FI 302 Test 2 Review Terms

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Which of the following types of bonds, as characterized by a feature, by definition has two coupon payments per year?

Semiannual

In the United States, there are three well known secondary stock markets. Which of the below is NOT one of these?

The Chicago Stock Exchange (CSE)

Which of the following is NOT a definition of beta?

A measure of risk that can be avoided

In regards to the fact that the pricing of stocks is more difficult than the pricing of bonds, which of the below statements is FALSE?

A stock's final sale is fixed in time on its maturity date

A bond may be issued by

All of these

Stocks differ from bonds because:

All of these

Which of the following types of bonds may the issuer buy back before maturity?

Callable bond

Which of the following investments is considered default risk free?

Common Stock

The _______ is the regular interest payment of the bond

Coupon

The _______ is the interest rate printed on the bond

Coupon Rate

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

Informational efficiency

Which of the statements below is TRUE?

Investors want to maximize return and minimize risk

A bond is a _______ instrument

Long-Term Debt

The _______ is the expiration date of the bond

Maturity date

Beta is

Measure of systematic risk

_______Means that the percentage increase in the dividend is the same each year

No growth

The holder of preferred stock is entitled to a constant dividend ____________

Only when earnings are positive

Has to do with the speed and accuracy of processing a buy or sell order

Operational efficiency

Type of risk can be diversified away

Systematic risk

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.

YTM

The Security Market Line has ________.

a positive slope

Unsystematic risk

also known as non diversified risk

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

coupon rate; discount to

Strong-form efficient markets theory proclaims that ________.

current prices reflect the price and volume history of the stock, all publicly available information, and all private information

The Security Market Line ________.

is a straight line

Treasury ________ and ________ are semiannual bonds, while Treasury ________ are zero-coupon instruments.

notes; bonds; bills

The value of a financial asset is the ________.

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

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

primary market

________ may be defined as a measure of uncertainty in a set of potential outcomes for an event in which there is a chance for some loss.

risk

"Junk" bonds are a street name for ________ grade bonds.

speculative

A more risky stock has a higher ________.

standard deviation and variance

The difference between the price and the par value of a zero-coupon bond represents ________.

the accumulated interest over the life of the bond

The constant growth dividend model requires that ________.

the return rate r is greater than the growth rate g of the dividend stream

Which of the following statements about probabilities is INCORRECT?

Probability is associated with an ex-post view.

Zero-Coupon bonds are

Tax exempt


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