Finance 302 Test 2 Questions & Answers

Trials Inc. has issued 30-year $1,000 face value, 10% annual coupon bonds, with a yield to maturity of 9.0%. The annual interest payment for the bond is_______

100$

Which of the statements below is true 1.Investors want to maximize return and minimize risk 2.Investors want to maximize return and maximize risk 3.Investors want to minimize return and maximize risk 4.Investors want to minimize return and minimize risk

Investors want to maximize return and minimize risk

Which of the following investments is considered to be default risk-free?

Treasury bills

The _______ is a market derived interest rate used to discount the future cash flows of the bond.

Yield to maturity

Stocks differ from bonds because:

all of the above

beta is 1.the appropriate measure of risk for a well diversified portfolio 2.a measure of systematic risk 3. a measure of nondiversifiable risk 4.all of the above

all of the above

unsystematic risk

can be diversified away

________ means that the percentage increase in the dividend is the same each year

constant growth

The ______ is the regular interest payment of the bond

coupon

The _______ is the interest rate printed on the bond.

coupon rate

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

coupon rate; discount to

The practice of not putting all of you eggs in one basket is an illustration of ______

diversification

The holder of preferred stock is entitled to a constant dividend

every period

A bond is a ________ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates in the future

long-term debt

a beta of 1.0 is the beta of the ______, while a beta of 0.0 is the measure for a _____

market; risk free security

The ________ is the expiration date of the bond.

maturity date

_______ has to do with the speed and accuracy of processing a buy or sell order at the best available price

operational efficiency

The value of a financial asset is the _____

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

Zero-coupon Bonds are

priced at a deep discount

You can think of the ______ as the "used stock" market because these shares have been owned or used previously

secondary market

In ______, current prices already reflect the price history and volume of the stock as well as all available public information

semi-strong-form efficient markets

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

speculative

_______ is risk that cannot be diversified away.

systematic risk

In _________, current prices reflect the price history and trading volume,e of the stock. It is of no use to chart historical stock prices to predict future stock prices such that you can identify mispriced stocks and routinely outperform the market

weak-form efficient markets