Business Finance Exam 2

Equal payments paid at the end of regular intervals over a stated time period.

An ordinary annuity is best defined by which one of the following?

Zero Coupon

A bond that has only one payment, which occurs at maturity, defines which one of these types of bonds?

Discount Rate

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

Yield to maturity less than the coupon rate

A bond has a market price that exceeds its face value. Which one of these features currently applies to this bond?

A decrease in all stock values.

Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:

Right to share in company profits prior to other shareholders.

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?

Market Price

The current yield is defined as the annual interest on a bond divided by which one of the following?

Dividends

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

Dividend Growth

What is the model called that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?

real rate

Which one of the following rates represents the change, if any, in your purchasing power as a result of owning a bond?

The effective annual rate equals the annual percentage rate when interest is compounded annually.

Which one of the following statements concerning interest rates is correct?

A perpetuity composed of $100 monthly payments is worth more than an annuity of $100 monthly payments; given equal discount rates.

Which one of the following statements related to annuities and perpetuities is correct?

Common Stock

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

Annuity B has a smaller present value than annuity A.

You are comparing two annuities that offer quarterly payments of $2,500 for five years and pay .75 percent interest per month. You will purchase one of these today with a single lump sum payment. Annuity A will pay you monthly, starting today, while annuity B will pay monthly, starting one month from today. Which one of the following statements is correct concerning these two annuities?