FIN 300 uky exam 2

The Fisher effect is defined as the relationship between which of the following variables?

Real rates, inflation rates, and nominal rates

Winston Co. 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?

The stock has a negative capital gains yield.

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.

a discount; less than

Bonds issued by the U.S. government:

are considered to be free of default risk

An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

broker

A bond is quoted at a price of $1,011. This price is referred to as the:

clean price.

The interest rate risk premium is the:

compensation investors demand for accepting interest rate risk.

A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a(n):

floor broker.

The pure time value of money is known as the:

term structure of interest rates

A Treasury yield curve plots Treasury interest rates relative to:

time to maturity.

The secondary market is best defined as the market:

where outstanding shares of stock are resold.

Which one of the following best describes NASDAQ?

Computer network of securities dealers.

Which one of the following represents the dividend yield as used in the Dividend Growth Model (DGM)?

D1/P0

The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as:

.05/(1 − t*) = .07.

Which one of the following risk premiums compensates for the inability to easily resell a bond prior to maturity?

Liquidity

Which bond would you generally expect to have the highest yield?

Long-term, taxable junk bond

A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market?

Over-the-counter

Which one of the following is an electronic system used by the NYSE for directly transmitting orders to designated market makers?

Pillar system

Ernst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets?

Primary

Dividend Growth Model:

requires the growth rate to be less than the required return.

The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the:

spread.

A note is generally defined as:

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

U. S. Treasury bonds:

Are quoted as a percentage of par.

Which one of the following is the price at which a dealer will sell a bond?

Asked price

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?

Voting by proxy

NYSE designated market makers:

Act as dealers

Jason's Paints just issued 20-year, 7.25 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms?

Debenture

Which one of the following rights is never directly granted to all shareholders of a publicly held corporation?

Determining the amount of the dividend to be paid per share

A decrease in which of the following will increase the current value of a stock according to the dividend growth model?

Discount rate

A sinking fund is managed by a trustee for which one of the following purposes?

Early bond redemption

Protective covenants:

are primarily designed to protect bondholders

A bond that is payable to whomever has physical possession of the bond is said to be in:

bearer form.

An agent who maintains an inventory from which he or she buys and sells securities is called a:

dealer

Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond's interest or principal payments as expected?

default risk

A member who acts as a dealer in a limited number of securities on the floor of the NYSE is called a:

designated market maker.

Rosita paid a total of $1,189, including accrued interest, to purchase a bond that has 7 of its initial 20 years left until maturity. This price is referred to as the:

dirty price.

Which one of the following represents the capital gains yield as used in the dividend growth model?

g

A newly issued bond has a coupon rate of 7 percent and semiannual interest payments. The bonds are currently priced at par. The effective annual rate provided by these bonds must be:

greater than 7 percent.

Callable bonds generally:

have a sinking fund provision

Interest rates that include an inflation premium are referred to as:

nominal rates.

Which one of the following transactions occurs in the primary market?

A purchase of newly issued stock from the issuer

A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond?

Callable

The items included in an indenture that limit certain actions of the issuer in order to protect a bondholder's interests are referred to as the:

protective covenants.