Finance Exam 2 Study

Suppose you buy a 7 percent coupon, 20-year bond today when it's first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond?

The price of the bond will fall

straight voting

, a shareholder may cast all votes for each member of the board of directors

ou own one share of a cumulative preferred stock that pays quarterly dividends. The firm has recently suffered some financial setbacks and has failed to pay the last two dividends. However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter. As a preferred shareholder, you should expect to receive the equivalent of ________ quarter(s) of dividends when the next dividend is paid.

3

Which one of the following compounding periods will yield the lowest effective annual rate given a stated future value at Year 5 and an annual percentage rate of 10 percent?

Annual

You are trying to compare the present values of two separate streams of cash flows that have equivalent risks. One stream is expressed in nominal values and the other stream is expressed in real values. You decide to discount the nominal cash flows using a nominal annual rate of 8 percent. What rate should you use to discount the real cash flows?

Comparable real rate

Which one of the following rights is never directly granted to all shareholders of a publicly held corporation?

Determining the amount of the dividend to be paid per share

Which bond would you generally expect to have the highest yield?

Long term, taxable junk bond

Dealer (finance)

agent who buys and sells securities from inventory

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?

Voting by proxy

Broker

an agent who arranges security transactions among investors

Bonds issued by the U.S. government:

are considered to be free of default risk

What are the distributions of either cash or stock to shareholders by a corporation called?

dividends

An ordinary annuity is best defined by which one of the following?

equal payments paid at the end of regular intervals over a stated time period.

The Fisher effect primarily emphasizes the effects of ________ on an investor's rate of return.

inflation

A bond's principal is repaid on the ________ date.

maturity

Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:

must still declare each dividend before it becomes an actual company liability.

If a borrower receives money today and must repay the loan in a single lump sum on a future date, the loan is called a(n) ________ loan.

pure discount

With an interest-only loan the principal is:

repaid in one lump sum at the end of the loan period.

cumulative voting

shareholder may cast all votes for one member of the board of directors

preemptive right

the right to share proportionally in any new stock sold

indenture

the written agreement between the corporation and the lender detailing the terms of the debt issue

A perpetuity is defined as:

unending equal payments paid at equal time intervals

The secondary market is best defined as the market:

where outstanding shares of stock are resold.