Chapter 1

Which of the following investments offers the holder the right to vote for the board of directors? A. Common stock B. Preferred stock C. Unsecured bondholders D. Secured bondholders

A. Common stock

Issuing stock is advantageous to a company for which TWO of the following reasons? I. It does not require the company to pay back the money. II. Shareholders are not permitted to influence the operations of the corporation. III. It does not require the company to make periodic interest payments. IV. It is less expensive to issue. A. I and III B. I and IV C. II and III D. II and IV

A. I and III

Which of the following is a money market instrument? A. Short-term debt B. Long-term debt C. Short-term equity D. Long-term equity

A. Short-term debt

An investor in preferred stock will receive A. dividends. B. interest. C. dividends and interest. D. neither dividends nor interest.

A. dividends.

All of the following are classified as equity instruments EXCEPT A. Adjustable-rate preferred stock B. Convertible bonds C. Convertible preferred D. Common Stock

B. Convertible bonds

An investor with a high risk tolerance and long investment horizon would be most interested in which of the following equity investments? A. Income bonds B. Growth stocks C. Blue chip stocks D. High-yield bonds

B. Growth stocks

Jesse buys a 4%, 10-year convertible bond at par that was issued with a conversion price of $50.00. The stock now has a market value of $100 per share. Which of the following statements is true? A. If Jesse converts now, she will receive more than 20 shares. B. If Jesse converts now, she will receive exactly 20 shares. C. If Jesse converts now, she will receive fewer than 20 shares. D. Jesse may not convert this bond.

B. If Jesse converts now, she will receive exactly 20 shares.

In a bond investment, the investor plays what role? A. Borrower B. Lender C. Intermediary D. Guarantor

B. Lender

Which of the following terms describes the total number of shares held by an issuer's investors? A. Authorized stock B. Outstanding stock C. Treasury stock D. Capital stock

B. Outstanding stock

Where do priority claims fall in a bankruptcy distribution? A. First B. Second C. Third D. Last

B. Second

An investor owns dozens of different stocks in many sectors along with fixed-income securities, real estate, and cash. This investor's portfolio is likely to minimize A. systemic risk B. non-systemic risk C. interest rate risk D. liquidity risk

B. non-systemic risk

The term conversion parity describes which of the following scenarios? A. An issuer's stock price equals its bond price. B. An issuer's stock price equals the bond's annual coupon payments. C. An investor would have neither profit nor loss if converting a convertible bond. D. An issuer's bond price is unchanged from its issuance price.

C. An investor would have neither profit nor loss if converting a convertible bond.

Benefits of common stock ownership include all of the following EXCEPT A. The opportunity for capital appreciation B. The right to elect the company's board of directors C. Preferred status in a corporate liquidation D. The right to receive dividends when declared

C. Preferred status in a corporate liquidation

Which of the following preferred stock will pay a higher dividend than straight preferred? A. Participating preferred stock B. Convertible preferred stock C. Cumulative preferred stock D. Callable preferred stock

D. Callable preferred stock

Which type of preferred stock has a claim to prior years' dividends if they were not previously paid? A. Participating B. Prior preferred C. Convertible D. Cumulative

D. Cumulative