Finance Midterm- Ch. 5

You bought a yen-denominated corporate bond at the beginning of the year for ¥100,000. The bond paid 3 percent annual interest and was trading for ¥110,000 at year-end. The exchange rate was $1 = ¥100 at the beginning of the year and $1 = ¥122 at year-end. What holding period return, measured in yen, did you earn on the bond?

-7.38 You paid $1,000 for the bond (¥100,000/100). At the end of the year, you had interest income and a yen bond worth a total of $926.23 (¥113,000/122). Your dollar return was -7.38 percent ([$926.23 - $1,000]/$1,000). Another way to find the dollar return is to use the following equation, (1+$ return) - (1+ Y return)(1+ % appreciation in $) (1+.13)(1+((1/22) - (1/100))/ (1/100)) = )1+.13)(1-.18) - 1 = -.0738

Which one of the following accurately orders the rate of return on financial securities from highest to lowest over most of recorded market history (the 1900-2010 period)?

Common stocks, long-term corporate bonds, long-term government bonds, short-term government bills

Which one of the following statements is false?

Financial instruments are greatly constrained by law and regulation.

Which one of the following statements is true?

Historically, common shareholders have earned a risk premium as compensation for risk borne in excess of government bonds.

Which of the following statements related to market efficiency tends to be supported by current evidence? I. Markets tend to respond quickly to new information. II. It is difficult for the typical investor to earn above-average returns without taking above-average risks. III. Short-run prices are difficult to predict accurately based on public information. IV. Markets are most likely weak form efficient.

I, II, and III only

Zack owns a bond that will pay him $35 each year in interest plus a $1,000 principal payment at maturity. The $1,000 principal payment is called the:

Par Value

Which of the following securities has a purely fixed claim against a firm's cash flows?

bonds

Which of the following securities has a purely residual claim against a firm's cash flows?

common stock

Mike just purchased a bond which pays $40 each year in interest. The $40 interest payment is also called the:

coupon

Individuals who continually monitor the financial markets seeking mispriced securities:

make the markets increasingly more efficient.

At the end of fiscal year 2011, Crane Industries, Inc.'s stock price was $30.75. A year later it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What was the percentage change in the share price in fiscal year 2012?

13.43% Percentage change in share price = (34.88- 30.75)/30.75 = 4.13/30.75 = 13.43%.

Which of the following statements are true? I. Underwriters help private companies access public stock markets through IPOs. II. Shelf registrations and private placements are examples of seasoned security issues. III. Issue costs for debt are typically greater than issue costs for equity. IV. Private equity financing is a common source of financing for startup firms.

I, II, and IV only

Which one of the following statements is true? A. Debt instruments offer residual claims to future cash payouts. B. Bonds with call provisions will have lower coupon rates than otherwise identical bonds. C. Bondholders enjoy a direct voice in company decisions. D. Bonds are low-risk investments that do well in inflationary periods. E. Preferred shareholders are the first investors to be repaid in bankruptcy liquidation. F. None of the above

None of the above

At the end of fiscal year 2011, Crane Industries, Inc.'s stock price was $30.75. A year later it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What was the dividend yield in fiscal year 2012?

1.79% Dividend yield = 0.55/30.75 = 1.79%

You bought a yen-denominated corporate bond at the beginning of the year for ¥100,000. The bond paid 3 percent annual interest and was trading for ¥110,000 at year-end. The exchange rate was $1 = ¥100 at the beginning of the year and $1 = ¥122 at year-end. What was your U.S. dollar holding period return on the bond?

13% The holding period return in yen was [3%*100,000 + 10,000]/100,000 = 13 percent.

At the end of fiscal year 2011, Crane Industries, Inc.'s stock price was $30.75. A year later it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What rate of return did the common stock owners earn in fiscal year 2012?

15.22 Rate of return = ((34.88 + 0.55) - 30.75)/30.75 = 15.22%

Which of the following are the most likely reasons for why a stock price might not react at all on the day that new information related to the stock issuer is released? I. Insiders knew the information prior to the announcement II. Investors need time to digest the information prior to reacting III. The information has no bearing on the value of the firm IV. The information was anticipated

III and IV only