Finance Test 2

Stock differs from bonds because:

All of the above

_______________ means that the percentage increase in the dividend is the same each year.

Constant growth

The terms _____ and ______ mean the same thing.

Diversifiable risk; unsystematic risk

The practice of not putting all of your eggs in one basket is an illustration of _______.

Diversification

________ refers to how quickly information is reflected in the available prices for trading.

Informational efficiency

Which of the following statements is true?

Investors wants to maximize return and minimize risk.

___________ has to do with the speed and accuracy of promising a buy or sell order at the best available price.

Operational efficiency

________is a risk that cannot be diversified away.

Systematic risk

Which of the following investments is considered to be default risk-free?

Treasury bills

A bond is a ______________ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates in the future.

long-term debt

Which of the following provides the best description of common stock?

A claim on residual earnings after all other claim holders have been paid.

The _______ is the interest rate printed on the bond.

coupon rate

When the ___ is less than the yield to maturity, the bond sells at a/the ___ the par value.

coupon rate; discount to

As general interest rates rise, bond prices ______.

fall

A beta of 1.0 is the beta of the ________, while a beta of 0.0 is the measure for a ______.

market; risk-free security

Zero-coupon bonds are ________.

priced at a deep discount

The ______ is the market of first sale in which companies first sell their authorized shares to the public.

primary market

"Junk" bonds are a street name for________ grade bonds.

speculative

In ______, current prices already reflect the price history and volume of the stock as well as all available public information.

semi-strong-form efficient markets

The _______ is the regular interest payment of the bond.

coupon

The holder of preferred stock is entitles to a constant dividend ______.

every period

The value of a financial asset is the

present value of all of the future cash flows that will be received

The appropriate rate to use to discount the cash flows of a bond in order to determine then current price is the

yield to maturity

A security risk with a beta of 1.5 indicates which of the following:

the security carries more risk than the market.