Terms for Corporate Finance chapters 6,7,8
The NPV is Blank______ if the required return is less than the IRR, and it is Blank______ if the required return is greater than the IRR.
positive; negative
bonds accused interest?
t is interest that has been earned but not yet received by the current bondholder.
bid price
the price a dealer is willing to pay for a security
If the growth rate (g) is zero, the capital gains yield is Blank______.
zero
Are bonds interest only?
yes
If unpaid preferred dividends must be "caught up" before any common dividends can be paid, they are called Blank______ dividends.
cuma
True or false: The profitability index rule for an independent project states that, if a project has a positive NPV, then the present value of the future cash flows must be smaller than the initial investment.
false
rue or false: The discounted cash flow (DCF) valuation estimates future value as the difference between the market price and the cost of the investment
false
bond ratings focus on what
false risk
he profitability index is calculated by dividing the PV of the Blank______ cash inflows by the initial investment.
future
the growth rate
he Blank______ can be interpreted as the capital gains yield.
structure of interest rates
he pure time value of money the relationship between nominal rates and time to maturity
The discounted cash flow valuation shows that higher cash flows earlier in a project's life are Blank______ valuable than higher cash flows later on.
more
hich of the following present problems when using the IRR method?
mutually exclusive projects nonconventional cash flows
referred stock has preference over common stock in the:
payment of dividends. distribution of corporate assets.
Municpial Bonds
state or local government he interest on municipal bonds is exempt from federal taxes. They are issued by state and local governments. The interest on municipal bonds is, in some cases, exempt from state taxes in the state of issue.
yield to maturity
the rate required in the market on a bond YTM is the expected return for an investor who buys the bond today and holds it to maturity. YTM is the prevailing market interest rate for bonds with similar features.
True or false: In general, the price that is paid for a bond will exceed its quoted price.
true
When long-term rates are higher than short-term rates, which of the following shapes will the term structure of interest rates usually have?
upward sloping
hich of the following are reasons why IRR continues to be used in practice?
Businesspeople prefer to talk about rates of return. The IRR of a proposal can be calculated without knowing the appropriate discount rate. It is easier to communicate information about a proposal with an IRR.
hat is the primary concern of the payback period rule?
How long it takes to recover the initial investment
Which of the following is a disadvantage of the profitability index?
It cannot rank mutually exclusive projects.
Which of the following are true about a bond's face value? Multiple select question.
It is the principal amount repaid at maturity. It is also known as the par value
differences between government and corporate bonds
Treasury bonds are issued by the U.S. government, while corporate bonds are issued by corporations. Treasury bonds are considered free of default risk, while corporate bonds are exposed to default risk. Treasury bonds offer certain tax benefits to investors that corporate bonds cannot offer.
Two features of government bonds
U.S. Treasury issues are considered to be default-free. U.S. Treasury issues are exempt from state income taxes.
he NYSE differs from the Nasdaq primarily because the NYSE has Blank____
a physical location a face-to-face auction market
cross over bonds
bonds that have both an investment grade and a junk bond rating
A corporate bond's yield to maturity:
changes over time
he profitability index is also called the Blank______ ratio.
cost benefit
common stock has a set maturity?
false
True or false: A project with nonconventional cash flows will produce two or more IRRs.
correct
