Finance

Which one of the following bonds is the least sensitive to interest rate risk? 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

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

Callable

Which of the following yields on a stock can be negative?

Capital gains yield and total return

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

Discount rate

What are the distributions of either cash or stock to shareholders by a corporation called?

Dividends

Bert owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. What is the $1,000 called?

Face Value

A discount bond's coupon rate is equal to the annual interest divided by the:

Face value

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?

Long-term; zero coupon

The current yield is defined as the annual interest on a bond divided by the:

Market Price

Which one of the following correctly describes the dividend yield?

Next year's annual dividend divided by today's stock price

Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders?

Right to share in company profits prior to other shareholders

Assume that last year T-bills returned 2.8 percent while your investment in large-company stocks earned an average of 7.6 percent. Which one of the following terms refers to the difference between these two rates of return?

Risk premium

Which one of the following statements is correct?

Stocks can have negative growth rates

Round Dot Inns 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?

The bonds will sell at a premium if the market rate is 5.5 percent.

Stacy purchased a stock last year and sold it today for $4 a share more than her purchase price. She received a total of $1.15 per share in dividends. Which one of the following statements is correct in relation to this investment?

The capital gains yield is positive.

A $1,000 par value corporate bond that pays $60 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 $996.20?

The current yield exceeds the coupon rate.

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

The bond market requires a return of 9.8 percent on the 5-year bonds issued by JW Industries. The 9.8 percent is referred to as the:

Yield to maturity

The current yield exceeds the 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?

Zero coupon

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

a discount; less than

The return earned in an average year over a multiyear period is called the _____ average return.

arithmetic

A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called the:

call premium

Allison just received the semiannual payment of $35 on a bond she owns. Which term refers to this payment?

coupon

The price sensitivity of a bond increases in response to a change in the market rate of interest as the:

coupon rate decreases and the time to maturity increases.

The average compound return earned per year over a multiyear period is called the _____ average return.

geometric

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.

The Fisher effect primarily emphasizes the effects of _____ on an investor's rate of return.

inflation

DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of interest increases, then the:

market price of the bond will decrease.

A bond's principal is repaid on the ____ date.

maturity

Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:

must still declare each dividend before it becomes an actual company liability.

The annual dividend yield is computed by dividing _____ annual dividend by the current stock price.

next year's

National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm's stock is:

priced the same as a $1 perpetuity.

The dividend growth model:

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