FPA Final Set 3

4. Mike just purchased a bond which pays $40 each year in interest. The $40 interest payment is also called the: A. coupon. B. par value. C. discount. D. call premium. E. yield. F. None of the above.

A. Coupon

14. At the end of fiscal year 2011, Crane Industries, Inc.'s stock price was $30.75. A year later it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What was the dividend yield in fiscal year 2012? A. 1.79% B. 4.33% C. 13.43% D. 15.22% E. 17.76% F. None of the above.

A. Dividend yield = 0.55/30.75 = 1.79%

17. Individuals who continually monitor the financial markets seeking mispriced securities: A. earn excess profits over the long-term. B. make the markets increasingly more efficient. C. are never able to find a security that is temporarily mispriced. D. are overwhelmingly successful in earning abnormal profits. E. are always quite successful using only historical price information as their basis of evaluation. F. None of the above.

B. make the markets increasingly more efficient.

5. Zack owns a bond that will pay him $35 each year in interest plus a $1,000 principal payment at maturity. The $1,000 principal payment is called the: A. coupon. B. par value. C. discount. D. yield. E. call premium. F. None of the above.

B. par value

1. Which one of the following statements is false? A. Financial executives must design financial securities to meet the needs of the firm and its investors. B. Financial instruments are subject to full disclosure requirements. C. Financial instruments are greatly constrained by law and regulation. D. Financial instruments are claims against a company's cash flows and assets. E. None of the above.

C. Financial instruments are greatly constrained by law and regulation

12. Which of the following statements are true? I. Underwriters help private companies access public stock markets through IPOs. II. Shelf registrations and private placements are examples of seasoned security issues. III. Issue costs for debt are typically greater than issue costs for equity. IV. Private equity financing is a common source of financing for startup firms. A. I and II only B. I and III only C. I, II, and IV only D. I, III, and IV only E. I, II, III, and IV F. None of the above.

C. I, II, and IV only

15. At the end of fiscal year 2011, Crane Industries, Inc.'s stock price was $30.75. A year later it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What was the percentage change in the share price in fiscal year 2012? A. 1.79% B. 4.33% C. 13.43% D. 15.22% E. 17.76% F. None of the above. Percentage change in share price = (34.88- 30.75)/30.75 = 4.13/30.75 = 13.43%.

C. Percentage change in share price = (34.88- 30.75)/30.75 = 4.13/30.75 = 13.43%.

3. Which of the following securities has a purely residual claim against a firm's cash flows? A. preferred stock B. callable bonds C. common stock D. non-callable bonds E. None of the above.

C. common stock

7. Which one of the following accurately orders the rate of return on financial securities from highest to lowest over most of recorded market history (the 1900-2015 period)? A. Short-term government bills, long-term corporate bonds, long-term government bonds, common stocks B. Long-term corporate bonds, long-term government bonds, common stocks, short-term government bills C. Common stocks, long-term government bonds, long-term corporate bonds, short-term government bills D. Common stocks, long-term corporate bonds, long-term government bonds, short-term government bills E. Long-term corporate bonds, common stocks, short-term government bills, long-term government bonds F. None of the above.

D. Common stocks, long term corporate bonds, long term government bonds, short term government bills

8. Which one of the following statements is true? A. Equity securities offer fixed claims on future cash payouts. B. Unlike bondholders, for their returns, shareholders rely entirely on price appreciation. C. In theory, common shareholders exercise very little control over company decisions. D. Historically, common shareholders have earned a risk premium as compensation for risk borne in excess of government bonds. E. Preferred shareholders are the first investors to be repaid in bankruptcy liquidation. F. None of the above.

D. Historically, common shareholders have earned a risk premium as compensation for risk borne in excess of government bonds

13. At the end of fiscal year 2011, Crane Industries, Inc.'s stock price was $30.75. A year later it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What rate of return did the common stock owners earn in fiscal year 2012? A. 1.79% B. 4.33% C. 13.43% D. 15.22% E. 17.76% F. None of the above.

D. Rate of return = ((34.88 + 0.55) - 30.75)/30.75 = 15.22%

2. Which of the following securities has a purely fixed claim against a firm's cash flows? A. preferred stock B. options C. common stock D. bonds E. None of the above.

D. bonds

16. Which of the following statements related to market efficiency tends to be supported by current evidence? I. Markets tend to respond quickly to new information. II. It is difficult for the typical investor to earn above-average returns without taking above-average risks. III. Short-run prices are difficult to predict accurately based on public information. IV. Markets are most likely weak form efficient. A. I and III only B. II and IV only C. I and IV only D. I, III, and IV only E. I, II, and III only F. None of the above.

E. I, II, and III only

18. Which of the following are the most likely reasons for why a stock price might not react at all on the day that new information related to the stock issuer is released? I. Insiders knew the information prior to the announcement II. Investors need time to digest the information prior to reacting III. The information has no bearing on the value of the firm IV. The information was anticipated A. I and II only B. I and III only C. II and III only D. II and IV only E. III and IV only F. None of the above.

E. III and IV only

6. Which one of the following statements is true? A. Debt instruments offer residual claims to future cash payouts. B. Bonds with call provisions will have lower coupon rates than otherwise identical bonds. C. Bondholders enjoy a direct voice in company decisions. D. Bonds are low-risk investments that do well in inflationary periods. E. Preferred shareholders are the first investors to be repaid in bankruptcy liquidation. F. None of the above.

F. none of the above