FIN600 Exam 1

which of the following best illustrates that the management of a firm is adhering to the goal of financial management? -increase in the amount of the quarterly dividend -decrease in the per unit production costs -increase in the number of shares outstanding -decrease in the networking capital -increase in the market value per share

-increase in the market value per share

TRUE OR FALSE: the goal of maximizing stock value is attained by maximizing the weighted-average cost of capital.

FALSE

what is the primary function of a financial market?

Provide a market for transferring ownership of corporate securities

True or False? The rate of return required by investors in the market for owning a bond is called the YTM?

TRUE

which one of the following statements is correct concerning the NYSE? -the publicly traded shares of NYSE-listed firm must be worth at least $250 million -The NYSE is the largest dealer market for listed securities in the United States -The listing requirements for the NYSE are more stringent than those of NASDAQ -Any corporation desiring to be listed on the NYSE can do so for free - The NYSE is an OTC market functioning as both a primary and secondary market

The listing requirements for the NYSE are more stringent than those of NASDAQ

all else constant, a bond will sell at_____when the coupon rate is_______the yield to maturity

a discount; higher than

What is the interest rate charged per period multiplied by the number of periods per year called?

annual percentage rate

the capital structure weights used in computing the weighted avg cost of capital

are based on the market value of the firm's debt and equity securities

the pre-tax cost of debt-

based on the current yield to maturity of the firm's outstanding bonds

a bond that is payable to whomever has physical possession of the bond is said to be in:

bearer form

a bond that can be paid off early at the issuer's discretion is referred to as?

callable

Interest earned on both the initial principle and the interest reinvested from prior periods is called: -free interest -dual interest -simple interest -interest on interest -compound interest

compound interest

a voting procedure whereby shareholders may cast all of their votes for one member of the board is called

cumulative voting

an agent who maintains an inventory from which he or she buys and sells securities is called a:

dealer

The leeward company just issued a 15-year, 8 percent, unsecured bonds at par. These bonds fit the definition of which term?

debenture

Which of the following risk premiums compensates for the possibility of nonpayment by the bond issuer? -default risk -taxability -liquidity -inflation -interest rate risk

default risk

which of the following rights is never directly granted to all shareholders of publicly-held corporation: -electing the board of directors -receiving a distribution of company profits -voting either for or against a proposed merger or acquisition -determining the amount of the dividend to be paid per share -having first chance to purchase any new equity shares that may be offered

determining the amount of the dividend to be paid per share

Steve just computed the present value of a $10,000 bonus he will receive in the future. The interest rate he used is referred to as which one of the following? -current yield -effective rate -compound rate -discount rate

discount rate

what is computed by dividing next year's annual dividend by the current stock price?

dividend yield

a bonds coupon rate is equal to the annual interest divided by which one of the following; -call price -current price -face value -clean price -dirty price

face value

a business formed by two or more individuals who each have unlimited liability for all of the firms business debts is called a: -corporation -sole proprietorship -general partnership -limited liability partnership -limited liability company

general partnership

which of the following is an agency cost? -accepting an investment opportunity that will add value to the firm -increasing the quarterly dividend -investing in a new project that creates firm value -hiring outside accountants to audit the company's financial statements -closing a division of the firm that is operating at a loss

hiring outside accountants to audit the company's financial statements

Atlas Entertainment has 15-year bonds outstanding. The interest payments on these bonds are sent directly to each of the individual bondholders. These direct payments are a clear indication that the bonds can accurately be defined as being issued:

in registered form

real rates are defined as nominal rates that have been adjusted for what?

inflation

The owner of preferred stock

is entitled to a distribution of income prior to the common shareholders

which of the following are advantages of the corporate form of business ownership -limited liability for firm debt -double taxation ability to raise capital -unlimited firm life

limited liability, ability to raise capital, and unlimited firm life

A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called: -generally partner -sole proprietor -limited partner -corporate shareholder -zero partner

limited partner

The current yield is defined as the annual interest rate divided by?

market price

The specified date on which the principle amount of a bond is payable is?

maturity date

which one of the following best states the primary goal of financial management? -maximize current dividends -maximize the current value per share -increase cash flow and avoid financial distress -maintain steady growth while increasing current profits

maximize the current value per share

a bond has a market price that exceeds its face value. Which of the following features currently apply to this bond? -discounted price -premium price -YTM that exceeds coupon rate -YTM that is less than the coupon rate

premium price and YTM is less than the coupon rate

The weighted average cost of capital for the firm is the

rate of return a firm must earn on its existing assets to maintain the current value of its stock

Which of the following is a primary market transaction? -sale of currently outstanding stock by a dealer to an individual investor -sale of a new share of stock to an individual investor -stock ownership transfer from on shareholder to another shareholder -gift of stock from one shareholder to another shareholder -gift of stock by a shareholder to a family member

sale of a new share of stock to an individual investor

a business owned by a solitary individual who has unlimited liability for its debt is called a: -corporation -sole proprietorship -general partnership -limited liability -limited liability company

sole proprietorship

The (lack of ) liquidity premium is compensation to investors for?

the lack of an active market wherein a bond can be sold for its actual value

an indenture is?

the legal agreement between the bond issuer and the bondholders

you cannot attend the shareholder;s meeting for alpha united so you authorize another shareholder to vote on your behalf, which is called

voting by proxy

a bond that has only one payment, which occurs at maturity is?

zero coupon