FIN 300 Exam 2

C

A bond that is payable to whomever has physical possession of the bond is said to be in :a)New-issue condition .b)Registered form .c)Bearer form .d)Debenture status .e)Collateral status.

A

A firm has a current EPS of $2.54 and a benchmark PE of 16.4. Earnings are expected to grow 3.8 percent annually. What is the target stock price in one year? a.$43.24 b.$42.89 c.$46.08 d.$41.66 e.$48.09

C

A floor broker on the NYSE does which one of the following? a.Supervises the commission brokers of a specific financial firm. b.Trades for his or her personal inventory. c.Executes orders on behalf of a commission broker. d.Maintains an inventory and assumes the role of a market maker. e.Is charged with maintaining a liquid, orderly market.

C

A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a.Floor trader. b.Floor post. c.designated market maker. d.Floor broker. e.Commission broker.

B

A newly issued 20-year, $1,000, zero coupon bond just sold for $311.05. What is the implicit interest, in dollars, for the first year of the bond's life? Assume semiannual compounding. a)$17.72 b)$18.70 c)$18.47 d)$17.63 e)$17.89

D

A newly issued bond has a 7 percent coupon with semiannual interest payments. The bonds are currently priced at par. The effective annual rate provided by these bonds must be: a)3.5 percent. b)Greater than 3.5 percent but less than 7 percent. c)7 percent. d)Greater than 7 percent. e)Less than 3.5 percent.

D

A note is generally defined as: a)A secured bond with an initial maturity of 10 years or more. b)A secured bond that initially matures in less than 10 years. c)Any bond secured by a blanket mortgage. d)An unsecured bond with an initial maturity of 10 years or less. e)Any bond maturing in 10 years or more.

E

A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a(n): a.Floor trader. b.Dealer. c.Specialist. d.Executor. e.Commission broker.

C

A premium bond that pays $60 in interest annually matures in seven years. The bond was originally issued three years ago at par. Which one of the following statements is accurate in respect to this bond today? a)The face value of the bond today is greater than it was when the bond was issued. b)The bond is worth less today than when it was issued. c)The yield-to-maturity is less than the coupon rate. d)The coupon rate is greater than the current yield. e)The yield-to-maturity equals the current yield.

C

A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market?a)Auction. b)Private. c)Over-the-counter. d)Regional. e)Insider.

B

A sinking fund is managed by a trustee for which one of the following purposes? a)Paying bond interest payments. b)Early bond redemption. c)Converting bonds into equity securities. d)Paying preferred dividends. e)Reducing bond coupon rates.

E

Kaiser Industries has bonds on the market making annual payments, with 14 years to maturity, a par value of $1,000, and selling for $1,382.01. At this price, the bonds yield 7.5 percent. What is the coupon rate? a)8.00 percent b)8.50 percent c)9.00 percent d)10.50 percent e)12.00 percent

B

Marcel Co. is growing quickly. Dividends are expected to grow at a 19 percent rate for the next 3 years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 10 percent and the company just paid a $1.40 dividend. what is the current share price?a.$50.86 b.$51.90 c.$47.63 d.$52.94 e.$50.12

E

New Homes has a bond issue with a coupon rate of 5.5 percent that matures in 8.5 years. The bonds have a par value of $1,000 and a market price of $972. Interest is paid semiannually. What is the yield to maturity? a)6.36 percent b)6.42 percent c)5.61 percent d)5.74 percent e)5.92 percent

E

Protective covenants: a)Apply to short-term debt issues but not to long-term debt issues. b)Only apply to privately issued bonds. c)Are a feature found only in government-issued bond indentures. d)Only apply to bonds that have a deferred call provision. e)Are primarily designed to protect bondholders.

E

Interest rates that include an inflation premium are referred to as: a)Annual percentage rates. b)Stripped rates. c)Effective annual rates. d)Real rates. e)Nominal rates.

E

Jason's Paints just issued 20-year, 7.25 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms?a)Note .b)Discounted .c)Zero-coupon .d)Callable .e)Debenture.

A

An agent who arranges a transaction between a buyer and a seller of equity securities is called a: a.Broker. b.Floor trader. c.Capitalist. d.Principal. e.Dealer.

E

An agent who maintains an inventory from which he or she buys and sells securities is called a: a.Broker. b.Trader. c.Capitalist. d.Principal. e.Dealer.

E

Antiques R Us is a mature manufacturing firm. The company just paid a $15 dividend, but management expects to reduce the payout by 11 percent per year indefinitely. If you require a 19 percent return on this stock, what will you pay for a share today? a.$44.06 b.$44.94 c.$166.88 d.$50.00 e.$44.50

C

The pure time value of money is known as the: a)Liquidity effect. b)Fisher effect. c)Term structure of interest rates. d)Inflation factor. e)Interest rate factor.

D

The secondary market is best defined by which one of the following? a)Market in which subordinated shares are issued and resold. b)Market conducted solely by brokers. c)Market dominated by dealers. d)Market where outstanding shares of stock are resold. e)Market where warrants are offered and sold.

D

The taxability risk premium compensates bondholders for which one of the following?a)Yield decreases in response to market changes. b)Lack of coupon payments. c)Possibility of default. d)A bond's unfavorable tax status. e)Decrease in a municipality's credit rating.

B

U. S. Treasury bonds: a)Are highly illiquid. b)Are quoted as a percentage of par. c)Are quoted at the dirty price. d)Pay interest that is federally tax-exempt. e)Must be held until maturity.

E

Which bond would you generally expect to have the highest yield? a)Risk-free Treasury bond b)Non-taxable, highly-liquid bond c)Long-term, high-quality, tax-free bond d)Short-term, inflation-adjusted bond e)Long-term, taxable junk bond

E

Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities? a)Senior bond. b)Debenture. c)Warrant. d)Common stock. e)Preferred stock.

A

Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond's interest or principal payments as expected? a)Default risk. b)Taxability. c)Liquidity. d)Inflation. e)Interest rate risk.

D

Which one of the following represents the capital gains yield as used in the dividend growth model? a.D1 b.D1 / P0 c.P0 d.g e.g / P0

C

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: a)Dirty price. b)Redemption value. c)Call premium. d)Original-issue discount. e)Redemption discount.

C

A 3.25 percent Treasury bond is quoted at a price of 101.16. The bond pays interest semiannually. What is the current yield? a)3.06 percent b)3.17 percent c)3.21 percent d)3.33 percent e)3.38 percent

D

A Treasury bond is quoted at a price of 101.6533 with a current yield of 6.276 percent. What is the coupon rate on a $10,000 bond? a)7.20 percent b)6.48 percent c)6.41 percent d)6.38 percent e)6.27 percent

E

A Treasury yield curve plots Treasury interest rates relative to which one of the following? a)Market rates. b)Comparable corporate bond rates. c)The risk-free rate. d)Inflation. e)Maturity.

C

A bond is quoted at a price of $1,011. This price is referred to as the: a)Call price. b)Face value. c)Clean price. d)Dirty price. e)Maturity price.

B

A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond? a)Par value. b)Callable. c)Senior. d)Subordinated. e)Unsecured.

C

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity. a)a premium; less than b)a premium; equal to c)a discount; less than d)a discount; higher than

C

Bonds issued by the U.S. government: a)Are considered to be free of interest rate risk. b)Generally have higher coupons than comparable bonds issued by a corporation. c)Are considered to be free of default risk. d)Pay interest that is exempt from federal income taxes. e)Are called "munis."

D

Bonner Metals wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 8.5 percent bonds on the market that sell for $959, make semiannual payments, and mature in 16 years. What should the coupon rate be on the new bonds if the firm wants to sell them at par? a)8.75 percent b)9.23 percent c)8.41 percent d)8.99 percent e)8.67 percent

E

Callable bonds generally: a)Grant the bondholder the option to call the bond any time after the deferment period. b)Are callable at par as soon as the call-protection period ends. c)Are called when market interest rates increase. d)Are called within the first three years after issuance. e)Have a sinking fund provision.

D

Currently, a firm has an EPS of $2.54 and a benchmark PE of 16.4. Earnings are expected to grow 3.8 percent annually. What is the estimated current stock price?a.43.24 b.$42.89 c.$46.08 d.$41.66 e.$48.09

E

Emst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets? a)Private. b)Auction. c)Tertiary. d)Secondary. e)Primary.

E

Global Exporters wants to raise $29.6 million to expand its business. To accomplish this, it plans to sell 20-year, $1,000 face value, zero coupon bonds. The bonds will be priced to yield 7.75 percent. What is the minimum number of bonds it must sell to raise the money it needs? Assume semiannual compounding. a)110,411 b)139,800 c)154,907 d)126,029 e)135,436

A

Real rates are defined as nominal rates that have been adjusted for which of the following?a)Inflation. b)Default risk. c)Accrued interest. d)Interest rate risk. e)Both inflation and interest rate risk.

E

Sew 'N More just paid an annual dividend of $1.42 a share. The firm plans to pay annual dividends of $1.45, $1.50, and $1.53 over the next 3 years, respectively. After that time, the dividends will be held constant at $1.60 per share. What is this stock worth today at a discount rate of 9 percent? a.$17.08 b.$16.30 c.$16.67 d.$16.79 e.$17.50

D

The 7 percent bonds issued by Modern Kitchens pay interest semiannually, mature in eight years, and have a $1,000 face value. Currently, the bonds sell for $1,032. What is the yield to maturity? a)6.87 percent b)6.92 percent c)6.08 percent d)6.48 percent e)7.20 percent

D

The bond market requires a return of 9.8 percent on the five-year bonds issued by JW Industries. The 9.8 percent is referred to as which one of the following? a)Coupon rate .b)Face rate .c)Call rate .d)Yield to maturity .e)Current yield.

A

The break-even tax rate between a taxable corporate bond yielding 7 percent and a comparable nontaxable municipal bond yielding 5 percent can be expressed as: a).05 / (1 - t*) = .07. b).05 - (1 - t*) = .07. c).07 + (1 - t*) = .05. d).05 × (1 - t*) = .07. e).05 × (1 + t*) = .07.

A

The current dividend yield on CJ's common stock is 1.89 percent. The company just paid a $1.23 annual dividend and announced plans to pay $1.27 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock? a.5.14 percent b.5.82 percent c.6.08 percent d.6.39 percent e.6.75 percent

E

The items included in an indenture that limit certain actions of the issuer in order to protect a bondholder's interests are referred to as the: a)Trustee relationships. b)Bylaws. c)Legal bounds. d)Trust deed. e)Protective covenants.

1: 5.29 2: 8%

The next dividend payment by Halestorm, Inc., will be $1.64 per share. The dividends are anticipated to maintain a growth rate of 8 percent forever. The stock currently sells for $31 per share. 1. What is the dividend yield? 2. What is the expected capital gains yield?

D

Which one of the following rights is never directly granted to all shareholders of a publicly held corporation? a.Electing the board of directors. b.Receiving a distribution of company profits. c.Voting either for or against a proposed merger or acquisition. d.Determining the amount of the dividend to be paid per share. e.Having first chance to purchase any new equity shares that may be offered.

C

Which one of the following risk premiums compensates for the inability to easily resell a bond prior to maturity?a) Default risk. b)Taxability. c)Liquidity. d)Inflation. e)Interest rate risk.

E

Which one of the following statements is correct? a)The risk-free rate represents the change in purchasing power. b)Any return greater than the inflation rate represents the risk premium. c)Historical real rates of return must be positive. d)Nominal rates exceed real rates by the amount of the risk-free rate. e)The real rate must be less than the nominal rate given a positive rate of inflation.

B

World Travel has 7 percent, semiannual, coupon bonds outstanding with a current market price of $1,023.46, a par value of $1,000, and a yield to maturity of 6.72 percent. How many years is it until these bonds mature? a)12.26 years b)12.53 years c)18.49 years d)24.37 years e)25.05 years

41.10

YGTB, Inc., currently has an EPS of $1.50 and an earnings growth rate of 6.5 percent. If the benchmark PE ratio is 20, what is the target share price five years from now?

E

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? a)Alternative voting. b)Cumulative voting. c)Straight voting. d)Indenture voting. e)Voting by proxy.

A

You purchase a bond with an invoice price of $1,319. The bond has a coupon rate of 6.25 percent, a face value of $1,000, and there are two months to the next semiannual coupon date. What is the clean price of this bond? a)$1,298.17 b)$1,352.17 c)$1,314.14 d)$1,408.12 e)$1,283.50