Finance Final

Which of the following statements about bonds is​ true? A. If market interest rates are below a​ bond's coupon interest​ rate, then the bond will sell above its par value. B. As the maturity date of a bond​ approaches, the market value of a bond will become more volatile. C. Bond prices move in the same direction as market interest rates. D. Longminusterm bonds have less interest rate risk than do shortminusterm bonds.

A. If market interest rates are below a​ bond's coupon interest​ rate, then the bond will sell above its par value.

Which of the following statements about bonds is​ true? A. If market interest rates are above a​ bond's coupon interest​ rate, then the bond will sell below its par value. B. As the maturity date of a bond​ approaches, the market value of a bond will become more volatile. C. Longminusterm bonds have less interest rate risk than do shortminusterm bonds. D. Bond prices move in the same direction as market interest rates.

A.If market interest rates are above a​ bond's coupon interest​ rate, then the bond will sell below its par value.

The​ P/E ratio is calculated by dividing A. the current stock price by earnings per share. B. the current stock price by​ stockholders' equity. C. total assets by net income. D. the current stock price by operating cash flow per share.

A.the current stock price by earnings per share.

Quirk Drugs sold an issue of 30-​year, ​$1,000 par value bonds to the public that carry a​ 10.85% coupon​ rate, payable semiannually. It is now 10 years​ later, and the current market rate of interest is​ 9.00%. If interest rates remain at​ 9.00% until​ Quirk's bonds​ mature, what will happen to the value of the bonds over​ time? A. The bonds will sell at a discount and fall in value until maturity. B. The bonds will sell at a premium and decline in value until maturity. C. The bonds will sell at a premium and rise in value until maturity. D. The bonds will sell at a discount and rise in value until maturity.

B. The bonds will sell at a premium and decline in value until maturity

If current market interest rates​ fall, what will happen to the value of outstanding​ bonds? A. It will remain unchanged. B. It will rise. C. It will fall. D. There is no connection between current market interest rates and the value of outstanding bonds.

B.It will rise.

Which of the following statements about bonds is​ true? A. As the maturity date of a bond​ approaches, the market value of a bond will become more volatile. B. The market value of a bond moves in the opposite direction of market interest rates. C. If market interest rates are higher than a​ bond's coupon interest​ rate, then the bond will sell above its par value. D. Longminusterm bonds are less risky than shortminusterm bonds. E. None of the above.

B.The market value of a bond moves in the opposite direction of market interest rates.

ABC Service can purchase a new assembler for​ $15,052 that will provide an annual net cash flow of​ $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is​ 12%. (Round your answer to the nearest​ $1.) A. ​$7,621 B. ​$6,577 C. ​$4,568 D. ​$1,056

B.​$6,577

Interest rates have increased by 50 basis points​ (0.5%). Which of the following bonds will decline most in​ price? All of the bonds have AA ratings. A. A bond that matures in 5 years B. A bond that matures in 10 days C. A bond that matures in 10 years. D. All of the bonds will decline in price by approximately the same amount.

C. A bond that matures in 10 years.

Which of the following statements about bonds is​ true? A. Longminusterm bonds are less risky than shortminusterm bonds. B. If market interest rates are higher than a​ bond's coupon interest​ rate, then the bond will sell above its par value. C. If market interest rates​ change, longminusterm bonds will fluctuate more in value than shortminusterm bonds. D. Bond prices move in the same direction as market interest rates. E. None of the above

C. If market interest rates​ change, long-term bonds will fluctuate more in value than short-term bonds.

If current market interest rates​ rise, what will happen to the value of outstanding​ bonds? A. It will rise. B. It will remain unchanged. C. It will fall. D. There is no connection between current market interest rates and the value of outstanding bonds.

C. It will fall.

Evidence exists that directors A. are quick to replace or reduce the compensation of underperforming CEOs. B. aggressively represent the interests of shareholders. C. often represent the interests of the managers who nominated them for directorships. D. are vigilant in requiring that the​ firm's assets be used efficiently.

C.often represent the interests of the managers who nominated them for directorships.

If the market price of a bond​ increases, then A. the yield to maturity increases. B. the coupon rate increases. C. the yield to maturity decreases. D. none of the above.

C.the yield to maturity decreases.

​ABC, Inc. just paid a dividend of​ $2. ABC expects dividends to grow at​ 10%. The return on stocks like​ ABC, Inc. is typically around​ 12%. What is the most you would pay for a share of ABC​ stock? A. ​$100 B. ​$130 C. ​$120 D. ​$110

D. $110

Which of the following statements is​ true? A. The legal document that describes all of the terms and conditions of a bond issue is called a debenture agreement. B. A zero coupon is a bond that is secured by a lien on real property. C. A bond that has a rating of AA is considered to be a junk bond. D. A bond will sell at a premium if the prevailing required rate of return is less than the​ bond's coupon rate.

D. A bond will sell at a premium if the prevailing required rate of return is less than the​ bond's coupon rate.

Evidence that agency costs exists A. because they are shown in footnotes to the financial statements. B. because management often pursues risky but profitable opportunities rather than​ safer, less profitable opportunities. C. because underperforming​ CEO's are frequently voted out by shareholders. D. because stock prices increase when an underperforming CEO is unexpectedly replaced.

D. because stock prices increase when an underperforming CEO is unexpectedly replaced.

A bond investor seeking capital gains should purchase A. bonds with distant maturity dates when interest rates are expected to rise. B. bonds with short maturity dates when interest rates are expected to rise. C. bonds with short maturity dates when interest rates are expected to decline. D. bonds with distant maturity dates when interest rates are expected to decline.

D. bonds with distant maturity dates when interest rates are expected to decline.

The nominal interest rate A. does not include inflation. B. ignores the Fisher effect. C. is the rate at which banks lend money to other banks. D. includes inflation and the real rate of interest.

D. includes inflation and the real rate of interest.

CEOs naming friends to the board of directors and paying them more than the norm is an example of the A. proxy fights. B. majority voting feature. C. preemptive right. D. agency problem.

D.agency problem

Common stockholders expect greater returns than bondholders because A. they have no legal right to receive dividends. B. they bear greater risk. C. in the event of​ liquidation, they are only entitled to receive any cash that is left after all creditors are paid. D. all of the above.

D.all of the above.

Which of the following factors will influence a​ firm's P/E​ ratio? A. General market conditions B. Firm investment opportunities C. The​ investors' required rate of return D. All of the above

D.all of the above.

A​ bond's "spread" refers to the difference between​ it's Moody's rating and its Standard​ & Poors rating. True False

False

Bonds cannot be worth less than their book value. True False

False

Shorter-term bonds have greater interest rate risk than do longer- term bonds. True False

False

A AAA rated​ bond's yield to maturity will be very close to​ it's expected yield. True False

True

A basis point is equal to one hundredth of a percentage point. True False

True

As bond approaches​ maturity, discounts and premiums become less and less significant. True False

True

Debentures are unsecured long-term debt. True False

True

The longer the time to​ maturity, the more sensitive a​ bond's price to changes in market interest rates. True False

True

The sensitivity of a​ bond's value to changing interest rates depends on both the​ bond's time to maturity and its pattern of cash flows. True False

True