Connect final MC
Ana just received the semiannual payment of $35 on a bond she owns. This is called the ______ payment. Multiple Choice coupon face value discount call premium yield
coupon
Which one of the following applies to a premium bond? Multiple Choice Yield to maturity > Current yield > Coupon rate Coupon rate = Current yield = Yield to maturity Coupon rate > Yield to maturity > Current yield Coupon rate < Yield to maturity < Current yield Coupon rate > Current yield > Yield to maturity
Coupon rate > Current yield > Yield to maturity
A corporation issued bonds three years ago. Which one of the following is most apt to be included in the bond's indenture? Multiple Choice Current yield Written record of all the current bond holders List of collateral used as bond security Current market price Price at which a bondholder can resell a bond to another bondholder
List of collateral used as bond security
Which one of the following statements correctly applies to the period 1926-2019? Multiple Choice Large-company stocks earned a higher average risk premium than did small-company stocks. The average inflation rate exceeded the average return on U.S. Treasury bills. Large-company stocks had an average annual return of 15.2 percent. Inflation averaged 2.4 percent for the period. Long-term corporate bonds outperformed long-term government bonds.
Long-term corporate bonds outperformed long-term government bonds.
A $1,000 par value corporate bond that pays $45 annually in interest was issued last year. Which one of these would apply to this bond today if the current price of the bond is $989.42? Multiple Choice The bond is currently selling at a premium. The current yield exceeds the coupon rate. The bond is selling at par value. The current yield exceeds the yield to maturity. The coupon rate has increased to 7 percent.
The current yield exceeds the coupon rate.
When utilizing the capital asset pricing model approach to value equity, the outcome: Multiple Choice is dependent upon the unsystematic risk of a security. assumes the reward-to-risk ratio increases as beta increases. can only be applied to dividend-paying firms. assumes a firm's future risks will be higher than its current risks. assumes the reward-to-risk ratio is constant.
assumes the reward-to-risk ratio is constant.
Olivares, Incorporated, bonds mature in 17 years and have a coupon rate of 5.4 percent. If the market rate of interest increases, then the: Multiple Choice coupon rate will also increase. current yield will decrease. yield to maturity will be less than the coupon rate. market price of the bond will decrease. coupon payment will increase.
market price of the bond will decrease.
The current yield is defined as the annual interest on a bond divided by the: Multiple Choice coupon rate. face value. market price. call price. par value.
market price.
If a project has a net present value equal to zero, then: Multiple Choice the total of the cash inflows must equal the initial cost of the project. the project earns a return exactly equal to the discount rate. a decrease in the project's initial cost will cause the project to have a negative NPV. any delay in receiving the projected cash inflows will cause the project to have a positive NPV. the project's PI must also be equal to zero.
the project earns a return exactly equal to the discount rate.
Assume a firm utilizes the security market line approach to determine the cost of equity. If the firm currently pays an annual dividend of $2.40 per share and has a beta of 1.42, all else constant, which of the following actions will decrease the firm's cost of equity? Multiple Choice A decrease in the dividend amount An increase in the dividend amount An increase in the market rate of return A decrease in the firm's beta
A decrease in the firm's beta
Assume a firm utilizes the security market line approach to determine the cost of equity. If the firm currently pays an annual dividend of $3.36 per share and has a beta of 1.38, all else constant, which of the following actions will increase the firm's cost of equity? Multiple Choice A decrease in the dividend amount An increase in the dividend amount A decrease in the market rate of return A decrease in the firm's beta A decrease in the risk-free rate
A decrease in the risk-free rate
What is the model called that determines the market value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate? Multiple Choice Maximal growth model Constant growth model Capital pricing model Realized earnings model Realized growth model
Constant growth model
Which one of the following relationships applies to a par value bond? Multiple Choice Yield to maturity > Current yield > Coupon rate Coupon rate > Yield to maturity > Current yield Coupon rate = Current yield = Yield to maturity Coupon rate < Yield to maturity < Current yield Coupon rate > Current yield > Yield to maturity
Coupon rate = Current yield = Yield to maturity
Which of the following items are included when calculating the expected return on a portfolio? I. Percentage of the portfolio invested in each individual security II. Projected states of the economy III. The performance of each security given various economic states IV. Probability of occurrence for each state of the economy Multiple Choice I and III only II and IV only I, III, and IV only II, III, and IV only I, II, III, and IV
I, II, III, and IV
Which of the following statements regarding unsystematic risk is accurate? Multiple Choice It can be effectively eliminated by portfolio diversification. It is compensated for by the risk premium. It is measured by beta. It is measured by standard deviation. It is related to the overall economy.
It can be effectively eliminated by portfolio diversification.
Which of the following statements is true of a portfolio's standard deviation? Multiple Choice It is a measure of that portfolio's systematic risk. It is a weighted average of the standard deviations of the individual securities held in that portfolio. It measures the amount of diversifiable risk inherent in the portfolio. It serves as the basis for computing the appropriate risk premium for that portfolio. It can be less than the weighted average of the standard deviations of the individual securities held in that portfolio.
It can be less than the weighted average of the standard deviations of the individual securities held in that portfolio.
Which of the following statements regarding the cost of preferred stock is accurate? Multiple Choice It equals the dividend yield. It equals the yield to maturity. It is highly dependent on the dividend growth rate. It is independent of the preferred stock's price. It decreases when tax rates increase.
It equals the dividend yield.
Which one of the following is a correct ranking of securities based on the volatility of their annual returns over the period of 1926-2019? Rank from highest to lowest. Multiple Choice Large-company stocks, U.S. Treasury bills, long-term government bonds Small-company stocks, long-term corporate bonds, large-company stocks Long-term government bonds, long-term corporate bonds, intermediate-term government bonds Large-company stocks, small-company stocks, long-term government bonds Intermediate-term government bonds, long-term corporate bonds, U.S. Treasury bills
Long-term government bonds, long-term corporate bonds, intermediate-term government bonds
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? Multiple Choice Short-term; low coupon Short-term; high coupon Long-term; zero coupon Long-term; low coupon Long-term; high coupon
Long-term; zero coupon
Which one of the following methods predicts the amount by which the value of a firm will change if a project is accepted? Multiple Choice Net present value Discounted payback Internal rate of return Profitability index Payback
Net present value
Which one of the following correctly describes the dividend yield? Multiple Choice Next year's annual dividend divided by today's stock price This year's annual dividend divided by today's stock price This year's annual dividend divided by next year's expected stock price Next year's annual dividend divided by this year's annual dividend The increase in next year's dividend over this year's dividend divided by this year's dividend
Next year's annual dividend divided by today's stock price
Which one of the following is defined by its mean and its standard deviation? Multiple Choice Arithmetic nominal return Geometric real return Normal distribution Variance Risk premium
Normal distribution
Assume that last year T-bills returned 2.2 percent while your investment in large-company stocks earned an average of 8.1 percent. Which one of the following terms refers to the difference between these two rates of return? Multiple Choice Risk premium Geometric average return Arithmetic average return Standard deviation Variance
Risk premium
Which one of the following categories of securities had the highest average annual return for the period 1926-2019? Multiple Choice U.S. Treasury bills Large-company stocks Small-company stocks Long-term corporate bonds Long-term government bonds
Small-company stocks
Which one of the following statements is correct? Multiple Choice Stocks can only be assigned one dividend growth rate. Preferred stocks generally have variable growth rates. Dividend growth rates must be either zero or positive. All stocks can be valued using the dividend discount models. Stocks can have negative growth rates.
Stocks can have negative growth rates.
Why is payback often used as the sole method of analyzing a proposed small project? Multiple Choice Payback considers the time value of money. All relevant cash flows are included in the payback analysis. The benefits of payback analysis usually outweigh the costs of the analysis. Payback is the most desirable of the various financial methods of analysis. Payback is focused on the long-term impact of a project.
The benefits of payback analysis usually outweigh the costs of the analysis.
Buxbaum Corporation is preparing a bond offering with a coupon rate of 6 percent, paid semiannually, and a face value of $1,000. The bonds will mature in 10 years and will be sold at par. Given this, which one of the following statements is correct? Multiple Choice The bonds will become discount bonds if the market rate of interest declines. The bonds will pay 10 interest payments of $60 each. The bonds will sell at a premium if the market rate is 5.5 percent. The bonds will initially sell for $1,030 each. The final payment will be in the amount of $1,060.
The bonds will sell at a premium if the market rate is 5.5 percent.
Vanessa purchased a stock one year ago and sold it today for $3.15 per share more than her purchase price. She received a total of $2.60 per share in dividends. Which one of the following statements is correct in relation to this investment? Multiple Choice The dividend yield is expressed as a percentage of the par value. The capital gain would have been less had Vanessa not received the dividends. The total dollar return per share is $.55. The capital gains yield is positive. The dividend yield is greater than the capital gains yield.
The capital gains yield is positive.
Which of the following is the main advantage of using the dividend growth model to estimate a firm's cost of equity? Multiple Choice The ability to apply either current or future tax rates. The model's applicability to all corporations. The model's consideration of risk. The stability of the computed cost of equity over time. The simplicity of the model.
The simplicity of the model.
Reyes has a dividend yield of 5.4 percent and a total return for the year of 4.8 percent. Which one of the following must be true? Multiple Choice The dividend must be constant. The stock has a negative capital gains yield. The capital gains yield must be zero. The required rate of return for this stock increased over the year. The firm is experiencing supernormal growth.
The stock has a negative capital gains yield.
With respect to risk, which of the following statements is accurate? Multiple Choice The beta of a portfolio will increase when a stock with a high standard deviation is added to the portfolio. Every portfolio that contains 15 or more securities is free of unsystematic risk. The systematic risk of a portfolio can be lowered by adding T-bills to the portfolio. Adding an additional stock to a diversified portfolio will lower the portfolio's beta. Stocks that move in tandem with the overall market have beta values of zero.
The systematic risk of a portfolio can be lowered by adding T-bills to the portfolio.
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? Multiple Choice The face value of the bond today is greater than it was when the bond was issued. The bond is worth less today than when it was issued. The yield to maturity is less than the coupon rate. The coupon rate is less than the current yield. The yield to maturity equals the current yield.
The yield to maturity is less than the coupon rate.
The rate of return on which type of security is normally used as the risk-free rate of return? Multiple Choice Long-term Treasury bonds Long-term corporate bonds Treasury bills Intermediate-term Treasury bonds Intermediate-term corporate bonds
Treasury bills
Which one of the following categories of securities had the lowest average risk premium for the period 1926-2019? Multiple Choice Long-term government bonds Small-company stocks Large-company stocks Long-term corporate bonds U.S. Treasury bills
U.S. Treasury bills
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? Multiple Choice Alternative voting Cumulative voting Straight voting Indenture voting Voting by proxy
Voting by proxy
You purchased a 10-year bond at par value when it was originally issued. It has an annual coupon of 5 percent and matures five years from now. Coupons are paid semiannually. Which one of the following statements applies to this bond if the relevant market interest rate is now 4.7 percent? Multiple Choice The current yield to maturity is greater than 5 percent. The current yield is 5 percent. The next interest payment will be $50. The bond is currently valued at one-half of its issue price. You will realize a capital gain on the bond if you sell it today.
You will realize a capital gain on the bond if you sell it today.
All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity. Multiple Choice a premium; less than a premium; equal to a discount; less than a discount; higher than par; less than
a discount; less than
When using economic probabilities to compute the expected return on a stock, the result is: Multiple Choice guaranteed to equal the actual average return on the stock for the next five years. guaranteed to be the minimal rate of return on the stock over the next two years. guaranteed to equal the actual return for the immediate twelve month period. a mathematical expectation based on a weighted average and not a guaranteed outcome. the actual return you should anticipate as long as the economic forecast remains constant.
a mathematical expectation based on a weighted average and not a guaranteed outcome.
A note is generally defined as: Multiple Choice a secured bond with an initial maturity of 10 years or more. a secured bond that initially matures in less than 10 years. any bond secured by a blanket mortgage. an unsecured bond with an initial maturity of 10 years or less. any bond maturing in 10 years or more.
any bond secured by a blanket mortgage. an unsecured bond with an initial maturity of 10 years or less.
When calculating a firm's weighted average cost of capital, the capital structure weights: Multiple Choice are based on the book values of debt and equity. are based on the market values of the outstanding securities. depend upon the financing obtained to fund each specific project. remain constant over time unless new securities are issued or outstanding securities are redeemed. are restricted to debt and common stock.
are based on the market values of the outstanding securities.
Bonds issued by the U.S. government: Multiple Choice are considered to be free of interest rate risk. generally have higher coupons than comparable bonds issued by a corporation. are considered to be free of default risk. pay interest that is exempt from federal income taxes. are called "munis."
are considered to be free of default risk.
A bond that is payable to whomever has physical possession of the bond is said to be in: Multiple Choice new-issue condition. registered form. bearer form. debenture status. collateral status.
bearer form.
For the period 2009-2019, U.S. Treasury bills had an annual rate of return that was: Multiple Choice between .5 and 1 percent. between 1 and 2 percent. negative in at least one year. negative for two or more years. between 0 and 2.5 percent.
between 0 and 2.5 percent.
Read Corporation currently pays an annual dividend of $1.46 per share and plans on increasing that amount by 2.75 percent annually. Cho, Incorporated, currently pays an annual dividend of $1.42 per share and plans on increasing its dividend by 3.1 percent annually. Given this information, you know for certain that the stock of Cho has a higher ________ than the stock of Read. Multiple Choice market price dividend yield capital gains yield total return real retune
capital gains yield
A bond is quoted at a price of $1,037. This price is referred to as the: Multiple Choice call price. face value. clean price. dirty price. maturity price.
clean price.
Wright Market Research is able to borrow money at a rate of 6.8 percent per year. This interest rate is called the: Multiple Choice compound rate. current yield. cost of debt. capital gains yield. cost of capital.
cost of debt.
Okonjo Economics has a debt-equity ratio of .38. All of the firm's outstanding shares were purchased by a small number of investors. The return these investors require is called the: Multiple Choice dividend yield. cost of equity. capital gains yield. cost of capital. income return.
cost of equity.
A firm's aftertax cost of debt will increase if there is a(n): Multiple Choice decrease in the company's debt-equity ratio. decrease in the company's tax rate. increase in the credit rating of the company's bonds. increase in the company's beta. decrease in the market rate of interest.
decrease in the company's tax rate
Today, Hannah paid a total of $1,176, including accrued interest, to purchase a 20-year bond that has 6 years left until maturity. This price is referred to as the: Multiple Choice quoted price. spread price. clean price. dirty price. call price.
dirty price.
The internal rate of return is defined as the: Multiple Choice maximum rate of return a firm expects to earn on a project. rate of return a project will generate if the project is financed solely with internal funds. discount rate that equates the net cash inflows of a project to zero. discount rate which causes the net present value of a project to equal zero. discount rate that causes the profitability index for a project to equal zero.
discount rate which causes the net present value of a project to equal zero.
While evaluating a stock, you estimate that it will earn a return of 11 percent if economic conditions are favorable, and 3 percent if economic conditions are unfavorable. Given the probabilities of favorable versus unfavorable economic conditions, you conclude that the stock will earn 7.2 percent next year. The 7.2 percent figure is called the: Multiple Choice arithmetic return. historical return. expected return. geometric return. required return.
expected return
A discount bond's coupon rate is equal to the annual interest divided by the: Multiple Choice call price. current price. face value. clean price. dirty price.
face value.
Dilan owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the: Multiple Choice coupon. face value. discount. yield. dirty price.
face value.
A newly issued bond has a coupon rate of 5 percent and semiannual interest payments. The bonds are currently priced at par. The effective annual rate provided by these bonds must be: Multiple Choice 2.5 percent. greater than 2.5 percent but less than 5 percent. 5 percent. greater than 5 percent. less than 2.5 percent.
greater than 5 percent.
To convince investors to accept greater volatility, you must: Multiple Choice decrease the risk premium. increase the risk premium. decrease the real return. decrease the risk-free rate. increase the risk-free rate.
increase the risk premium.
The internal rate of return: Multiple Choice may produce multiple rates of return when cash flows are conventional. is best used when comparing mutually exclusive projects. is rarely used in the business world today. is principally used to evaluate small dollar projects. is easy to understand.
is easy to understand.
Net present value: Multiple Choice is the best method of analyzing mutually exclusive projects. is less useful than the internal rate of return when comparing different-sized projects. is the easiest method of evaluation for nonfinancial managers. cannot be applied when comparing mutually exclusive projects. is very similar in its methodology to the average accounting return.
is the best method of analyzing mutually exclusive projects.
When calculating the expected rate of return on a stock portfolio using a weighted average, the weights are based on the: Multiple Choice number of shares owned of each stock. market price per share of each stock. market value of the investment in each stock. original amount invested in each stock. cost per share of each stock held.
market value of the investment in each stock.
A bond's principal is repaid on the ________ date. Multiple Choice coupon yield maturity dirty clean
maturity
A project has a discounted payback period that is equal to the required payback period. Given this information, the project: Multiple Choice will not be acceptable under the payback rule. must have a profitability index that is equal to or greater than 1.0. must have a zero net present value. must have an internal rate of return equal to the required return. will still be acceptable if the discount rate is increased.
must have a profitability index that is equal to or greater than 1.0.
If a firm accepts Project X it will not be feasible to also accept Project Z because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be: Multiple Choice independent. interdependent. mutually exclusive. economically scaled. operationally distinct.
mutually exclusive.
Municipal bonds: Multiple Choice are totally risk free. generally have higher coupon rates than corporate bonds. pay interest that is free from federal taxation. are rarely callable. are free of default risk.
pay interest that is free from federal taxation.
The length of time a firm must wait to recoup the money it has invested in a project is called the: Multiple Choice internal return period. payback period. profitability period. discounted cash period. valuation period.
payback period.
Buchi owns several financial instruments: stocks issued by seven different companies, plus bonds issued by four different companies. Her investments are best described as a(n): Multiple Choice index. portfolio. collection. grouping. risk-free position.
portfolio
Rafia owns stocks of 15 different companies. Together, the stocks have a value of $78,640. Twelve percent of that total value is from one company, Gambrell & Valdez. The twelve percent figure is called a(n): Multiple Choice portfolio return. portfolio weight. degree of risk. price-earnings ratio. index value.
portfolio weight.
To calculate the expected risk premium on a stock, one must subtract the ________ from the stock's expected return. Multiple Choice expected market rate of return risk-free rate inflation rate standard deviation variance
risk-free rate
Small-company stocks, as the term is used in the textbook, are best defined as the: Multiple Choice 500 newest corporations in the U.S. companies whose stock trades OTC. smallest 20 percent of the companies listed on the NYSE. smallest 25 percent of the companies listed on Nasdaq. companies whose stock is listed on Nasdaq.
smallest 20 percent of the companies listed on the NYSE.
When determining a firm's weighted average cost of capital, the item with the least amount of impact is the: Multiple Choice company's beta. coupon rate of the company's outstanding bonds. growth rate of the company's dividends. company's marginal tax rate. standard deviation of the company's common stock.
standard deviation of the company's common stock.
Most financial securities have some level of ________ risk. Multiple Choice unsystematic diversifiable systematic asset-specific industry
systematic
The internal rate of return is: Multiple Choice the discount rate that makes the net present value of a project equal to the initial cash outlay. equivalent to the discount rate that makes the net present value equal to one. tedious to compute without the use of either a financial calculator or a computer. highly dependent upon the current interest rates offered in the marketplace. a better methodology than net present value when dealing with unconventional cash flows.
tedious to compute without the use of either a financial calculator or a computer.
To determine a firm's cost of capital, one must include: Multiple Choice only the return required by the firm's current shareholders. only the current market rate of return on equity shares. the weighted costs of all future funding sources. the returns currently required by both debtholders and stockholders. the company's original debt-equity ratio.
the returns currently required by both debtholders and stockholders.
The expected return of a stock, based on the likelihood of various economic outcomes, equals the: Multiple Choice highest expected return given any economic state. arithmetic average of the returns for each economic state. summation of the individual expected rates of return. weighted average of the returns for each economic state. return for the economic state with the highest probability of occurrence.
weighted average of the returns for each economic state.
The bond market requires a return of 6.2 percent on the 15-year bonds issued by Mingwei Manufacturing. The 6.2 percent is referred to as the: Multiple Choice coupon rate. face rate. call rate. yield to maturity. current yield.
yield to maturity.
Which one of the following relationships is stated correctly? Multiple Choice The coupon rate exceeds the current yield when a bond sells at a discount. The call price must equal the par value. An increase in market rates increases the market price of a bond. Decreasing the time to maturity increases the price of a discount bond, all else constant. Increasing the coupon rate decreases the current yield, all else constant.
Decreasing the time to maturity increases the price of a discount bond, all else constant.
Which of the following statements regarding the aftertax cost of debt is accurate? Multiple Choice It varies inversely with changes in market interest rates. It will generally exceed the cost of equity if the relevant tax rate is zero. It will generally equal the cost of preferred stock if the tax rate is zero. It is unaffected by changes in the market rate of interest. It is highly dependent upon a company's tax rate.
It is highly dependent upon a company's tax rate.
What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average? Multiple Choice 1% 2.5% 5% 16% 32%
16%
Which one of the following time periods is associated with low rates of inflation? Multiple Choice 1941-1942 1973-1974 2014-2015 1979-1980 1946-1947
2014-2015
Which one of the following bonds is the least sensitive to interest rate risk? Multiple Choice 3-year; 4 percent coupon 3-year; 6 percent coupon 5-year; 6 percent coupon 7-year; 6 percent coupon 7-year; 4 percent coupon
3-year; 6 percent coupon
Of the options listed below, which is the best example of a diversifiable risk? Multiple Choice Interest rates increase Energy costs increase Core inflation increases A firm's sales decrease Federal income taxes increase
A firm's sales decrease
A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond? Multiple Choice Par value Callable Senior Subordinated Unsecured
Callable
Chavez & Hwang just issued 15-year, 6.4 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms? Multiple Choice Note Discounted Zero coupon Callable Debenture
Debenture
If the variability of the returns on large-company stocks were to decrease over the long-term, you would expect which one of the following as related to large-company stocks to occur as a result? Multiple Choice Increase in the risk premium Increase in the average long-term rate of return Decrease in the 68 percent probability range of returns Increase in the standard deviation Increase in the geometric average rate of return
Decrease in the 68 percent probability range of returns
A decrease in which of the following will increase the current value of a stock according to the dividend growth model? Multiple Choice Dividend amount Number of future dividends, provided the total number of dividends is less than infinite Dividend growth rate Discount rate Both the discount rate and the dividend growth rate
Discount rate
What are the distributions of either cash or stock to shareholders by a corporation called? Multiple Choice Coupon payments Retained earnings Dividends Capital payments Diluted profits
Dividends
Which one of the following applies to the dividend growth model? Multiple Choice An individual stock has the same value to every investor. Even if the dividend amount and growth rate remain constant, the value of a stock can vary. Zero-growth stocks have no market value. Stocks that pay the same annual dividend will have equal market values. The dividend growth rate is inversely related to a stock's market price.
Even if the dividend amount and growth rate remain constant, the value of a stock can vary.
A project has an initial cost of $52,700 and a market value of $61,800. What is the difference between these two values called? Multiple Choice Net present value Accounting return Payback value Profitability index Discounted payback
Net present value
Assume a project is independent and has financing-type cash flows. Which one of these statements is correct? Multiple Choice The IRR cannot be used to determine the acceptability of the project. The project is acceptable if the required return exceeds the IRR. The project is acceptable only if the NPV is zero or negative. The project's required rate of return will always be negative. The project is acceptable if the internal rate of return is negative.
The project is acceptable if the required return exceeds the IRR.
Assume the current market price of a bond exceeds its par value. Which one of these equations applies? Multiple Choice Market value < Face value Yield to maturity = Current yield Market value = Face value Current yield > Coupon rate Yield to maturity < Coupon rate
Yield to maturity < Coupon rate
A bond that has only one payment, which occurs at maturity, defines which one of these types of bonds? Multiple Choice Debenture Callable Floating-rate Junk Zero coupon
Zero coupon
In response to a change in the market rate of interest, the price sensitivity of a bond increases as the: Multiple Choice coupon rate increases. time to maturity decreases. coupon rate decreases and the time to maturity increases. time to maturity and coupon rate both decrease. coupon rate and time to maturity both increase.
coupon rate decreases and the time to maturity increases.
Which one of the following represents the capital gains yield as used in the dividend growth model? Multiple Choice D1 D1/P0 P0 g g/P0
g
The annual dividend yield is computed by dividing _____ annual dividend by the current stock price. Multiple Choice this year's last year's next year's the past 5-year average the next 5-year average
next year's
For the period 1926-2019, U.S. Treasury bills always: Multiple Choice provided an annual rate of return that exceeded the annual inflation rate. had an annual rate of return in excess of 1.2 percent. provided a positive annual rate of return. earned a higher annual rate of return than long-term government bonds. had a greater variation in returns year-over-year than did long-term government bonds.
provided a positive annual rate of return.
The cost of preferred stock is equivalent to the: Multiple Choice pretax cost of debt. rate of return on an annuity. aftertax cost of debt. rate of return on a perpetuity. cost of an irregular growth common stock.
rate of return on a perpetuity.
The dividend growth model: Multiple Choice assumes dividends increase at a decreasing rate. only values stocks at Time 0. cannot be used to value constant dividend stocks. can be used to value both dividend-paying and non-dividend-paying stocks. requires the growth rate to be less than the required return.
requires the growth rate to be less than the required return.
A project has a net present value of zero. Given this information: Multiple Choice the project has a zero percent rate of return. the project requires no initial cash investment. the project has no cash flows. the summation of all of the project's cash flows is zero. the project's cash inflows equal its cash outflows in current dollar terms.
the project's cash inflows equal its cash outflows in current dollar terms.
An investor who owns a well-diversified portfolio would consider ________ to be irrelevant. Multiple Choice systematic risk unsystematic risk market risk nondiversifiable risk the systematic portion of a surprise
unsystematic risk
Which one of these statements is correct? Multiple Choice Most long-term bond issues are referred to as unfunded debt. Bonds often provide tax benefits to issuers. The risk of a company financially failing decreases when the company issues bonds. All bonds are treated equally in a bankruptcy proceeding. A debenture is a senior secured debt.
Bonds often provide tax benefits to issuers.
Which one of following is the rate at which a stock's price is expected to appreciate? Multiple Choice Current yield Total return Dividend yield Capital gains yield Coupon rate
Capital gains yield
Which of the following yields on a stock can be negative? Multiple Choice Dividend yield Capital gains yield Capital gains yield and total return Dividend yield, capital gains yield, and total return Dividend yield and total return
Capital gains yield and total return
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? Multiple Choice Dual class Cumulative Noncumulative Preferred Common
Common
Which of the following statements regarding a firm's pretax cost of debt is accurate? Multiple Choice It is based on the current yield to maturity of the company's outstanding bonds. It is equal to the coupon rate on the latest bonds issued by the company. It is equivalent to the average current yield on all of a company's outstanding bonds. It is based on the original yield to maturity on the latest bonds issued by a company. It must be estimated as it cannot be directly observed in the market.
It is based on the current yield to maturity of the company's outstanding bonds.
Which one of the following categories of securities had the most volatile annual returns over the period 1926-2019? Multiple Choice Long-term corporate bonds Large-company stocks Intermediate-term government bonds U.S. Treasury bills Small-company stocks
Small-company stocks
Which one of the following statements related to the internal rate of return (IRR) is correct? Multiple Choice The IRR yields the same accept and reject decisions as the net present value method given mutually exclusive projects. A project with an IRR equal to the required return would reduce the value of a firm if accepted. The IRR is equal to the required return when the net present value is equal to zero. Financing type projects should be accepted if the IRR exceeds the required return. The average accounting return is a better method of analysis than the IRR from a financial point of view.
The IRR is equal to the required return when the net present value is equal to zero.
