Ch 2 finance study
If the risk-free rate of interest is 8%, and the real rate of interest is 2.5%, ______ is the expected rate of inflation.
5.5
If the real rate of interest is 2%, inflation is expected to be 3% during the coming year, and the default risk premium, illiquidity risk premium, and maturity risk premium for the Bonds-R-Us Corporation are all 1% each, what would be the yield (stated rate) on a Bonds-R-Us bond?
8%
The three most important financial instruments in Corporate Finance are_______________,____________ ,________________ and .
bonds, stock, preferred stock
The shape of the yield curve gives______________ and ______________useful information for financial decisions.
borrowers, lenders
Three types of financial intermediaries are investment bankers, ______, and dealers.
brokers
Financial markets bring together________ and __________ of financial securities
buyers, sellers
The ______ markets trade securities with maturities greater than one year, expose the investor to somewhat higher risk, have higher expected rates of return, and are less liquid.
capital
A short-term promissory note issued by large corporations with a strong credit rating in called ______ ______.
commercial paper
______ stockholders own a portion of the company.
common
The two types of corporate stock are ___________stock and _____________-stock.
common, preferred
______ make their living buying securities and reselling them to others.
dealers
A ______ occurs when a borrower fails to pay interest and principal on a loan on time.
default
Someone that has expenditures greater than their income is called a ______ economic unit.
deficit
Common stockholders receive a return on their investment in the form of common stock ______.
dividends
In an efficient market, securities can be traded _______,_________ and _________-
easily, quickly, at low cost
The three special features of a bond are______ ,_________, and _________.
face value, term, interest
The main types of economic units include ______, businesses, and households.
governments
The nominal interest rates includes premiums for risk, ______ and other various things.
inflation
The nominal risk-free rate of interest is equal to the real rate of interest plus an expected ________ premium.
inflation
______ ______ can be negative.
interest rates
Preferred stock is ______ risky than common stock
less
______ is a primary motive for using the money market.
liquidity
The adjustments lenders make to their current interest rates to compensate for the uncertainty about future changes in rates for long-term securities is called the ______ risk premium.
maturity
Short-term securities are traded in the ___________market, and long-term securities trade in the ___________ market
money, capital
Bonds issued by state and local governments are known as ______ bonds.
municipal
The ______ rate of interest is the rate of interest charged by the lender and includes premiums for inflation and risk.
nominal
The prevailing rate of interest in any situation is called the ______ interest rate.
nominal
If a market has no fixed locations of business, it is said to be ______.
over the counter
The nominal risk-free interest rate is the__________ rate of interest plus an ______________premium.
real, risk
You wish to purchase stock from your broker. Your purchase will most likely occur in the ______ market.
secondary
Rather than borrowing money by issuing bonds, a corporation may choose to raise money by selling ______.
stock
A business or household that has more income than expenses is called a ______ economic unit
surplus
An example of a Federal Government security issued with a maturity of less than one year is a ______ bill.
treasury
Investment bankers arrange securities sales on either an___________ basis or a ______________basis.
underwriting, best efforts
A typical yield curve is ______-______, reflecting a greater maturity risk premium associated with long-term bonds.
upward sloping
The ______ curve is a plot of interest rates and time to maturity of bonds with similar characteristics
yeild
Bonds that do not pay any coupon interest are called ______-______ bonds.
zero coupon
