Convert the bond into equity shares.

A company has four open seats on its board of directors. There are seven candidates vying for these four positions. There will be a single election to determine the winners. As the owner of 100 shares of stock, you will receive one vote per share for each open seat. You decide to cast all 400 of your votes for a single candidate. What is this type of voting called? A. Democratic. B. Cumulative. C. Straight. D. Deferred. E. Proxy.

B. Cumulative.

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.

B. Dirty price.

Which one of the following methods of project analysis is defined as computing the value of a project based on the present value of the project's anticipated cash flows? A. Constant dividend growth model. B. Discounted cash flow valuation. C. Average accounting return. D. Expected earnings model. E. Internal rate of return.

B. Discounted cash flow valuation.

What is the model called that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate? A. Zero growth. B. Dividend growth. C. Capital pricing. D. Earnings capitalization. E. Discounted dividend.

B. Dividend growth.

A sinking fund is managed by a trustee for which one of the following purposes? A. Paying bond interest payments. B. Early bond redemption. C. Converting bonds into equity securities. D. Paying preferred dividends. . E. Reducing bond coupon rates.

B. Early bond redemption

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.

B. Even if the dividend amount and growth rate remain constant, the value of a stock can vary.

Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called? A. Coupon. B. Face value. C. Discount. D. Yield. E. Dirty price.

B. Face value

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.

B. How decisions concerning mutually exclusive projects are derived.

Road Hazards has 12-year bonds outstanding. The interest payments on these bonds are sent directly to each of the individual bondholders. These direct payments are a clear indication that the bonds can accurately be defined as being issued: A. At par. B. In registered form. C. In street form. D. As debentures. E. As callable bonds.

B. In registered form

As a bond's time to maturity increases, the bond's sensitivity to interest rate risk: A. Increases at an increasing rate. B. Increases at a decreasing rate. C. Increases at a constant rate. D. Decreases at an increasing rate. E. Decreases at a decreasing rate.

B. Increases at a decreasing rate.

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

B. 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.

B. Member.

Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company: A. Must always show a current liability of $2,400, ($2.40 ×1,000), for dividends payable. B. Must still declare each dividend before it becomes an actual company liability. C. Is obligated to pay $2.40 per share each year in perpetuity. D. Will be declared in default if it does not pay at least $2.40 per share per year on a timely basis. E. Has a liability that must be paid at a later date should the company miss paying an annual dividend payment.

B. Must still declare each dividend before it becomes an actual company liability.

The length of time a firm must wait to recoup the money it has invested in a project is called the: A. Internal return period. B. Payback period. C. Profitability period. D. Discounted cash period. E. Valuation period.

B. Payback period.

Which one of the following is the electronic system used by the NYSE for directly transmitting orders to specialists? A. DMM post. B. SuperDOT. C. DMM. D. SLP. E. OrderNET.

B. SuperDOT.

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.

B. Taxes and default risk.

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.

B. The company cannot lease any major assets without bondholder approval.

A corporate bond with a 6 percent coupon was issued last year. Which one of these would apply to this bond today if the current yield to maturity is 7 percent? A. The bond is currently selling at a premium. B. The current yield exceeds the coupon rate. C. The bond is selling at par value. D. The current yield exceeds the yield-to-maturity. E. The coupon rate has increased to 7 percent.

B. The current yield exceeds the coupon rate.

If a project has a net present value equal to zero, then: A. The total of the cash inflows must equal the initial cost of the project. B. The project earns a return exactly equal to the discount rate. C. A decrease in the project's initial cost will cause the project to have a negative NPV. D. Any delay in receiving the projected cash inflows will cause the project to have a positive NPV. E. The project's PI must also be equal to zero.

B. The project earns a return exactly equal to the discount rate.

Assume a project is independent with financing cash flows. Which one of these statements is correct? A. The IRR cannot be used to determine the acceptability of the project. B. The project is acceptable if the required return exceeds the IRR. C. The project is acceptable only if the NPV is zero or negative. D. The project's net present value profile is upsloping. E. The project is acceptable if the internal rate of return is negative.

B. The project is acceptable if the required return exceeds the IRR.

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.

B. The project must have a profitability index that is equal to or greater than 1.0.

Winston Co. has a dividend-paying stock with a total return for the year of -6.5 percent. Which one of the following must be true? A. The dividend must be constant. B. The stock has a negative capital gains yield. C. The dividend yield must be zero. D. The required rate of return for this stock increased over the year. E. The firm is experiencing supernormal growth.

B. The stock has a negative capital gains yield.

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.

C. A decrease in all stock values.

A project's average net income divided by its average book value is referred to as the project's average: A. Net present value. B. Internal rate of return. C. Accounting return. D. Profitability index. E. Payback period.

C. Accounting return.

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.

C. Act as dealers.

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."

C. Are considered to be free of default risk.

Dixie South currently pays an annual dividend of $1.46 a share and plans on increasing that amount by 2.75 percent annually. Northern Culture currently pays an annual dividend of $1.42 a share and plans on increasing its dividend by 3.1 percent annually. Given this information, you know for certain that the stock of Northern Culture has a higher ______ than the stock of Dixie South. A. Market price. B. Dividend yield. C. Capital gains yield. D. Total return. E. Real return.

C. Capital gains yield.

A bond is quoted at a price of $1,011. This price is referred to as the: A. Call price. B. Face value. C. Clean price. D. Dirty price. E. Maturity price.

C. Clean price

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.

C. Computer network of securities dealers.

Tedder Mining has analyzed a proposed expansion project and determined that the internal rate of return is lower than the firm desires. Which one of the following changes to the project would be most expected to increase the project's internal rate of return? A. Decreasing the required discount rate. B. Increasing the initial investment in fixed assets. C. Condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows. D. Eliminating the salvage value. E. Decreasing the amount of the final cash inflow.

C. Condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows.

Which one of the following relationships applies to a par value bond? A. Yield to maturity > current yield > coupon rate. B. Coupon rate > yield-to-maturity > current yield. C. Coupon rate = current yield = yield-to-maturity. D. Coupon rate < yield to maturity < current yield. E. Coupon rate > current yield > yield to maturity.

C. Coupon rate = current yield = yield-to-maturity.

The price sensitivity of a bond increases in response to a change in the market rate of interest as the: A. Coupon rate increases. B. Time to maturity decreases. C. Coupon rate decreases and the time to maturity increases. D. Time to maturity and coupon rate both decrease. E. Coupon rate and time to maturity both increase.

C. Coupon rate decreases and the time to maturity increases.

A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a: A. Floor trader. B. Floor post. C. Designated market maker. D. Floor broker. E. Commission broker.

C. Designated market maker.

Which one of the following is computed by dividing next year's annual dividend by the current stock price? A. Yield to maturity. B. Total yield. C. Dividend yield. D. Capital gains yield. E. Growth rate.

C. Dividend yield.

What are the distributions of either cash or stock to shareholders by a corporation called? A. Coupon payments. B. Retained earnings. C. Dividends. D. Capital payments. E. Diluted profits.

C. Dividends.

A floor broker on the NYSE does which one of the following? A. Supervises the commission brokers of a specific financial firm. B. Trades for his or her personal inventory. C. Executes orders on behalf of a commission broker. D. Maintains an inventory and assumes the role of a market maker. E. Is charged with maintaining a liquid, orderly market.

C. Executes orders on behalf of a commission broker.

A bond's coupon rate is equal to the annual interest divided by which one of the following? A. Call price. B. Current price. C. Face value. D. Clean price. E. Dirty price.

C. Face value

In actual practice, managers most frequently use which two types of investment criteria? A. NPV and payback. B. AAR and IRR. C. IRR and NPV. D. IRR and payback. E. NPV and PI.

C. IRR and NPV.

Why is payback often used as the sole method of analyzing a proposed small project? A. Payback considers the time value of money. B. All relevant cash flows are included in the payback analysis. C. It is the only method where the benefits of the analysis outweigh the costs of that analysis. D. Payback is the most desirable of the various financial methods of analysis. E. Payback is focused on the long-term impact of a project.

C. It is the only method where the benefits of the analysis outweigh the costs of that analysis.

Which of the following are advantages of the payback method of project analysis? A. Considers time value of money, liquidity bias. B. Liquidity bias, arbitrary cutoff point. C. Liquidity bias, ease of use. D. Ignores time value of money, ease of use. E. Ease of use, arbitrary cutoff point.

C. Liquidity bias, ease of use.

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.

C. Liquidity.

You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change. Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur? A. Short-term; low coupon. B. Short-term; high coupon. C. Long-term; zero coupon. D. Long-term; low coupon. E. Long-term; high coupon.

C. Long-term; zero coupon.

Last year, you purchased a TIPS at par. Since that time, both market interest rates and the inflation rate have increased by .25 percent. Your bond has most likely done which one of the following since last year? A. Decreased in value due to the change in inflation rates. B. Experienced an increase in its bond rating. C. Maintained a fixed real rate of return. D. Increased in value in response to the change in market rates. E. Increased in value due to a decrease in time to maturity.

C. Maintained a fixed real rate of return.

The current yield is defined as the annual interest on a bond divided by which one of the following? A. Coupon rate. B. Face value. C. Market price. D. Call price. E. Par value.

C. Market price

The bond principal is repaid on which one of these dates? A. Coupon date. B. Yield date. C. Maturity date. D. Dirty date. E. Clean date.

C. Maturity date

If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be: A. Independent. B. Interdependent. C. Mutually exclusive. D. Economically scaled. E. Operationally distinct.

C. Mutually exclusive.

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.

C. NASDAQ market makers.

You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows. What is the name given to this graph? A. Project tract. B. Projected risk profile. C. NPV profile. D. NPV route. E. Present value sequence.

C. NPV profile.

Last year, Lexington Homes issued $1 million in unsecured, noncallable debt. This debt pays an annual interest payment of $55 and matures six years from now. The face value is $1,000 and the market price is $1,020. Which one of these terms correctly describes a feature of this debt? A. Semiannual coupon. B. Discount bond. C. Note. D. Trust deed. E. Collateralized.

C. Note.

The stream of customer orders coming in to the NYSE trading floor is called the: A. Paper trail. B. Trading volume. C. Order flow. D. Bid-ask spread. E. Commission trail.

C. Order flow.

A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market? A. Auction. B. Private. C. Over-the-counter. D. Regional. E. Insider.

C. Over-the-counter

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.

C. Pay interest that is federally tax free.

Which two methods of project analysis are the most biased towards short-term projects? A. Net present value and internal rate of return. B. Internal rate of return and profitability index. C. Payback and discounted payback. D. Net present value and discounted payback. E. Discounted payback and profitability index.

C. Payback and discounted payback.

National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm's stock is: A. Basically worthless as it offers no growth potential. B. Equal in value to the present value of $1 paid one year from today. C. Priced the same as a $1 perpetuity. D. Valued at an assumed growth rate of 1 percent. E. Worth $1 a share in the current market.

C. Priced the same as a $1 perpetuity.

Which one of the following statements concerning bond ratings is correct? A. Investment grade bonds are rated BB or higher by Standard amp; Poor's. B. Bond ratings assess both interest rate risk and default risk. C. Split-rated bonds are called crossover bonds. D. The highest rating issued by Moody's is AAA. E. A "fallen angel" is a term applied to all "junk" bonds.

C. Split-rated bonds are called crossover bonds.

You want to be on the board of directors of Uptown Communications. Since you are the only shareholder who will vote for you, you will need to own more than half of the outstanding shares of stock if you are to be elected to the board. What is the type of voting called that requires this level of stock ownership to be successfully elected? A. Democratic. B. Cumulative. C. Straight. D. Deferred. E. Proxy.

C. Straight.

The internal rate of return is: A. The discount rate that makes the net present value of a project equal to the initial cash outlay. B. Equivalent to the discount rate that makes the net present value equal to one. C. Tedious to compute without the use of either a financial calculator or a computer. D. Highly dependent upon the current interest rates offered in the marketplace. E. A better methodology than net present value when dealing with unconventional cash flows.

C. Tedious to compute without the use of either a financial calculator or a computer.

Which one of the following statements related to the internal rate of return (IRR) is correct? A. The IRR yields the same accept and reject decisions as the net present value method given mutually exclusive projects. B. A project with an IRR equal to the required return would reduce the value of a firm if accepted. C. The IRR is equal to the required return when the net present value is equal to zero. D. Financing type projects should be accepted if the IRR exceeds the required return. E. The average accounting return is a better method of analysis than the IRR from a financial point of view.

C. The IRR is equal to the required return when the net present value is equal to zero.

Which one of the following statements would generally be considered as accurate given independent projects with conventional cash flows? A. The internal rate of return decision may contradict the net present value decision. B. Business practice dictates that independent projects should have three distinct accept indicators before a project is actually implemented. C. The payback decision rule could override the net present value decision rule should cash availability be limited. D. The profitability index rule cannot be applied in this situation. E. The projects cannot be accepted unless the average accounting return decision ruling is positive.

C. The payback decision rule could override the net present value decision rule should cash availability be limited.

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.

C. The term structure of interest rates and the time to maturity are always directly related.

A premium bond that pays $60 in interest annually matures in seven years. The bond was originally issued three years ago at par. Which one of the following statements is accurate in respect to this bond today? A. The face value of the bond today is greater than it was when the bond was issued. B. The bond is worth less today than when it was issued. C. The yield-to-maturity is less than the coupon rate. D. The coupon rate is greater than the current yield. E. The yield-to-maturity equals the current yield.

C. The yield-to-maturity is less than the coupon rate.

NASDAQ has: A. An electronic network that transmits orders directly to the trading floor. B. Both floor and commission brokers. C. Three separate markets. D. A single designated market maker for each listed stock. E. Level 3 data available online for easy access by all investors.

C. Three separate markets

Kurt has researched T-Tek and believes the firm is poised to vastly increase in value. He has decided to purchase T-Tek bonds as he needs a steady stream of income. However, he still wishes that he could share in the firm's success along with the shareholders. Which one of the following bond features will help him fulfill his wish? A. Put provision. B. Positive covenant. C. Warrant. D. Crossover rating. E. Call provision.

C. Warrant.

The typical range for the price-sales ratio is ___ but younger, faster-growing firms may have ratios that are much _____. A. 1.8 - 2.5; lower B. 2.0 - 3.5; lower C. .5 - 1.5; higher D. .8 - 2.0; higher E. 1.8 - 3.0; higher

D. .8 - 2.0; higher

You own one share of a cumulative preferred stock that pays quarterly dividends. The firm has recently suffered some financial setbacks and has failed to pay the last two dividends. However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter. As a preferred shareholder, you should expect to receive the equivalent of ____ quarter(s) of dividends when the next dividend is paid. A. 0 B. 1 C. 2 D. 3 E. Either 1, 2, or 3

D. 3

Which one of following is the rate at which a stock's price is expected to appreciate? A. Current yield. B. Total return C. Dividend yield. D. Capital gains yield. E. Coupon rate.

D. Capital gains yield

The taxability risk premium compensates bondholders for which one of the following? A. Yield decreases in response to market changes. B. Lack of coupon payments. C. Possibility of default. D. A bond's unfavorable tax status. E. Decrease in a municipality's credit rating.

D. A bond's unfavorable tax status.

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.

D. A cash inflow at time zero.

Which one of the following transactions occurs in the primary market? A. Purchase of 500 shares of GE stock from a current shareholder. B. Gift of 100 shares of stock to a charitable organization. C. Gift of 200 shares of stock by a mother to her daughter. D. A purchase of newly issued stock from AT&T. E. IBM's purchase of GE stock from a dealer.

D. A purchase of newly issued stock from AT&T.

Which one of the following increases the net present value of a project? A. An increase in the required rate of return. B. An increase in the initial capital requirement. C. A deferment of some cash inflows until a later year. D. An increase in the aftertax salvage value of the fixed assets. E. A reduction in the final cash inflow.

D. An increase in the aftertax salvage value of the fixed assets.

A note is generally defined as: A. A secured bond with an initial maturity of 10 years or more. B. A secured bond that initially matures in less than 10 years. C. Any bond secured by a blanket mortgage. D. An unsecured bond with an initial maturity of 10 years or less. E. Any bond maturing in 10 years or more.

D. An unsecured bond with an initial maturity of 10 years or less

Which one of these is a strength of the average accounting return method of project analysis? A. Ignores the issue of taxes. B. Uses a cutoff rate. C. Considers the time value of money. D. Based on easily obtainable information. E. Based on accounting values.

D. Based on easily obtainable information.

You are trying to compare the present values of two separate streams of cash flows that have equivalent risks. One stream is expressed in nominal values and the other stream is expressed in real values. You decide to discount the nominal cash flows using a nominal annual rate of 8 percent. What rate should you use to discount the real cash flows? A. 8 percent. B. EAR of 8 percent compounded monthly. C. Comparable risk-free rate. D. Comparable real rate. E. Nominal rate-risk-free rate

D. Comparable real rate.

The collar of a floating-rate bond refers to the minimum and maximum: A. Call periods. B. Maturity dates. C. Market prices. D. Coupon rates. E. yields to maturity.

D. Coupon rates.

Which one of the following relationships is stated correctly? A. The coupon rate exceeds the current yield when a bond sells at a discount. B. The call price must equal the par value. C. An increase in market rates increases the market price of a bond. D. Decreasing the time to maturity increases the price of a discount bond, all else constant. E. Increasing the coupon rate decreases the current yield, all else constant.

D. Decreasing the time to maturity increases the price of a discount bond, all else constant.

Which one of the following rights is never directly granted to all shareholders of a publicly held corporation? A. Electing the board of directors. B. Receiving a distribution of company profits. C. Voting either for or against a proposed merger or acquisition. D. Determining the amount of the dividend to be paid per share. E. Having first chance to purchase any new equity shares that may be offered.

D. Determining the amount of the dividend to be paid per share.

Rosita paid a total of $1,189 to purchase a bond that has 7 of its initial 20 years left until maturity. This price is referred to as the: A. Quoted price. B. Spread price. C. Clean price. D. Dirty price. E. Call price.

D. Dirty price

The internal rate of return is defined as the: A. Maximum rate of return a firm expects to earn on a project. B. Rate of return a project will generate if the project in financed solely with internal funds. C. Discount rate that equates the net cash inflows of a project to zero. D. Discount rate which causes the net present value of a project to equal zero. E. Discount rate that causes the profitability index for a project to equal zero.

D. Discount rate which causes the net present value of a project to equal zero.

A decrease in which of the following will increase the current value of a stock according to the dividend growth model? A. Dividend amount. B. Number of future dividends, provided the number is less than infinite. C. Dividend growth rate. D. Discount rate. E. Both the discount rate and the dividend growth rate.

D. Discount rate.

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.

D. Generally issued as semiannual coupon bonds.

The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will: A. Pay an increasing dividend for a period of time and then cease paying dividends altogether. B. Increase the dividend amount every other year. C. Pay a constant dividend for the first two quarters of each year and then increase the dividend the last two quarters of each year. D. Grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely. E. Pay increasing dividends for a fixed period of time, cease paying dividends for a period of time, and then commence paying increasing dividends for an indefinite period of time.

D. Grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely.

A zero coupon bond: A. Is sold at a large premium. B. Pays interest that is tax deductible to the issuer at the time of payment. C. Can only be issued by the U.S. Treasury. D. Has more interest rate risk than a comparable coupon bond. E. Provides no taxable income to the bondholder until the bond matures.

D. Has more interest rate risk than a comparable coupon bond.

Jen owns 30 shares of stock in Delta Fashions and wants to win a seat on the board of directors. The firm has a total of 100 shares of stock outstanding. Each share receives one vote. Presently, the company is voting to elect three new directors. Which one of the following statements must be true given this information? A. Regardless of the voting procedure, Jen does not own enough shares to gain a seat on the board. B. If straight voting applies, Jen is assured a seat on the board. C. If straight voting applies, Jen can control all of the open seats. D. If cumulative voting applies, Jen is assured one seat on the board. E. If cumulative voting applies, Jen can control all of the open seats.

D. If cumulative voting applies, Jen is assured one seat on the board.

Which one of the following will decrease the net present value of a project? A. Increasing the value of each of the project's discounted cash inflows. B. Moving each of the cash inflows forward to a sooner time period. C. Decreasing the required discount rate. D. Increasing the project's initial cost at time zero. E. Increasing the amount of the final cash inflow.

D. Increasing the project's initial cost at time zero.

The Fisher effect primarily emphasizes the effects of _____ on an investor's rate of return. A. Default. B. market movements. C. Interest rate changes. D. Inflation. E. The time to maturity.

D. Inflation.

Supernormal growth is a growth rate that: A. Is both positive and follows a year or more of negative growth. B. Exceeds a firm's previous year's rate of growth. C. Is generally constant for an infinite period of time. D. Is unsustainable over the long term. E. Applies to a single, abnormal year.

D. Is unsustainable over the long term.

DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of interest increases, then the: A. Coupon rate will also increase. B. Current yield will decrease. C. Yield to maturity will be less than the coupon rate. D. Market price of the bond will decrease. E. Coupon payment will increase.

D. Market price of the bond will decrease.

The secondary market is best defined by which one of the following? A. Market in which subordinated shares are issued and resold. B. Market conducted solely by brokers. C. Market dominated by dealers. D. Market where outstanding shares of stock are resold. E. Market where warrants are offered and sold.

D. Market where outstanding shares of stock are resold.

Southern Chicken is considering two projects. Project A consists of creating an outdoor eating area on the unused portion of the restaurant's property. Project B would use that outdoor space for creating a drive-thru service window. When trying to decide which project to accept, the firm should rely most heavily on which one of the following analytical methods? A. Profitability index. B. Internal rate of return. C. Payback. D. Net present value. E. Accounting rate of return.

D. Net present value.

The profitability index is most closely related to which one of the following? A. Payback. B. Discounted payback. C. Average accounting return. D. Net present value. E. Modified internal rate of return.

D. Net present value.

Kristi wants to start training her most junior assistant, Amy, in the art of project analysis. Amy has just started college and has no experience or background in business finance. To get her started, Kristi is going to assign the responsibility for all projects that have initial costs less than $1,000 to Amy to analyze. Which method is Kristi most apt to ask Amy to use in making her initial decisions? A. Discounted payback. B. Profitability index. C. Internal rate of return. D. Payback. E. Average accounting return.

D. Payback.

The counter area on the floor of the NYSE where a designated market maker operates is called a: A. Pit. B. Hot spot. C. Seat. D. Post. E. Platform.

D. Post.

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.

D. Prepaid services.

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.

D. Prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date.

Which one of the following rates represents the change, if any, in your purchasing power as a result of owning a bond? A. Risk-free rate. B. Realized rate. C. Nominal rate. D. Real rate. E. Current rate.

D. Real rate.

The Fisher effect is defined as the relationship between which of the following variables? A. Default risk premium, inflation risk premium, and real rates B. Nominal rates, real rates, and interest rate risk premium C. Interest rate risk premium, real rates, and default risk premium D. Real rates, inflation rates, and nominal rates E. Real rates, interest rate risk premium, and nominal rates

D. Real rates, inflation rates, and nominal rates

The final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following? A. Initial cost of each project. B. Timing of the cash inflows. C. Total cash inflows of each project. D. Required rate of return. E. Length of each project's life.

D. Required rate of return.

The dividend growth model: A. Only values stocks at Time 0. B. Cannot be used to value constant dividend stocks. C. Can be used to value both dividend-paying and non-dividend-paying stocks. D. Requires the growth rate to be less than the required return. E. Assumes dividends increase at a decreasing rate.

D. Requires the growth rate to be less than the required return

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.

D. Structured note.

A project has a required payback period of three years. Which one of the following statements is correct concerning the payback analysis of this project? A. The cash flows in each of the three years must exceed one-third of the project's initial cost if the project is to be accepted. B. The cash flow in year three is ignored. C. The project's cash flow in year three is discounted by a factor of (1 + R)3. D. The cash flow in year two is valued just as highly as the cash flow in year one. E. The project is acceptable whenever the payback period exceeds three years.

D. The cash flow in year two is valued just as highly as the cash flow in year one.

The bond market requires a return of 9.8 percent on the five-year bonds issued by JW Industries. The 9.8 percent is referred to as which one of the following? A. Coupon rate. B. Face rate. C. Call rate. D. Yield to maturity. E. Current yield.

D. Yield to maturity

Which one of the following represents the capital gains yield as used in the dividend growth model? A. D1 B. D1 / P0 C. P0 D. g E. g / P0

D. g

Which one of the following statements is correct concerning the two-stage dividend growth model? A. g1 cannot be negative. B. Pt = Dt/ R. C. g1 must be greater than g2. D. g1 can be greater than R. E. R must be less than g1 but greater than g2.

D. g1 can be greater than R.

Nadine is a retired widow who is financially dependent upon the interest income produced by her bond portfolio. Which one of the following bonds is the least suitable for her to own? A. 6-year, high-coupon, put bond. B. 5-year TIPS. C. 10-year AAA coupon bond. D. 5-year floating rate bond. E. 7- year income bond.

E. 7- year income bond.

Protective covenants: A. Apply to short-term debt issues but not to long-term debt issues. B. Only apply to privately issued bonds. C. Are a feature found only in government-issued bond indentures. D. Only apply to bonds that have a deferred call provision. E. Are primarily designed to protect bondholders.

E. Are primarily designed to protect bondholders.

A call-protected bond is a bond that: A. Is guaranteed to be called. B. Can never be called. C. Is currently being called. D. Is callable at any time. E. Cannot be called at this point in time.

E. Cannot be called at this point in time.

A 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.

E. Commission broker.

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings? A. Dual class. B. Cumulative. C. Non-cumulative. D. Preferred. E. Common.

E. Common.

Which one of the following statements related to corporate dividends is correct? A. Dividends are nontaxable income to shareholders. B. Dividends reduce the taxable income of the corporation. C. The chief executive officer of a corporation is responsible for declaring dividends. D. The chief financial officer of a corporation determines the amount of dividend to be paid. E. Corporate shareholders may receive a tax break on a portion of their dividend income.

E. Corporate shareholders may receive a tax break on a portion of their dividend income.

Which one of the following applies to a premium bond? A. Yield to maturity > current yield > coupon rate. B. Coupon rate = current yield = yield-to-maturity. C. Coupon rate > yield-to-maturity > current yield. D. Coupon rate < yield to maturity < current yield. E. Coupon rate > current yield > yield to maturity.

E. Coupon rate > current yield > yield to maturity.

The IRR that causes the net present value of the differences between two project's cash flows to equal zero is called the: A. Required return. B. Zero-sum rate. C. Present value rate. D. Break-even rate. E. Crossover rate.

E. Crossover rate.

Which one of these statements related to preferred stock is correct? A. Preferred shareholders normally receive one vote per share of stock owned. B. Preferred shareholders determine the outcome of any election that involves a proxy fight. C. Preferred shareholders are considered to be the residual owners of a corporation. D. Preferred stock normally has a stated liquidating value of $1,000 per share. E. Cumulative preferred shares are more valuable than comparable noncumulative shares.

E. Cumulative preferred shares are more valuable than comparable noncumulative 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.

E. Dealer

Jason's Paints just issued 20-year, 7.25 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms? A. Note. B. Discounted. C. Zero-coupon. D. Callable. E. Debenture.

E. Debenture

The length of time a firm must wait to recoup, in present value terms, the money it has invested in a project is referred to as the: A. Net present value period. B. Internal return period. C. Payback period. D. Discounted profitability period. E. Discounted payback period.

E. Discounted payback period.

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model? A. No dividends for five years, then increasing dividends forever B. $1 per share annual dividend for two years, then $1.25 annual dividends forever C. Decreasing dividends for six years followed by one final liquidating dividend payment D. Dividends payments that increase by 2, 3, and 4 percent respectively for three years followed by a constant dividend thereafter E. Dividend payments that increase by 10 percent per year for five years followed by dividends that increase by 3 percent annually thereafter

E. Dividend payments that increase by 10 percent per year for five years followed by dividends that increase by 3 percent annually thereafter

Callable bonds generally: A. Grant the bondholder the option to call the bond anytime after the deferment period. B. Are callable at par as soon as the call-protection period ends. C. Are called when market interest rates increase. D. Are called within the first three years after issuance. E. Have a sinking fund provision.

E. Have a sinking fund provision.

There are two distinct discount rates at which a particular project will have a zero net present value. In this situation, the project is said to: A. Have two net present value profiles. B. Have operational ambiguity. C. Create a mutually exclusive investment decision. D. Produce multiple economies of scale. E. Have multiple rates of return.

E. Have multiple rates of return.

Cat bonds are primarily designed to help: A. Municipalities survive economic recessions. B. Corporations respond to overseas competition. C. The federal government cope with huge deficits. D. Corporations recover from involuntary reorganizations. E. Insurance companies fund excessive claims.

E. Insurance companies fund excessive claims.

A "fallen angel" is a bond that has moved from: A. Being publicly traded to being privately traded. B. Being a long-term obligation to being a short-term obligation. C. Being a premium bond to being a discount bond. D. Senior status to junior status for liquidation purposes. E. Investment grade to speculative grade.

E. Investment grade to speculative grade.

The internal rate of return: A. May produce multiple rates of return when cash flows are conventional. B. Is best used when comparing mutually exclusive projects. C. Is rarely used in the business world today. D. Is principally used to evaluate small dollar projects. E. Is easy to understand.

E. Is easy to understand.

Which one of the following correctly applies to the average accounting rate of return? A. It considers the time value of money. B. It measures net income as a percentage of the sales generated by a project. C. It is the best method of analyzing mutually exclusive projects from a financial point of view. D. It is the primary methodology used in analyzing independent projects. E. It can be compared to the return on assets ratio.

E. It can be compared to the return on assets ratio.

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

E. Long-term, taxable junk bond

A Treasury yield curve plots Treasury interest rates relative to which one of the following? A. Market rates. B. Comparable corporate bond rates. C. The risk-free rate. D. Inflation. E. Maturity.

E. Maturity.

Which one of the following is a project acceptance indicator given an independent project with investing type cash flows? A. Profitability index less than 1.0. B. Project's internal rate of return less than the required return. C. Discounted payback period greater than requirement. D. Average accounting return that is less than the internal rate of return. E. Modified internal rate of return that exceeds the required return.

E. Modified internal rate of return that exceeds the required return.

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.

E. Multiple market maker system.

Interest rates that include an inflation premium are referred to as: A. Annual percentage rates. B. Stripped rates. C. Effective annual rates. D. Real rates. E. Nominal rates.

E. Nominal rates.

Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities? A. Senior bond. B. Debenture. C. Warrant. D. Common stock. E. Preferred stock.

E. Preferred stock.

Emst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets? A. Private. B. Auction. C. Tertiary. D. Secondary. E. Primary.

E. Primary.

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.

E. Profitability index.

The items included in an indenture that limit certain actions of the issuer in order to protect a bondholder's interests are referred to as the: A. Trustee relationships. B. Bylaws. C. Legal bounds. D. Trust deed. E. Protective covenants.

E. Protective covenants

Chemical Mines has 5,000 shareholders and is preparing to elect two new board members. You do not own enough shares to personally control the elections but are determined to oust the current leadership. Likewise, no other single shareholder owns sufficient shares to personally control the outcome of the election. Which one of the following is the most likely outcome of this situation given that some shareholders are happy with the existing management? A. Negotiated settlement where each side is granted control over one of the open seats. B. Protracted legal battle over control of the board of directors. C. Arbitrated settlement where the arbitrator determines who will be elected to the board. D. Control of the board decided without your influence. E. Proxy fight for control of the board.

E. Proxy fight for control of the board.

The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the: A. Equilibrium. B. Premium. C. Discount. D. Call price. E. Spread.

E. Spread

Which one of the following statements is correct? A. Stocks can only be assigned one dividend growth rate. B. Preferred stocks generally have constant growth rates. C. Dividend growth rates must be either zero or positive. D. All stocks can be valued using the dividend discount models. E. Stocks can have negative growth rates.

E. Stocks can have negative growth rates.

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.

E. Tax-deductible payments

Which one of these statements related to discounted payback is correct? A. Payback is a better method of analysis than is discounted payback. B. Discounted payback is used more frequently in business than is payback. C. Discounted payback does not require a cutoff point. D. Discounted payback is biased towards long-term projects. E. The discounted payback period decreases as the discount rate decreases.

E. The discounted payback period decreases as the discount rate decreases.

Swenson's is considering two mutually exclusive projects, Projects A and B, and has determined that the crossover rate for these projects is 11.7 percent. Given this you know that: A. Neither project will be accepted if the discount rate is less than 11.7 percent. B. Both projects have a negative NPV at discounts rates greater than 11.7 percent. C. Both projects provide an internal rate of return of 11.7 percent. D. Both projects have a zero NPV at a discount rate of 11.7 percent. E. The project that is preferred at a discount rate of 11 percent will be the opposite project of that preferred at a discount rate of 12 percent.

E. The project that is preferred at a discount rate of 11 percent will be the opposite project of that preferred at a discount rate of 12 percent.

A project has a net present value of zero. Which one of the following best describes this project? A. The project has a zero percent rate of return. B. The project requires no initial cash investment. C. The project has no cash flows. D. The summation of all of the project's cash flows is zero. E. The project's cash inflows equal its cash outflows in current dollar terms.

E. The project's cash inflows equal its cash outflows in current dollar terms.

Which one of the following statements is correct? A. The risk-free rate represents the change in purchasing power. B. Any return greater than the inflation rate represents the risk premium. C. Historical real rates of return must be positive. D. Nominal rates exceed real rates by the amount of the risk-free rate. E. The real rate must be less than the nominal rate given a positive rate of inflation.

E. The real rate must be less than the nominal rate given a positive rate of inflation.

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called? A. Alternative voting. B. Cumulative voting. C. Straight voting. D. Indenture voting. E. Voting by proxy.

E. Voting by proxy.

Which one of the following is the best example of two mutually exclusive projects? A. Building a furniture store beside a clothing outlet in the same shopping mall. B. Producing both plastic forks and spoons on the same assembly line. C. Using an empty warehouse to store both raw materials and finished goods. D. Promoting two products during the same television commercial. E. Waiting until a machine finishes molding Product A before being able to mold Product B.

E. Waiting until a machine finishes molding Product A before being able to mold Product B.

A bond has a market price that exceeds its face value. Which one of these features currently applies to this bond? A. Discount bond. B. Yield to maturity equal to the current yield. C. Currently selling at par. D. Current yield greater than coupon rate. E. Yield to maturity less than the coupon rate.

E. Yield to maturity less than the coupon rate.

A bond that has only one payment, which occurs at maturity, defines which one of these types of bonds? A. Debenture. B. Callable. C. Floating-rate. D. Junk. E. Zero coupon.

E. Zero coupon.