FINANCE EXAM 2

To determine the interest paid each compounding period, take the advertised annual percentage rate and divide it by the _________ to get the appropriate periodic interest rate, often called the "period rate." a. number of compounding periods per year b. number of months c. length of the investment d. number of compounding periods per month.

A

A company selling a bond is ________ money. A) borrowing B) lending C) taking D) reinvesting

A

The "Truth in Savings Law" requires banks to advertise their rates on investments such as CDs and savings accounts as annual percentage yields (APY). A)TRUE B) FALSE

A

The ________ is the market of first sale in which companies first sell their authorized shares to the public. A) primary market B) Nasdaq market C) secondary market D) both primary and secondary markets

A

The constant growth dividend model requires that ________. A) the return rate r is greater than the growth rate g of the dividend stream B) the return rate g is greater than the growth rate r of the dividend stream C) the return rate r is lesser than the growth rate g of the dividend stream D) we set g = 0 if the return rate r is greater than the growth rate g of the dividend stream

A

The value of a financial asset is the ________. A) present value of all of the future cash flows that will be received B) sum of all previous cash flows received C) future value of just the capital gains but not the dividends D) present value of just the capital gains but not the dividends

A

When quoting rates on loans, the "Truth in Lending Law" requires the bank to state the rate as an APR, effectively understating the true cost of the loan when interest is computed more often than once a year. A) TRUE B) FALSE

A

Which of the statements below is FALSE? A) The profits for common stock owners come before payment to employees, suppliers, government, and creditors. B) Stock is a major financing source for public companies. C) Shareholders elect the board of directors, which ultimately selects the management team that runs the day-to-day operations of the company. D) Common stock's ownership claim on the assets and cash flow of a company is often referred to as a residual claim.

A

Which of the statements below is FALSE? A) The payment of cash dividends to shareholders is a deductible expense for the company. B) Unlike coupon payments on bonds, which are treated as an interest expense of the firm, common stock dividends are considered a return of capital to shareholders and not an expense of the firm. C) For the shareholder, receipt of dividends is a taxable event. D) A typical practice of many companies is to distribute part of the earnings to shareholders through cash dividends.

A

Which of the statements below is FALSE? A) The profits for common stock owners come before payment to employees, suppliers, government, and creditors. B) Shareholders elect the board of directors, which ultimately selects the management team that runs the day-to-day operations of the company. C) Stock is a major financing source for public companies .D) Common stock's ownership claim on the assets and cash flow of a company is often referred to as a residual claim.

A

_______ means that the percentage increase in the dividend is the same each year. A) Constant growth B) Inconsistent growth C) No growth D) A constant cash flow

A

________ refers to how quickly information is reflected in the available prices for trading. A) Market efficiency B) Mechanical efficiency C) Informational efficiency D) Operational efficiency

A

________ has to do with the speed and accuracy of processing a buy or sell order at the best available price. A) Informational efficiency B) Operational efficiency C) Market efficiency D) Mechanical efficiency

B

In ________, current prices reflect the price history and trading volume 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.: A) strong-form efficient markets B) semi-strong-form efficient markets C) weak-form efficient markets D) operational efficient markets

C

When the ________ is less than the yield to maturity, the bond sells at a/the ________ the par value. A) coupon rate; premium over B) time to maturity; discount to C) coupon rate; discount to D) time to maturity; same price as

C

A bond may be issued by ________. A) companies B) state governments C) the federal government D) All of theabove

D

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) Cash dividends, unlike coupons for bonds, typically change from year to year. B) The ending price of the stock at any point in time is not fixed like the par value of the principal. C) Because a stock has no maturity date, the number of its payments is unknown. D) A stock's final sale is fixed in time on its maturity date

D

Stocks are different from bonds because ________. A) stocks, unlike bonds, give owners legal claims to payments B) bonds, unlike stocks, represent voting ownership C) stocks, unlike bonds, are major sources of funds D) stocks, unlike bonds, represent residual ownership

D

Which of the statements below is FALSE? A) Common stock usually carries the right to participate in the management of the firm through the right to vote for the members of the Board of Directors and for changes to the charter and bylaws of the company. B) Shareholders with super voting right shares have multiple votes per share —a fact that increases their influence and control over the company. C) Some firms issue several classes of common stock, and these classes may have unequal voting rights. D) No stock has multiple classes with unequal voting rights

D

Which one of the following has the highest effective annual rate? a.APR of 6 percent compounded annually b.APR of 6 percent compounded semi-annually c.APR of 6 percent compounded quarterly d.APR of 6 percent compounded monthly e.APR of 6 percent compounded daily

E

The ________ is the return the bondholder receives on the bond if held to maturity. A) coupon B) coupon rate C) yield to maturity D) par rate

c

When a company is in financial difficulty and cannot fully pay all of its creditors, the first lenders to be paid are the ________. A) stockholders B) sinking fund holders C) senior debtholders D) junior debtholders

c

The actual rate paid or received after accounting for compounding is called the a. stated annual rate or APR. b. real interest rate. c. simple interest rate .d. effective annual rate.

d