Finance Exam 2
The value of any asset is the ________. A) sum of all future cash flows it is expected to provide over the relevant time period B) sum of the present values of all future cash flows it is expected to provide over the relevant time period C) present value of the sum of all future cash flows it is expected to provide over the relevant time period D) sum of all compounded future cash flows it is expected to provide over the relevant time period
B) sum of the present values of all future cash flows it is expected to provide over the relevant time period
The beta associated with a risk-free asset ________. A) is greater than 1 B) is less than 1 C) is equal to 0 D) is between 0 and 1
C) is equal to 0
Assume Julian has a choice between two deposit accounts. Account A has an annual percentage rate of 7.55 percent but with interest compounded monthly. Account B has an annual percentage rate of 7.45 percent with interest compounded continuously. Which account provides the highest effective annual return? A) Account A B) Account B C) Both provide the same effective annual return D) We don't have sufficient information to make a choice
A) Account A
________ risk represents the portion of an asset's risk that can be eliminated by combining assets with less than perfect positive correlation. A) Diversifiable B) Market C) Systematic D) Economic
A) Diversifiable
Which of the following explains the general shape of the yield curve of a bond? A) Expectations theory B) Perfect market theory C) Capital asset pricing theory D) Securities market theory
A) Expectations theory
________ is the actual amount each common stockholder would expect to receive if a firm's assets are sold for their market value, creditors and preferred stockholders are repaid, and any remaining money is divided among the common stockholders. A) Liquidation value B) Book value C) The P/E multiple D) The present value of the dividends
A) Liquidation value
________ rate of interest is the actual rate charged by the supplier and paid by the demander of funds. A) Nominal B) Real C) Risk-free D) Inflationary
A) Nominal
Which of the following is true of preferred stocks? A) Preferred stock with a conversion feature allows holders to change each share into a stated number of shares of common stock. B) Like bonds, preferred stocks are due for payment on a fixed maturity date along with interest. C) Restrictive covenants of preferred stocks include provisions about listing of stocks on the securities exchange and determining the price of stock. D) A firm's bond indenture indicates how many authorized preferred shares and bonds it can issue.
A) Preferred stock with a conversion feature allows holders to change each share into a stated number of shares of common stock.
________ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends. A) Preferred stockholders B) Common stockholders C) Bondholders D) Creditors
A) Preferred stockholders
________ are financial instruments that allow stockholders to purchase additional shares at a price below the market price, in direct proportion to their number of owned shares. A) Rights offering B) Treasury stocks C) Preemptive rights D) Proxy statements
A) Rights offering
Which of the following is true of risk-return trade off? A) Risk can be measured on the basis of variability of return. B) Risk and return are inversely proportional to each other. C) T-bills are more riskier than equity due to imbalances in government policies. D) Riskier investments tend to have lower returns.
A) Risk can be measured on the basis of variability of return.
Which of the following is true of common stocks? A) The common stock of a corporation can be either privately or publicly owned. B) Firms often issue common stock with no par value. C) Preemptive rights often result in a dilution of ownership. D) A firm's corporate charter indicates the rate at which dividends are paid.
A) The common stock of a corporation can be either privately or publicly owned.
In comparing an ordinary annuity and an annuity due, which of the following is true? A) The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity. B) The future value of an ordinary annuity is always greater than the future value of an otherwise identical annuity due. C) The future value of an annuity due is always less than the future value of an otherwise identical ordinary annuity, since one less payment is received with an annuity due. D) All things being equal, one would prefer to receive an ordinary annuity compared to an annuity due.
A) The future value of an annuity due is always greater than the future value of an otherwise identical ordinary annuity.
Which of the following is a disadvantage of issuing preferred stock from the common stockholders' perspective? A) There is a seniority of preferred stockholder's claim over common stockholders. B) The preferred stockholders have superior voting rights in the selection of board of directors. C) The preferred stockholders are always paid a higher proportion of dividend payments. D) Issuance of preferred stocks will result in a higher risk, to the disadvantage of common stockholders.
A) There is a seniority of preferred stockholder's claim over common stockholders.
Which of the following is typically a feature of preferred stocks? A) They are settled prior to common stocks during liquidation. B) They are mostly noncumulative in nature. C) They are paid dividends that grow at a constant rate. D) They carry voting rights and have maturity date.
A) They are settled prior to common stocks during liquidation.
On ________, the stated interest rate is adjusted periodically within stated limits in response to changes in specified money or capital market rates. A) a floating rate bond B) a zero coupon bond C) a mortgage bond D) an equipment trust certificate
A) a floating rate bond
A bond will sell ________ when the stated rate of interest exceeds the required rate of return, ________ when the stated rate of interest is less than the required return, and ________ when the stated rate of interest is equal to the required return. A) at a premium; at a discount; equal to the par value B) at a premium; equal to the par value; at a discount C) at a discount; at a premium; equal to the par value D) equal to the par value; at a premium; at a discount
A) at a premium; at a discount; equal to the par value
The simplest type of probability distribution is a ________. A) bar chart B) normal distribution C) lognormal distribution D) Poisson distribution
A) bar chart
If the expected return is above the required return on an asset, rational investors will ________. A) buy the asset, which will drive the price up and cause expected return to reach the level of the required return B) buy the asset, which will drive the price down and cause the expected return to reach the level of the required return C) sell the asset, which will drive the price up and cause the expected return to reach the level of the required return D) sell the asset, since price is expected to decrease
A) buy the asset, which will drive the price up and cause expected return to reach the level of the required return
The ________ feature permits the issuer to repurchase bonds at a stated price prior to maturity. A) call B) conversion C) put D) swap
A) call
To compensate for the uncertainty of future interest rates and the fact that the longer the term of a loan the higher the probability that the borrower will default, the lender typically ________. A) charges a higher interest rate on long-term loans B) reserves the right to change the terms of the loan at any time C) includes excessively restrictive debt provisions D) reserves the right to demand immediate payment at any time
A) charges a higher interest rate on long-term loans
A ________ is a measure of relative dispersion used in comparing the risk of assets with differing expected returns. A) coefficient of variation B) chi square C) mean D) standard deviation
A) coefficient of variation
The ________ in the capital market is the basis for determining a bond's coupon interest rate. A) cost of money B) weighted average cost of capital C) bond's face value D) average coupon interest rate
A) cost of money
Dividends in arrears that must be paid to the preferred stockholders before payment of dividends to common stockholders are ________. A) cumulative B) nonparticipating C) participating D) convertible
A) cumulative
Convertible bonds are normally ________. A) debentures B) income bonds C) zero coupon bonds D) mortgage bonds
A) debentures
The annual rate of return is referred to as the ________. A) discount rate B) marginal rate C) risk-free rate D) marginal cost
A) discount rate
Strikes, lawsuits, regulatory actions, or the loss of a key account are all examples of ________. A) diversifiable risk B) market risk C) economic risk D) systematic risk
A) diversifiable risk
Combining two negatively correlated assets to reduce risk is known as ________. A) diversification B) valuation C) securitization D) risk aversion
A) diversification
The total rate of return on an investment over a given period of time is calculated by ________. A) dividing the asset's cash distributions during the period, plus change in value, by its beginning-of period investment value. B) dividing the asset's cash distributions during the period, plus change in value, by its ending-of period investment value. C) dividing the asset's cash distributions during the period, minus change in value, by its ending-of period investment value. D) dividing the asset's cash distributions during the period, minus change in value, by its beginning-of period investment value.
A) dividing the asset's cash distributions during the period, plus change in value, by its beginning-of period investment value.
The rate of interest actually paid or earned, also called the annual percentage rate (APR), is the ________ interest rate. A) effective B) nominal C) discounted D) continuous
A) effective
A(n) ________ portfolio maximizes return for a given level of risk, or minimizes risk for a given level of return. A) efficient B) risk-free C) risk-neutral D) risk-indifferent
A) efficient
________ are commonly issued in the reorganization of a failed or failing firm. A) Floating rate bonds B) Income bonds C) Mortgage bonds D) Equipment trust certificates
B) Income bonds
If a corporate bond is issued with a coupon rate that varies directly with the required return, the price of the bond will ________. A) equal the face value B) be less than the face value C) be greater than the face value D) be greater than or less than the face value depending on how interest rates vary
A) equal the face value
A foreign bond is issued by a(n) ________. A) foreign corporation or government and is denominated in the investor's home currency and sold in the investor's home market B) corporation or government and is denominated in the investor's foreign currency and sold in the foreign market C) international borrower and sold to investors in countries with currencies other than the local currency D) international borrower and sold to investors in countries with currencies in which the bond is denominated
A) foreign corporation or government and is denominated in the investor's home currency and sold in the investor's home market
The legal contract setting forth the terms and provisions of a corporate bond is a(n) ________. A) indenture B) debenture C) loan document D) promissory note
A) indenture
The ________ the coefficient of variation, the ________ the risk. A) lower; lower B) higher; lower C) lower; higher D) more stable; higher
A) lower; lower
Which of the following affects the cost of a bond? A) maturity of a bond B) dividend policy C) fixed assets purchased from the proceeds of bond issue D) money market regulations
A) maturity of a bond
An upward-sloping yield curve that indicates cheaper short-term borrowing costs than long-term borrowing costs is called as ________. A) normal yield curve B) inverted yield curve C) flat yield curve D) lognormal yield curve
A) normal yield curve
Holders of equity capital ________. A) own the firm B) receive interest payments C) receive guaranteed income D) have loaned money to the firm
A) own the firm
An annuity with an infinite life is called a(n) ________. A) perpetuity B) primia C) option D) deep discount
A) perpetuity
The CAPM can be divided into ________. A) risk-free rate and risk premium B) risk premium and inflation rate C) inflation rate and market rate D) market rate and inflation premium
A) risk-free rate and risk premium
If a manager prefers investments with greater risk even if they have lower expected returns, then he is following a ________ strategy. A) risk-seeking B) risk-indifferent C) risk-averse D) risk-neutral
A) risk-seeking
ADRs are ________. A) securities, backed by American depositary shares (ADSs), that permit U.S. investors to hold shares of non-U.S. companies and trade them in U.S. markets B) securities, backed by Securities Exchange Commission (SEC), that permit all investors to hold shares of U.S. companies and trade them in U.S. markets C) securities, backed by American depositary shares (ADSs), that permit non-U.S. investors to hold shares of U.S. companies and trade them in U.S. markets D) securities, backed by Securities Exchange Commission (SEC), that permit U.S. investors to hold shares of non-U.S. companies and trade them in international markets.
A) securities, backed by American depositary shares (ADSs), that permit U.S. investors to hold shares of non-U.S. companies and trade them in U.S. markets
A ________ give bondholders the right to purchase a certain number of shares of the issuer's common stock at a specified price over a certain period of time. A) stock purchase warrant B) call feature C) swap D) conversion feature
A) stock purchase warrant
The current yield on a bond is measured by ________. A) the annual interest payment divided by the current price B) the annual interest payment divided by the par value C) the annual interest payment divided by the maturity value D) the annual interest payment divided by the yield to maturity
A) the annual interest payment divided by the current price
The higher an asset's beta, ________. A) the more responsive it is to changing market returns B) the less responsive it is to changing market returns C) the higher the expected return will be in a down market D) the lower the expected return will be in an up market
A) the more responsive it is to changing market returns
Stock rights provide the stockholder with ________. A) the right to purchase additional shares in direct proportion to their number of owned shares B) the right to elect the board of directors C) cumulative voting privileges over the preference stockholders D) the opportunity to receive extraordinary earnings
A) the right to purchase additional shares in direct proportion to their number of owned shares
A(n) ________ is a paid individual, corporation, or a commercial bank trust department that acts as a third party to a bond indenture. A) trustee B) investment banker C) bond issuer D) bond rating agency
A) trustee
A group formed by an investment banker to share the financial risk associated with underwriting new securities is called a(n) ________. A) underwriting syndicate B) selling group C) investment banking consortium D) broker pool
A) underwriting syndicate
The portion of an asset's risk that is attributable to firm-specific, random causes is called ________. A) unsystematic risk B) nondiversifiable risk C) market risk D) political risk
A) unsystematic risk
A(n) ________ yield curve reflects higher expected future rates of interest. A) upward-sloping B) flat C) downward-sloping D) linear
A) upward-sloping
The yield curve in an economic period where higher future inflation is expected would be ________. A) upward-sloping B) flat C) downward-sloping D) lognormal
A) upward-sloping
A(n) ________ is a graphic depiction between the maturity and rate of return for bonds with similar risks. A) yield curve B) supply function C) risk-return profile D) aggregate demand curve
A) yield curve
Which of the following is true of outstanding shares? A) A firm cannot sell more shares than the outstanding shares mentioned in the charter. B) Authorized shares become outstanding shares when they are issued or sold to investors. C) Outstanding shares are indicated in a firm's corporate charter. D) Outstanding shares are the shares repurchased by the firm.
B) Authorized shares become outstanding shares when they are issued or sold to investors.
Which of the following is a difference between common stock and bonds? A) Bondholders have a voice in management; common stockholders do not. B) Bondholders have a senior claim on assets and income relative to stockholders. C) Stocks have a stated maturity but bonds do not. D) Dividend paid to stockholders is tax-deductible but interest paid to bondholders are not.
B) Bondholders have a senior claim on assets and income relative to stockholders.
________ is the value of a firm's ownership in the event that all assets are sold for their exact accounting value and the proceeds remaining after paying all liabilities (including preferred stock) are divided among common stockholders. A) Liquidation value B) Book value C) The P/E multiple D) The present value of the common stock
B) Book value
________ is the amount earned on a deposit that has become the part of the principal at the end of a specified time period. A) Discount interest B) Compound interest C) Primary interest D) Future value
B) Compound interest
________ is used to finance "rolling stock"—airplanes,trucks,boats,railroad cars. A) Income bonds B) Equipment trust certificates C) Collateral trust bonds D) Subordinated debentures
B) Equipment trust certificates
________ have a short maturities, typically one to five years, and which can be renewed for a similar period at the option of their holders. A) Floating rate bonds B) Extendible notes C) Putable bonds D) Junk bonds
B) Extendible notes
________ bonds are characterized by interest payments that are required only when earnings are available. A) Floating rate B) Income C) Mortgage D) Junk
B) Income
Which of the following is true of equity? A) equityholders do not have voting rights. B) It does not mature, so repayment is not required. C) It is a temporary form of financing for a firm. D) Equity financing is obtained from creditors.
B) It does not mature, so repayment is not required.
Which of the following is true of the issuance of nonvoting common stock? A) It is issued in the event of a hostile takeover to preserve the interests of existing owners. B) It helps the corporation to raise capital through the sale of common stock, without giving up its voting control. C) It helps the existing stockholders to automatically transfer their voting rights to new stockholders without any legal proceeding. D) It tends to result in the dilution of voting rights of current stockholders.
B) It helps the corporation to raise capital through the sale of common stock, without giving up its voting control.
Which of the following is true of par value of a common stock? A) It is determined on the basis of the stock's market value. B) It is an arbitrary value established for legal purposes in a firm's corporate charter. C) It indicates the market value at which the stock was originally sold. D) It allows stockholders to purchase additional shares at a price below the market price.
B) It is an arbitrary value established for legal purposes in a firm's corporate charter.
________ are popular vehicle used to finance mergers and takeovers. A) Income bonds B) Junk bonds C) Floating rate bonds D) Convertible debentures
B) Junk bonds
________ mainly explains the tendency for the yield curve to be upward sloping. A) Expectations theory B) Liquidity preference theory C) Market segmentation theory D) Investor perception theory
B) Liquidity preference theory
________ rate of interest creates equilibrium between the supply of savings and the demand for investment funds. A) Nominal B) Real C) Risk-free D) Inflationary
B) Real
________ allow bondholders to purchase a certain number of shares of the firm's common stock at a specified price over a certain period of time. A) Call options B) Stock purchase warrants C) Debentures D) Put options
B) Stock purchase warrants
________ are claims that are not satisfied until those of the creditors holding certain (senior) debts have been fully satisfied. A) Convertible debentures B) Subordinated debentures C) Mortgage bonds D) Collateral trust bonds
B) Subordinated debentures
________ means that subsequent creditors agree to wait until all claims of the are senior debt satisfied before having their claims satisfied. A) Security interest B) Subordination C) Sinking fund requirement D) Bond indenture
B) Subordination
Which of the following is an attribute of investment bankers? A) They make long-term investments for banking institutions. B) They bear the risk of selling a security issue. C) They act as middlemen between the issuer and the banker. D) They provide the issuer with advice relating to the amounts of dividend to be paid.
B) They bear the risk of selling a security issue.
Which of the following is a marketable security? A) mutual funds B) Treasury bill C) provident fund D) forward contracts
B) Treasury bill
A beta coefficient of +1 represents an asset that ________. A) is more responsive than the market portfolio B) has the same response as the market portfolio C) is less responsive than the market portfolio D) is unaffected by market movement
B) has the same response as the market portfolio
If the required return is greater than the coupon rate, a bond will sell at ________. A) par B) a discount C) a premium D) book value
B) a discount
Generally, an increase in risk will result in ________. A) a lower required return or interest rate B) a higher required return or interest rate C) a higher return on investment D) a lower return on investment
B) a higher required return or interest rate
A bond rated Aaa according to Moody's, is considered ________. A) a high grade bond B) a prime quality bond C) an upper medium grade bond D) a medium grade bond
B) a prime quality bond
Risk aversion is the behavior exhibited by managers who require ________. A) an increase in return, for a given decrease in risk B) an increase in return, for a given increase in risk C) no changes in return, for a given increase in risk D) decrease in return, for a given increase in risk
B) an increase in return, for a given increase in risk
An increase in the beta of a corporation, all else being the same, indicates ________. A) a decrease in risk, a higher required rate of return, and hence a lower share price B) an increase in risk, a higher required rate of return, and hence a lower share price C) a decrease in risk, a lower required rate of return, and hence a higher share price D) an increase in risk, a lower required rate of return, and hence a higher share price
B) an increase in risk, a higher required rate of return, and hence a lower share price
ABC company has two bonds outstanding that are the same except for the maturity date. Bond D matures in 4 years, while Bond E matures in 7 years. If the required return changes by 5 percent, then ________. A) bond D will have a greater change in price B) bond E will have a greater change in price C) the price of the bonds will be constant D) the percentage price change for the bonds will be equal
B) bond E will have a greater change in price
A type of long-term financing used by both corporations and government entities is ________. A) common stocks B) bonds C) preferred stocks D) retained earnings
B) bonds
Unsystematic risk ________. A) does not change B) can be eliminated through diversification C) cannot be estimated D) affects all firms in a market
B) can be eliminated through diversification
The return expected from an asset is fully defined by its ________. A) risk and cash flow B) cash flow and timing C) discount rate D) beta
B) cash flow and timing
The key inputs to the valuation process include ________. A) returns and risk B) cash flow, cash flow timing, and risk C) cash flows and discount rate D) returns, discount rate, and risk
B) cash flow, cash flow timing, and risk
An efficient portfolio is defined as ________. A) grouping of assets with same level of risk B) collection of assets with the aim of maximizing the return C) an investment in a single asset D) grouping of assets with the highest possible correlation
B) collection of assets with the aim of maximizing the return
The ________ feature allows bondholders to change each bond into stated number of shares of stock. A) call B) conversion C) put D) swap
B) conversion
A debt instrument indicating that a corporation has borrowed a certain amount of money and promises to repay it in the future under clearly defined terms is called a(n) ________. A) common stock B) corporate bond C) indenture D) preferred stock
B) corporate bond
Combining two assets having perfectly negatively correlated returns will result in the creation of a portfolio with an overall risk that ________. A) remains unchanged B) decreases to a level below that of either asset C) increases to a level above that of either asset D) stabilizes to a level between the asset with the higher risk and the asset with the lower risk
B) decreases to a level below that of either asset
If the present value of a perpetual income stream is increasing, the discount rate must be ________. A) increasing B) decreasing C) changing unpredictably D) increasing proportionally
B) decreasing
Stated interest rate under ________ is adjusted periodically within stated limits in response to changes in specified money market or capital market rates. A) junk bonds B) floating rate bonds C) extendible notes D) putable bonds
B) floating rate bonds
Because equity holders are the last to receive any distribution of assets as a result of bankruptcy proceedings, they expect ________. A) fixed dividend payments B) greater returns from their investment in the firm's stock C) all profits to be paid out in dividends D) warrants to be attached to the stock issue
B) greater returns from their investment in the firm's stock
Lower (less positive and more negative) the correlation between asset returns, ________. A) lesser the potential diversification of risk B) greater the potential diversification of risk C) lower the potential profit D) lesser the assets have to be monitored
B) greater the potential diversification of risk
A beta coefficient of -1 represents an asset that ________. A) is more responsive than the market portfolio B) has the same response as the market portfolio but in opposite direction C) is less responsive than the market portfolio D) is unaffected by market movement
B) has the same response as the market portfolio but in opposite direction
Payment of interest required only when earnings are made available from which to make a payment is characteristic of a(n) ________. A) floating rate bond B) income bond C) mortgage bond D) equipment trust certificate
B) income bond
Bond indentures include restrictive covenants. These provisions protect the bondholders against ________. A) increase in inflation rate B) increase in borrower's risk C) decrease in liquidity risk D) maturity risk
B) increase in borrower's risk
An increase in the Treasury Bill rate ________. A) has no effect on the required rate of return of a common stock B) increases the required rate of return of a common stock C) doubles the required rate of return of a common stock D) increases the beta of a common stock
B) increases the required rate of return of a common stock
The size of a loan and its issuance costs (as a percentage of the amount borrowed) are ________. A) not related B) inversely related C) independent D) perfectly positively correlated
B) inversely related
A downward-sloping yield curve that indicates generally cheaper long-term borrowing costs than short-term borrowing costs is called ________. A) normal yield curve B) inverted yield curve C) flat yield curve D) linear yield curve
B) inverted yield curve
As risk aversion increases ________. A) a firm's beta will remain neutral B) investors' required rate of return will increase C) a firm's beta will decrease D) investors' required rate of return will remain unchanged
B) investors' required rate of return will increase
The purpose of the debt covenant that prohibits borrowers from entering into certain types of leases is to ________. A) protect the lender by controlling the risk and marketability of the borrower's security investments alternatives B) limit the amount of fixed-payment obligations C) ensure a cash shortage does not cause an inability to meet current obligations D) limit the annual cash dividends paid by the firm
B) limit the amount of fixed-payment obligations
The theory suggesting that for any given issuer, long-term interest rates tends to be higher than short-term rates is called ________. A) expectation hypothesis B) liquidity preference theory C) market segmentation theory D) interest parity theory
B) liquidity preference theory
An efficient portfolio is one that ________. A) guarantees a predetermined rate of return B) maximizes return for a given level of risk C) consists of a single asset, which gives maximum return D) maximizes return at all risk levels
B) maximizes return for a given level of risk
The rate of interest agreed upon contractually charged by a lender or promised by a borrower is the ________ interest rate. A) effective B) nominal C) discounted D) continuous
B) nominal
War, inflation, and the condition of the foreign markets are all examples of ________. A) business specific risk B) nondiversifiable risk C) internal risk D) unsystematic risk
B) nondiversifiable risk
An example of a standard debt provision is to ________. A) limit the corporation's annual cash dividend payments B) pay taxes and other liabilities when due C) restrict the corporation from disposing of fixed assets D) maintain a minimum level of liquidity
B) pay taxes and other liabilities when due
The amount of money that would have to be invested today at a given interest rate over a specified period in order to equal a future amount is called ________. A) future value B) present value C) future value of an annuity D) compounded value
B) present value
The value of a bond is the present value of its interest payments plus ________. A) future value of its par value B) present value of its par value C) its face value D) present value of interest payment
B) present value of its par value
The purpose of adding an asset with a negative or low positive beta is to ________. A) reduce profit B) reduce risk C) increase profit D) increase risk
B) reduce risk
If a manager prefers a higher return investment regardless of its risk, then he is following a ________ strategy. A) risk-seeking B) risk-neutral C) risk-averse D) risk-aware
B) risk-neutral
A common approach of estimating the variability of returns involving the forecast of pessimistic, most likely, and optimistic returns associated with an asset is called ________. A) marginal analysis B) scenario analysis C) break-even analysis D) DuPont analysis
B) scenario analysis
If expected return is less than required return on an asset, rational investors will ________. A) buy the asset, which will drive the price up and cause expected return to reach the level of the required return B) sell the asset, which will drive the price down and cause the expected return to reach the level of the required return C) sell the asset, which will drive the price up and cause the expected return to reach the level of the required return D) buy the asset, since price is expected to increase
B) sell the asset, which will drive the price down and cause the expected return to reach the level of the required return
A ________ is a restrictive provision in a bond indenture, providing for the systematic retirement of the bonds prior to their maturity. A) redemption clause B) sinking-fund requirement C) conversion feature D) subordination clause
B) sinking-fund requirement
If the coupon rate of a bond is equal to its required rate of return, then ________. A) the current value is not equal to par value B) the current value is equal to par value C) the maturity value is equal to par value D) the current value is equal to maturity value
B) the current value is equal to par value
Stock purchase warrants are instruments that give their holders ________. A) the obligation to purchase a certain number of shares of the issuer's common stock at a specified price over a certain period of time B) the right to purchase a certain number of shares of the issuer's common stock at a specified price over a certain period of time C) the obligation to sell a certain number of shares of the issuer's preferred stock at a specified price over a certain period of time D) the right to sell a certain number of shares of the issuer's preferred stock at a specified price over a certain period of time
B) the right to purchase a certain number of shares of the issuer's common stock at a specified price over a certain period of time
A proxy statement gives shareholders the right ________. A) of one vote for each share owned B) to give up their vote to another party C) to maintain their proportionate ownership in the corporation when new common stock is issued D) to sell their share of stock at a premium
B) to give up their vote to another party
An example of an external factor that affects a corporation's risk or beta, is ________. A) a change in the financing mix used B) toxic spills used during takeovers C) a change in the asset mix D) a change in top management
B) toxic spills used during takeovers
The process that links risk and return in order to determine the worth of an asset is termed ________. A) securitization B) valuation C) discounting D) compounding
B) valuation
When issuing a(n) ________ the issuer can annually deduct the current year's interest accrual without having to actually pay the interest until the bond matures. A) junk bond B) zero coupon bond C) floating rate bond D) extendible note
B) zero coupon bond
A(n) ________ is issued with no or very low coupon and sells significantly below its par value. A) income bond B) zero or low coupon bond C) mortgage bond D) subordinated debenture
B) zero or low coupon bond
A firm issued 10,000 shares of no par-value common stock, receiving proceeds of $40 per share. The amount recorded is ________. A) $0 in the Common Stock account B) $0 in the Paid-in Capital in Excess of Par account C) $400,000 in the Common Stock account D) $400,000 in the Paid-in Capital in Excess of Par account
C) $400,000 in the Common Stock account
Which of the following is true of annuities? A) An ordinary annuity is an equal payment paid or received at the beginning of each period. B) An annuity due is a payment paid or received at the beginning of each period that increases by an equal amount each period. C) An annuity due is an equal stream of cash flows is paid or received at the beginning of each period. D) An ordinary annuity is an equal payment paid or received at the end of each period that increases by an equal amount each period.
C) An annuity due is an equal stream of cash flows is paid or received at the beginning of each period.
________ are secured by stock and/or bonds that are owned by the issuer. A) Mortgage bonds B) Equipment trust certificates C) Collateral trust bonds D) Subordinated debentures
C) Collateral trust bonds
________ is a statistical measure of the relationship between any two series of numbers. A) Coefficient of variation B) Standard deviation C) Correlation D) Probability
C) Correlation
When the required return is constant and equal to the coupon rate, the price of a bond as it approaches its maturity date will ________. A) remain at par B) increase C) decrease D) change depending on whether it is a discount or premium bond
C) decrease
Which of the following is true of common stock ? A) It is often considered quasi-debt due to fixed payment obligation. B) It has less restrictive covenants than debt. C) It gives the holder voting rights which permit selection of the firm's directors. D) Its holders have priority over preferred stockholders in the event of liquidation of assets.
C) It gives the holder voting rights which permit selection of the firm's directors.
________ are debt rated Ba or lower by Moody's or BB or lower by Standard & Poor's and are commonly used by rapidly growing firms to obtain growth capital, most often to finance mergers and takeovers. A) Subordinated debentures B) Mortgage bonds C) Junk bonds D) Equipment trust certificates
C) Junk bonds
The use of the ________ is especially helpful in valuing firms that are not publicly traded. A) liquidation value B) book value C) P/E multiple D) present value of the dividends
C) P/E multiple
Which of the following valuation methods is superior to others in the list since it considers expected earnings? A) liquidation value B) book value C) P/E multiple D) present value of the interest
C) P/E multiple
Which of the following is true of risk? A) Risk and return are inversely proportionate to each other. B) Higher the risk associated with a security the lower is its return. C) Risk is a measure of the uncertainty surrounding the return that an investment will earn. D) Riskier investments tend to have lower returns as compared to T-bills which are risk free.
C) Risk is a measure of the uncertainty surrounding the return that an investment will earn.
________ is a guide to a firm's value if it is assumed that investors value the earnings of a given firm in the same way they do the average firm in the industry. A) Liquidation value B) Book value C) The P/E multiple D) The present value of the dividends
C) The P/E multiple
An increase in nondiversifiable risk would ________. A) cause an increase in the beta and would lower the required return B) have no effect on the beta and would, therefore, cause no change in the required return C) cause an increase in the beta and would increase the required return D) cause a decrease in the beta and would, therefore, lower the required rate of return
C) cause an increase in the beta and would increase the required return
Rational buyers and sellers use their assessment of an asset's risk and return to determine its value. Relative to this concept, which of the following is true? A) To a buyer the asset's value represents the minimum price that he or she would pay to acquire it. B) To a seller the asset's value represents the maximum sale price. C) To a buyer the asset's value represents the maximum price that he or she would pay to acquire it. D) To a seller the asset's value represents the price at which he acquired the asset.
C) To a buyer the asset's value represents the maximum price that he or she would pay to acquire it.
A proxy battle is the attempt by ________. A) the creditors of a bankrupt corporation to seize assets of the corporation B) the management to dismiss the board of directors for their incapability to manage the operations C) a nonmanagement group to unseat the existing management and gain control of the firm D) the employees to form trade unions to influence decisions on behalf of members
C) a nonmanagement group to unseat the existing management and gain control of the firm
If the required return is less than the coupon rate, a bond will sell at ________. A) par B) a discount C) a premium D) book value
C) a premium
Yield to maturity on a bond with price equal to its par value will ________. A) be less than the coupon rate B) be more than the coupon rate C) always be equal to the coupon rate D) be less than or equal to the coupon rate depending on the required return
C) always be equal to the coupon rate
The ________ describes the relationship between nondiversifiable risk and the required rate of return. A) EBIT-EPS approach to capital structure B) supply-demand function for assets C) capital asset pricing model D) Gordon model
C) capital asset pricing model
In the basic valuation model, risk is generally incorporated into the ________. A) cash flows B) timing C) discount rate D) total value
C) discount rate
Bonds which sell at less than face value are priced at a ________, while bonds which sell at greater than face value sell at a ________. A) par; premium B) discount; par C) discount; premium D) coupon; premium
C) discount; premium
Common stockholders expect to earn a return by receiving ________. A) semiannual interest B) fixed periodic payments C) dividends D) annual interest
C) dividends
According to the efficient market hypothesis, prices of actively traded stocks ________. A) can be under- or over-valued in an efficient market B) can only be under-valued in an efficient market C) do not differ from their true values in an efficient market D) can only be over-valued in an efficient market
C) do not differ from their true values in an efficient market
Preferred stockholders ________. A) do not have preference over common stockholders in the case of liquidation B) have preference over bondholders in the case of liquidation C) do not have preference over bondholders in the case of liquidation D) have preference over creditors in the case of liquidation
C) do not have preference over bondholders in the case of liquidation
A(n) ________ yield curve reflects lower expected future rates of interest. A) upward-sloping B) flat C) downward-sloping D) linear
C) downward-sloping
The yield curve in an economic period where lower future inflation is expected would be ________. A) upward-sloping B) flat C) downward-sloping D) exponential
C) downward-sloping
The purpose of the debt covenant that requires maintaining a minimum level of net working capital is to ________. A) protect the lender by controlling the risk and marketability of the borrower's security investment alternatives B) limit the amount of fixed-payment obligations C) ensure a cash shortage does not cause an inability to meet current obligations D) limit the annual cash dividends paid by the firm
C) ensure a cash shortage does not cause an inability to meet current obligations
A yield curve that reflects relatively similar borrowing costs for both short-term and long-term loans is called as ________. A) normal yield curve B) inverted yield curve C) flat yield curve D) lognormal curve
C) flat yield curve
A(n) ________ gives purchasers inflation protection. A) zero-coupon bond B) junk bond C) floating rate bond D) income bond
C) floating rate bond
A violation of preferred stock restrictive covenants usually permits preferred shareholders to ________. A) force the company into bankruptcy B) suit against the shareholders C) force the retirement of the preferred stock at or above its par value D) force the company to repurchase the shares at a stated amount below par
C) force the retirement of the preferred stock at or above its par value
A significant portion of the return on a zero coupon bond is in the form of ________. A) interest and gain in value B) interest C) gain in value D) tax reduction
C) gain in value
The cost of preferred stock is ________. A) lower than the cost of long-term debt. B) higher than the cost of common stock. C) higher than the cost of long-term debt and lower than the cost of common stock. D) lower than the cost of convertible long-term debt and higher than the cost of common stock.
C) higher than the cost of long-term debt and lower than the cost of common stock.
Less certain a cash flow, the ________ the risk, and ________ the present value of the cash flow. A) lower; higher B) lower; lower C) higher; lower D) higher; higher
C) higher; lower
A(n) ________ in the beta coefficient normally causes ________ in the required return and therefore ________ in the price of the stock, everything else remaining the same. A) increase; an increase; an increase B) increase; a decrease; an increase C) increase; an increase; a decrease D) decrease; a decrease; a decrease
C) increase; an increase; a decrease
The future value of a dollar ________ as the interest rate increases and ________ the further in the future an initial deposit is to be received. A) decreases; decreases B) decreases; increases C) increases; increases D) increases; decreases
C) increases; increases
The decision to refund a callable bond ________. A) should be made only if interest rates have increased B) is a net working capital decision C) is a capital budgeting decision D) is an investing decision
C) is a capital budgeting decision
The cost of a long-term debt generally ________ that of a short-term debt. A) is less than B) is equal to C) is greater than D) is less than or equal to
C) is greater than
The purpose of the restrictive debt covenant that prohibits the sale of accounts receivable is to ________. A) assure the lender that additional borrowing is constrained B) limit the amount of fixed-payment obligations C) limit the realization of current assets to cash D) limit the payment of annual cash dividends
C) limit the realization of current assets to cash
Bonds are ________. A) a series of perpetual short-term debt instruments B) a form of equity financing that pays interest C) long-term debt instruments used to raise large sums of money D) a hybrid form of financing used to raise large sums of money from a diverse group of lenders
C) long-term debt instruments used to raise large sums of money
In the capital asset pricing model, the beta coefficient is a measure of ________. A) business-specific risk B) maturity risk C) market risk D) unsystematic risk
C) market risk
A(n) ________ is secured by real estate. A) income bond B) debenture C) mortgage bond D) subordinated debenture
C) mortgage bond
Which of the following is an advantage for a firm to issue common stock over long-term debt? A) the cost of equity financing being less than the cost of debt financing B) the primary claim of equity holders on income and assets in the event of liquidation C) no maturity date on which the par value of the issue must be repaid D) the tax deductibility of dividends which lowers the cost of equity financing
C) no maturity date on which the par value of the issue must be repaid
Risk that affects all firms is called ________. A) maturity risk B) unsystematic risk C) nondiversifiable risk D) reinvestment risk
C) nondiversifiable risk
Systematic risk is also referred to as ________. A) business specific risk B) internal risk C) nondiversifiable risk D) maturity risk
C) nondiversifiable risk
Shares of stock currently owned by a firm's shareholders are called ________. A) authorized shares B) issued shares C) outstanding shares D) treasury shares
C) outstanding shares
A $1,000, 8% bond sells for 980. $1,000 is called the ________. A) current value B) market value C) par value D) auction value
C) par value
A(n) ________ is an annuity with an infinite life making continual annual payments. A) amortized loan B) principal C) perpetuity D) APR
C) perpetuity
Preferred stock is valued as if it were a ________. A) fixed-income obligation B) bond C) perpetuity D) common stock
C) perpetuity
The riskiness of publicly traded bond issues is rated by independent agencies. According to Moody's rating system, an Aaa bond and a Caa bond are ________ and ________ respectively. A) speculative; investment grade B) prime quality; medium grade C) prime quality; speculative D) medium grade; lowest grade
C) prime quality; speculative
The ________ of a given outcome is its chance of occurring. A) dispersion B) standard deviation C) probability D) reliability
C) probability
The attempt by a nonmanagement group to gain control of the management of a firm by soliciting a sufficient number of proxy votes is called a ________. A) hostile takeover B) bankruptcy proceeding C) proxy battle D) management buyout
C) proxy battle
Preferred stock is characterized by ________. A) voting rights B) maturity date C) quasi-debt nature D) preemptive rights
C) quasi-debt nature
The purpose of nonvoting common stock is to ________. A) limit the voting power of the management B) allow the minority interest to elect one director C) raise capital without giving up any voting control D) give preference on distribution of earnings to those shareholders who own the stock
C) raise capital without giving up any voting control
Treasury stock refers to the ________. A) sale of stock at a price greater than the par value B) stock issued by the US government C) repurchase of outstanding stock D) authorization of additional shares of stock by the board of directors
C) repurchase of outstanding stock
Which of the following is usually a right of a preferred stockholder? A) right to convert shares to common stock on demand B) preemptive right to participate in the issuance of new common shares C) right to receive dividend payments before any dividends are paid to common stockholders D) right to sue company in bankruptcy proceedings if promised preferred dividends
C) right to receive dividend payments before any dividends are paid to common stockholders
In a ________, new shares are sold to the existing shareholders. A) private placement B) public offering C) rights offering D) direct placement
C) rights offering
The ________ rate is typically the nominal rate of interest on a three-month U.S. Treasury bill. A) expected B) real C) risk-free D) premium
C) risk-free
Relevant portion of an asset's risk attributable to market factors that affect all firms is called ________. A) credit risk B) diversifiable risk C) systematic risk D) maturity risk
C) systematic risk
Combining negatively correlated assets having the same expected return results in a portfolio with ________ level of expected return and ________ level of risk. A) a higher; a lower B) the same; a higher C) the same; a lower D) a lower; a higher
C) the same; a lower
In the capital asset pricing model, the general risk preferences of investors in the marketplace are reflected by ________. A) the risk-free rate B) the level of the security market line C) the slope of the security market line D) the difference between the beta and the risk-free rate
C) the slope of the security market line
Equity capital can be raised through ________. A) the money market B) the NYSE bond market C) the stock market D) a private placement with an insurance company
C) the stock market
A proxy statement is a statement transferring ________. A) the ownership of a bondholder to another party B) the votes of a bondholder to the another party C) the votes of a stockholder to another party D) the ownership of a stockholder to another party
C) the votes of a stockholder to another party
The preemptive right gives shareholders the right ________. A) to caste one vote for each share owned at the annual meeting of the company B) to give up their vote to another party if they do not attend the annual meeting C) to maintain their proportionate ownership in the corporation when new common stock is issued D) to sell their share of stock at a premium in the event of liquidation
C) to maintain their proportionate ownership in the corporation when new common stock is issued
As randomly selected securities are combined to create a portfolio, the ________ risk of the portfolio decreases until 10 to 20 securities are included. The portion of the risk eliminated is ________ risk, while that remaining is ________ risk. A) diversifiable; nondiversifiable; total B) relevant; irrelevant; total C) total; diversifiable; nondiversifiable D) total; nondiversifiable; diversifiable
C) total; diversifiable; nondiversifiable
For an investor who plans to purchase a bond maturing in one year, the primary consideration should be ________. A) retained earnings B) face value C) yield to maturity D) net income
C) yield to maturity
Deeply discounted bond that pays no coupon interest is a ________. A) junk bond B) floating rate bond C) zero coupon bond D) subordinated debenture
C) zero coupon bond
The ________ is utilized to value preferred stock. A) capital asset pricing model B) arbitrage pricing model C) zero-growth model D) Black-Scholes model
C) zero-growth model
When the required return is constant but different from the coupon rate, the price of a bond as it approaches its maturity date will ________. A) remain constant B) increase C) decrease D) approach par
D) approach par
Which of the following is true of risk aversion? A) Greater risk aversion results in lower required returns for each level of risk. B) A reduction in risk aversion causes the required return for each level of risk to increase. C) In general, widely shared expectations of hard times ahead tend to cause investors to become less risk averse. D) Changes in risk aversion, and therefore shifts in the SML, result from changing preferences of investors.
D) Changes in risk aversion, and therefore shifts in the SML, result from changing preferences of investors.
Which of the following is typically a feature of common stock? A) Most common stocks are callable. B) Most common stocks are cumulative. C) Common stocks have a maturity value. D) Common stocks may or may not pay dividends.
D) Common stocks may or may not pay dividends.
________ is the extent of an asset's risk. It is found by subtracting the pessimistic outcome from the optimistic outcome. A) Variance B) Standard deviation C) Probability distribution D) Range
D) Range
Which of the following is true of efficient-market hypothesis? A) Securities are typically in disequilibrium, meaning they are fairly priced and their expected returns are more than their required returns. B) Insider trading scandals have proven that stocks are not fully and fairly priced; as a result, it would be worthwhile for investors should spend time searching for mispriced (over- or under-valued) stocks. C) At any point in time, security prices fully reflect all internal information available about the firm and its securities, and these prices are insensitive to new information. D) Since stocks are fully and fairly priced, it follows that investors should not waste their time trying to find and capitalize on miss-priced (undervalued or overvalued) securities.
D) Since stocks are fully and fairly priced, it follows that investors should not waste their time trying to find and capitalize on miss-priced (undervalued or overvalued) securities
Which of the following is true of risk premium? A) T-bills have a have a higher risk premium than that of Treasury bonds. B) The government bonds have a higher risk premium than that of corporate bonds. C) The speculative corporate issues have a lower risk premium than that of the higher rated corporate issues. D) The lower-rated corporate issues have a higher risk premium than that of the higher rated corporate issues.
D) The lower-rated corporate issues have a higher risk premium than that of the higher rated corporate issues.
Which of the following is true of a common stock? A) It gives voting rights which permit determination of the amount of dividend receivable. B) It gives claims on income and assets which are superior to the claims of creditors of the firm. C) Dividends on common stock are fully tax-deductible. D) There is no fixed dividend payment obligation for the company.
D) There is no fixed dividend payment obligation for the company.
Which of the following is true of securities analysts? A) They raise initial external equity finance privately for firms. B) They are primarily involved in underwriting of securities. C) They find prospective buyers for new stocks or bonds issue. D) They use a variety of models and techniques to value stocks.
D) They use a variety of models and techniques to value stocks
High-risk, high-yield junk bonds have declined in popularity over time due to ________. A) the decline in mergers and takeovers, which these bonds were used to finance B) the declining need of growth capital C) the stabilizing of interest rates D) a number of major defaults on these bonds
D) a number of major defaults on these bonds
In the capital asset pricing model, an increase in inflationary expectations will be reflected by ________. A) no effect on security market line B) a decrease in the slope of the security market line C) a parallel shift downward in the security market line D) a parallel shift upward in the security market line
D) a parallel shift upward in the security market line
A debenture is ________. A) a bond secured by specific assets that any firm can issue B) a secured bond that is secured by unspecified assets C) a secured bond issued by startup firms D) an unsecured bond that only creditworthy firms can issue
D) an unsecured bond that only creditworthy firms can issue
The purpose of the restrictive debt covenant that limits the distribution of profits to shareholders is to ________. A) assure the lender that additional borrowing is constrained or may be subordinated to the original loan B) limit the amount of fixed-payment obligations C) ensure a cash shortage does not cause an inability to meet current obligations D) avoid default of payments to bondholders
D) avoid default of payments to bondholders
Regarding the tax treatment of payments to securities holders, it is true that ________. A) interest and preferred stock dividends are not tax-deductible ,while common stock dividends are tax deductible B) interest and preferred stock dividends are tax-deductible, while common stock dividends are not tax-deductible C) common stock dividends and preferred stock dividends are tax-deductible, while interest is not tax-deductible D) common stock dividends and preferred stock dividends are not tax-deductible, while interest is tax-deductible
D) common stock dividends and preferred stock dividends are not tax-deductible, while interest is tax-deductible
The value of a bond is the present value of the ________. A) dividends and maturity value B) interest and dividend payments C) maturity value D) interest payments and maturity value
D) interest payments and maturity value
The price of a bond with a fixed coupon rate and the required return have a relationship that is best described as ________. A) perfect positive correlation B) constant C) direct D) inverse
D) inverse
A(n)________ is hired by a firm to find prospective buyers for its new stock or bond issue. A) securities analyst B) trust officer C) commercial loan officer D) investment banker
D) investment banker
The beta of a portfolio ________. A) is the sum of the betas of all assets in the portfolio B) is the product of the betas of the individual assets in the portfolio C) is the median of the range of beta of the portfolio D) is the weighted average of the betas of the individual assets in the portfolio
D) is the weighted average of the betas of the individual assets in the portfolio
A beta coefficient of 0 represents an asset that ________. A) is more responsive than the market portfolio B) has the same response as the market portfolio C) is less responsive than the market portfolio D) is unrelated to the market portfolio
D) is unrelated to the market portfolio
Combining two assets having perfectly positively correlated returns will result in the creation of a portfolio with an overall risk that ________. A) remains unchanged B) decreases to a level below that of either asset C) increases to a level above that of either asset D) lies between the asset with the higher risk and the asset with the lower risk
D) lies between the asset with the higher risk and the asset with the lower risk
Which of the following affects the slope of yield curve? A) tax rates B) dividend policy C) selection of accounting standards D) liquidity preferences
D) liquidity preferences
The goal of an efficient portfolio is to ________. A) achieve a predetermined rate of return for a given level of risk B) maximize risk in order to maximize profit C) minimize profit in order to minimize risk D) minimize risk for a given level of return
D) minimize risk for a given level of return
In the capital asset pricing model, the beta coefficient is a measure of ________. A) unsystematic risk B) non-aggregate risk C) business-specific risk D) nondiversifiable risk
D) nondiversifiable risk
If a firm has class A and class B common stock outstanding, it means that ________. A) each class receives a different dividend B) the par value of each class is different C) the dividend paid to one of the classes is tax deductible by the corporation D) one of the classes is probably nonvoting stock
D) one of the classes is probably nonvoting stock
Corporate bonds have a ________. A) face value of $5,000 B) market price of $1,000 C) specified coupon rate paid annually D) par value of $1,000
D) par value of $1,000
Perfectly ________ correlated series move exactly together and have a correlation coefficient of ________, while perfectly ________ correlated series move exactly in opposite directions and have a correlation coefficient of ________. A) negatively; -1; positively; +1 B) negatively; +1; positively; -1 C) positively; -1; negatively; +1 D) positively; +1; negatively; -1
D) positively; +1; negatively; -1
In the Gordon model, the value of a common stock is the ________. A) net value of all assets which are liquidated for their exact accounting value B) actual amount each common stockholder would expect to receive if the firm's assets are sold C) present value of a non-growing dividend stream D) present value of a constant growing dividend stream
D) present value of a constant growing dividend stream
The time value concept/calculation used in amortizing a loan is ________. A) future value of a dollar B) future value of an annuity C) present value of a dollar D) present value of an annuity
D) present value of an annuity
The purpose of the restrictive debt covenant that imposes fixed assets restrictions is to ________. A) protect the lender by controlling the risk and marketability of the borrower's security investment alternatives B) limit the amount of fixed-payment obligations C) ensure a cash shortage does not cause an inability to meet current obligations D) prevent the firm from liquidation and ensure its ability to repay the debt
D) prevent the firm from liquidation and ensure its ability to repay the debt
A(n) ________ distribution shows all possible outcomes and associated probabilities for a given event. A) discrete B) lognormal C) exponential D) probability
D) probability
The purpose of the restrictive debt covenant that requires that subsequent borrowing be subordinated to the original loan is to ________. A) maintain a minimum level of liquidity B) limit the amount of fixed-payment obligations C) ensure a long-run cash shortage does not cause an inability to meet current obligations D) protect the original lender in the priority of claims during liquidation
D) protect the original lender in the priority of claims during liquidation
Bonds that can be redeemed at par at the option of their holders either at specific date after the date of issue and every 1 to 5 years thereafter or when and if the firm takes specified actions such as being acquired, acquiring another company, or issuing a large amount of additional debt are called ________. A) zero coupon bonds B) junk bonds C) floating-rate bonds D) putable bonds
D) putable bonds
Common stockholders are sometimes referred to as ________. A) non preemptive right holders B) managers C) creditors D) residual owners
D) residual owners
If bankruptcy were to occur, ________ would have the first claim on assets. A) preferred stockholders B) unsecured creditors C) equity stockholders D) secured creditors
D) secured creditors
A ________ measures the dispersion around the expected value. A) coefficient of variation B) chi square C) mean D) standard deviation
D) standard deviation
From a corporation's point of view, a disadvantage of issuing preferred stock is ________. A) that it increases financial leverage B) that it has to give fixed payments as well as voting rights to the holders C) its excellent merger security D) that the dividends are not tax-deductible
D) that the dividends are not tax-deductible
The term structure of interest rates is the relationship between ________. A) the present value of principal and coupon rate of the bonds B) the general expectation of inflation and nominal rate of return for bonds C) the general expectation of inflation and real rate of return for bonds D) the maturity and rate of return for bonds with similar level of risk
D) the maturity and rate of return for bonds with similar level of risk
A putable bond gives the bondholder ________. A) the right to sell the bond back to the corporation at a discount B) the right to sell the bond back to the corporation at a stated premium C) the right to redeem the bond back to the corporation at the current market value D) the right to redeem the bond back to the corporation at par
D) the right to redeem the bond back to the corporation at par
Nominal rate of interest is equal to ________. A) the real rate plus an inflationary expectation B) the real rate plus a risk premium C) the risk-free rate plus an inflationary expectation D) the risk-free rate plus a risk premium
D) the risk-free rate plus a risk premium
Which of the following is a restrictive covenant? A) to maintain satisfactory accounting records B) to pay the taxes due C) to supply audited financial statements D) to impose fixed asset restrictions
D) to impose fixed asset restrictions
Which of the following typically applies to common stock but not to preferred stock? A) par value B) dividend yield C) legally considered as equity in the firm D) voting rights
D) voting rights
The ________ is the compound annual rate of interest earned on a debt security purchased on a given date and held to maturity. A) risk premium B) yield curve C) risk-free rate D) yield to maturity
D) yield to maturity