finance test 3
Stocks differ from bonds because:
-firms pay bond cash flows prior to paying taxes while stock cash flows are after tax. -bond cash flows are known while stock cash flows are uncertain. -the ending par value of a bond is known at purchase while the ending value of a share of stock is unknown at purchase. -All of the above (!!!)
When the ________ is less than the yield to maturity, the bond sells at a/the ________ the par value.
coupon rate; discount to
The ________ is the annual coupon payment divided by the current price of the bond, and is not always an accurate indicator.
current yield
__ refers to how quickly information is reflected in the available prices for trading.
informational efficiency
The ________ is the market of first sale in which companies first sell their authorized shares to the public.
primary market
you can think of the ________ as the "used stock" market because these shares have been owned or "used" previously.
secondary market
Stocks are different from bonds because ________.
stocks, unlike bonds, represent residual ownership
As the rating of a bond increases (for example, from A, to AA, to AAA), it generally means that
the credit rating increases, the default risk decreases, and the required rate of return decreases.
Which of the following are issued with the shortest time to maturity?
treasury bills
The appropriate rate to use to discount the cash flows of a bond in order to determine the current price is the ________.
yield to maturity
The ________ is the yield an individual would receive if the individual purchased the bond today and held the bond to the end of its life.
yield to maturity
