Finance exam 2 no math

BFIN322 Assignment 21.Which of the following statements is true?A)The largest investors in corporate bonds are institutional investors such as life insurance companies and pension funds. B)The market for corporate bonds is thin compared to the market for corporate stocks. C)Prices in the corporate bond market tend to be more volatile than prices of securities sold in markets with greater trading volumes. D)All of the above are true

D

In brokered markets: A)the commission charged by brokers is a lower cost to buyers and sellers than the cost of direct search. B)buyers and sellers are brought together for a commission. C)brokers build a pool of price information through their extensive contacts. D)All of the above are true of broker markets.

D

In order to use a firm's WACC to evaluate its future project's flows, which of the following must hold? A)The project will be financed with the same proportion of debt and equity as the firm. B)The systematic risk of the project is the same as the overall systematic risk of the firm. C)The project should have conventional cash flows. D)Both A and B above

D

Which of the following statements is most true about zero coupon bonds? A)They typically sell at a premium over par when they are first issued. B)They typically sell for a higher price than similar coupon bonds. C)They are always convertible to common stock. D)They typically sell at a deep discount below par when they are first issued

D

Which of the following statements is true of zero coupon bonds?A)Zero coupon bonds have no coupon payments over its life and only offer a single payment at maturity. B)Zero coupon bonds sell well below their face value (at a deep discount) because they offer no coupons. C)The most frequent and regular issuer of zero coupon securities is the U.S. Treasury Department. D)All of the above are true

D

Which one of the following statements is true of a bond's yield to maturity? A)The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond. B)It is the annual yield that the investor earns if the bond is held to maturity, and all the coupon and principal payments are made as promised. C)A bond's yield to maturity changes daily as interest rates increase or decrease. D)All of the above are true

D

9 The constant-growth dividend model will provide invalid solutions when: A)the growth rate of the stock exceeds the required rate of return for the stock. B)the growth rate of the stock is less than the required rate of return for the stock. C)the growth rate of the stock is equal to the risk-free rate. D)None of the above.

A

A firm can be viewed as A)a portfolio of individual projects, each with its own risks, cost of capital, and returns. B)a collection of equity shares comprising it. C)a collection of debt instruments financing it. D)a portfolio of all individual projects in the industry, each with its own risks, cost of capital, and returns.

A

If a bond's coupon rate is equal to the market rate of interest, then the bond will sell: A)at a price equal to its face value. B)at a price greater than its face value. C)at a price less than its face value. D)None of the above is true

A

Long-term debt typically describes A)debt with a maturity greater than one year. B)only coupon debt. C)publicly traded debt. D)None of the above

A

Which of the following statements is true about secondary markets?A)In secondary markets, outstanding shares of stock are bought and sold among investors. B)Most secondary market transactions directly affect the capital of the firm that issues the securities. C)An active secondary market causes firms to sell their new debt or equity issues at a higher transaction cost of funds. D)All of the above statements are true

A

Which of the following statements is true? A)The longer the maturity of a security, the greater its interest rate risk. B)If investors believe inflation will be subsiding in the future, the prevailing yield will be upward sloping. C)The real rate of interest varies with the business cycle, with the lowest rates seen at the end of a period of business expansion and the highest at the bottom of a recession. D)The interest rate risk premium always adds a downward bias to the slope of the yield curve.

A

Bonds sell at a discount when the market rate of interest is: A)less than the bond's coupon rate. B)greater than the bond's coupon rate. C)equal to the bond's coupon rate. D)None of the above is true

B

The three economic factors that affect the shape of the yield curve are: A)the real rate of interest, the expected rate of inflation, and marketability. B)the real rate of interest, the expected rate of inflation, and interest rate risk. C)the nominal rate of interest, the expected rate of inflation, and default risk. D)the real rate of interest, the nominal rate of interest, and currency risk

B

Which of the following statements is NOT true about auction markets? A)In an auction market, buyers and sellers confront each other directly and bargain over price. B)The participants can only communicate orally in auction markets. C)The New York Stock Exchange is the best-known example of an auction market. D)The auctioneer in an auction market is the specialist, who is designated by the exchange to represent orders placed by public customers

B

Which of the following statements is NOT true about preferred stock? A)Preferred stock represents ownership in the firm. B)Preferred stockholders are not eligible for guaranteed dividend payments by the firm. C)Preferred stock dividends are paid by the issuer with after-tax dollars. D)Preferred stock holders have limited voting privileges relative to common-stock owners.

B

Which of the following statements is true about secondary markets in the United States? A)In terms of market capitalization (total stock value) of the firms listed, the NASDAQ is the largest in the world and the NYSE is the second largest. B)NASDAQ is an OTC (over-the-counter) market. C)Firms listed on the NASDAQ tend to be, on average, larger in size, and their shares trade more frequently than those traded on NYSE. D)In the United States, most secondary market transactions are done over the counter.

B

Which of the following statements is true? A)Long-term bonds have lower price volatility than short-term bonds of similar risk. B)As interest rates decline, the prices of bonds rise; and as interest rates rise, the prices of bonds decline. C)All other things being equal, short-term bonds are riskier than long-term bonds. D)Interest rate risk decreases as maturity increases

B

Which one of the following statements about bonds is NOT true?A)To compute a bond's price, one needs to calculate the present value of the bond's expected cash flows. B)The value, or price, of any asset is the future value of its cash flows. C)The required rate of return, or discount rate, for a bond is the market interest rate called the bond's yield to maturity D)The expected future cash flows are estimated using the coupons that the bond will pay and the maturity value to be receive

B

28 Which of the following are the three simplifying assumptions that cover most stock growth patterns? A)Dividends remain constant over time, dividends grow at a constant rate, and dividends are equal to zero. B)Dividends have a zero-growth rate, dividends grow at a varying rate, and dividends are equal to zero. C)Dividends remain constant over time, dividends grow at a constant rate, and dividends have a mixed growth pattern. D)None of the above.

C

Which of the following statements is NOT true about common stock?A)Common-stock holders have the right to vote on the election of the board of directors of their company. B)Common stock is considered to have no fixed maturity. C)Owners of common stock are guaranteed dividend payments by the firm. D)Common-stock holders have limited liability toward the obligations of the corporation.

C

Which of the following statements is true about dealer markets?A)NYSE is the best-known example of a dealer market. B)A dealer market involves time-consuming search for a fair deal. C)The advantage of a dealer over a brokered market is that brokers cannot guarantee that an order will be executed promptly, while dealers can, because they have an inventory of securities. D)All of the above are true of dealer markets.

C

Which one of the following statements about vanilla bonds is NOT true? A)They have fixed coupon payments. B)The face value, or par value, for most corporate bonds is $1,000. C)Coupon payments are usually made quarterly. D)The bond's coupon rate is calculated as the annual coupon payment divided by the bond's face value.

C

Applying the valuation procedure to common stocks is more difficult than applying it to bonds because: A)the size and timing of the dividend cash flows are less certain than the coupon payments for bonds. B)common stocks have no final maturity date. C)unlike the rate of return, or yield, on bonds, the rate of return on common stock is not directly observable. D)All of the above are true.

D