Fin Final

) Three $1,000 face value, 10-year, noncallable, bonds have the same amount of risk, hence their YTMs are equal. Bond 8 has an 8% annual coupon, Bond 10 has a 10% annual coupon, and Bond 12 has a 12% annual coupon. Bond 10 sells at par. Assuming that interest rates remain constant for the next 10 years, which of the following statements is CORRECT? A. Since the bonds have the same YTM, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until maturity. B. Bond 12 sells at a premium (its price is greater than par), and its price is expected to increase over the next year. C. Over the next year, Bond 8's price is expected to decrease, Bond 10's price is expected to stay the same, and Bond 12's price is expected to increase. D. Bond 8 sells at a discount (its price is less than par), and its price is expected to increase over the next year. E. Bond 8's current yield will increase each year

D. Bond 8 sells at a discount (its price is less than par), and its price is expected to increase over the next year.

Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds? a. A reduction in market interest rates. b. The company's bonds are downgraded. c. An increase in the call premium. d. Answers a and b are both correct. e. Answers a, b, and c are all correct.

a. A reduction in market interest rates.

Which of the following is not one of the fundamental factors that affect the cost of money? a. Exchange rates b. Risk c. Inflation d. Production opportunities e. Time preferences for consumption

a. Exchange rates

If the expectations theory of the term structure of interest rates is correct, and if the other term structure theories are invalid, and we observe a downward sloping yield curve, which of the following is a true statement? a. Investors expect short-term rates to decrease in the future. b. Investors expect short-term rates to be constant over time. c. It is impossible to say unless we know whether investors require a positive or negative maturity risk premium. d. The maturity risk premium must be positive. e. Investors expect short-term rates to increase in the future.

a. Investors expect short-term rates to decrease in the future.

You have determined the profitability of a planned project by finding the present value of all the cash flows form that project. Which of the following would cause the project to look more appealing in terms of the present value of those cash flows? a. The discount rate decreases. b. The cash flows are extended over a longer period of time, but the total amount of the cash flows remains the same. c. The discount rate increases. d. Answers b and c above. e. Answers a and b above.

a. The discount rate decreases.

Which of the following is NOT a type of debt? a. preferred stock b. certificate of deposit c. commercial paper d. term loan

a. preferred stock

In a recent year, interest rates on long-term government and corporate bonds were as follows: T-bond = 7.72% A = 9.64% AAA = 8.72% BBB = 10.18% The differences in rates among these issues were caused primarily by a. Tax effects. b. Default risk differences. c. Maturity risk differences. d. Inflation differences. e. Answers b and d are both correct.

b. Default risk differences.

Which of the following statements is most correct? a. If a bond's yield to maturity exceeds its coupon rate, the bond's current yield must also exceed its coupon rate. b. If a bond's yield to maturity exceeds its coupon rate, the bond's price must be less than its maturity value. c. If two bonds have the same maturity, the same yield to maturity, and the same level of risk, the bonds should sell for the same price regardless of the bond's coupon rate. d. Answers b and c are both correct. e. None of the above answers is correct

b. If a bond's yield to maturity exceeds its coupon rate, the bond's price must be less than its maturity value.

Which of the following mechanisms would be most likely to help motivate managers to act in the best interests of shareholders? a. Elect a board of directors that allows managers greater freedom of action. b. Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries. c. Eliminate a requirement that members of the board of directors have a substantial investment in the firm's stock. d. Take actions that reduce the possibility of a hostile takeover. e. Decrease the use of restrictive covenants in bond agreements.

b. Increase the proportion of executive compensation that comes from stock options and reduce the proportion

____ efficiency states that all publicly available information is reflected in current market prices. a. Economic b. Semistrong-form c. Weak-form d. Strong-form

b. Semistrong-form

Managerial (corporate) finance entails making decisions about a. Investment portfolios held by individual investors. b. The regulation and deregulation of the banking industry. c. How businesses acquire and use (invest) funds. d. Which corporate stocks and bonds are mispriced in the financial markets. e. All of the above.

c. How businesses acquire and use (invest) funds

The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to a. Maximize the stock price on a specific target date. b. Minimize the chances of losses. c. Maximize the stock price per share over the long run, which is the stock's intrinsic value. d. Maximize its expected EPS. e. Maximize its expected total corporate income.

c. Maximize the stock price per share over the long run, which is the stock's intrinsic value.

Which of the following is a price-weighted stock index? a. the Wilshire 5000 b. the S&P 500 Index c. the Dow Jones Industrial Average d. the NASDAQ composite index

c. the Dow Jones Industrial Average

Which of the following is not a disadvantage of forming a business as a partnership? a. Unlimited liability for the owners. b. Limited life of the organization. c. Difficulty in raising capital. d. Business is taxed like an individual. e. Difficulty of transferring ownership.

d. Business is taxed like an individual.

If you purchase commercial paper that matures in 180 days from the issuing firm this transaction will take place in ____ markets and ____ markets. a. money; secondary b. capital; secondary c. capital; primary d. money; primary

d. money; primary

Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon. Both bonds have the same maturity, a face value of $1,000, an 8% yield to maturity, and are noncallable. Which of the following statements is CORRECT? a. Bond A's capital gains yield is greater than Bond B's capital gains yield. b. If the yield to maturity for both bonds remains at 8%, Bond A's price one year from now will be higher than it is today, but Bond B's price one year from now will be lower than it is today. c. Bond A trades at a discount, whereas Bond B trades at a premium. d. If the yield to maturity for both bonds immediately decreases to 6%, Bond A's bond will have a larger percentage increase in value. e. Bond A's current yield is greater than that of Bond B.

e. Bond A's current yield is greater than that of Bond B.

An option which gives the holder the right to sell a stock at a specified price at some time in the future is called a(n) a. Out-of-the-money option. b. Naked option. c. Covered option. d. Call option. e. Put option.

e. Put option.