Chapters 6-8,17 Quizzes

Creative Solutions Inc. has issued 10-year ​$1,000 face​ value, 8% annual coupon​ bonds, with a yield to maturity of​ 9.0%. The annual interest payment for the bond is​

80

Which of the following classifications of securities had the largest range of annual returns over the period 1950-1999? A. Small-company stocks .B. 3-month U.S. Treasury bills C. Long-term government bonds D. Large-company stocks

A. Small-company stocks

The measure of systematic risk is called​ ________. A. covariance B. beta .C. correlation D. variance

B. beta

Janet bought a share of stock for​ $47.50 that paid a dividend of​ $.72 and sold one year later for​ $51.38. What was her dollar profit or loss and holding period​ return? A. ​$3.88, 9.68% B. ​$4.60, 9.68% .C. ​$3.88, 8.95% D. ​$0.72, 7.55%

B. ​$4.60, 9.68% profit=ending value+distributions-original cost Return= profit/original cost

According to the​ text, which of the following four cash flows should be LAST in order of priority for a​ firm? A. Cash to pay off debts in a timely fashion B. Cash for reinvesting C. Cash dividends .D. Cash to maintain operations

C. Cash dividends

A bond may be issued by​ ________. A. state governments B. companies C. the federal government D. All of the above

D. All of the above

Which of the statements below is​ FALSE? A. A typical practice of many companies is to distribute part of the earnings to shareholders through cash dividends. B. For the​ shareholder, receipt of dividends is a taxable event. C. Unlike coupon payments on​ bonds, which are treated as an interest expense of the​ firm, common stock dividends are considered a return of capital to shareholders and not an expense of the firm. D. The payment of cash dividends to shareholders is a deductible expense for the company.

D. The payment of cash dividends to shareholders is a deductible expense for the company.

Which of the statements below is​ FALSE? A. Both the NYSE and the NYSE MKT LLC​ (previously known as the​ AMEX) are physical trading locations with trading floors. In order to complete a trade​ (the selling or buying of​ shares), orders must be processed at trading posts on the floor of the exchange . B. Immediately after the public auction of common​ stock, the stock begins trading in the secondary market. C. The secondary​ market, or​ "used stock"​ market, provides a place for current common stockholders to sell their stock or acquire more stock or for new stockholders to acquire stock for the first time. D. Trading on the NYSE is accomplished through a set of registered dealers who are connected by a computer network.

D. Trading on the NYSE is accomplished through a set of registered dealers who are connected by a computer network.

The​ ________ is the annual coupon payment divided by the current price of the​ bond, and is not always an accurate indicator. A. yield to maturity B. coupon rate C. bond discount rate D. current yield

D. current yield

Most U.S. corporate and government bonds choose to make​ ________ coupon payments. A. monthly B. annual C. quarterly D. semiannual

D. semiannual

The decision to pay a cash dividend is within the jurisdiction of​ ________. A. the largest shareholders of the firm B. the​ firm's largest labor union C. the SEC D. the board of directors of the firm

D. the board of directors of the firm

True/False A privilege that allows current shareholders to buy a fixed percentage of all futures issues before they are offered to the public is called a primary right.

False

True/False Almost all corporate and government bonds pay coupons on an annual basis

False

True/False With best efforts​ compensation, the investment banker essentially buys the entire stock issue from the company at one price and then sells the issue at auction for a higher price.

False

True/False Construction Products Inc. issued​ $1,000 face value 20-year bonds five years ago. These bonds are currently selling for​ $1,218.47. From this information we can conclude that the Quality Construction Products Inc.bonds have a yield-to--maturity greater than the coupon rate on these bonds.

False

Big House Nursery Inc. has issued 20-year ​$1,000 face​ value, 8% annual coupon​ bonds, with a yield to maturity of​ 10%. The current price of the bond is​

$829.73

Rene owns the following portfolio of securities. What is the beta for the​ portfolio? Company Beta % of Port Microsoft 1.82 50% GM .53 30% Dullco .67 20% A. 1.50 B. 1.98 C. 1.20 .D. 1.74

1.82*.5, .91 .53*.3, .159 .67*.2, .134 Add= C. 1.20

​Pike's Peak Pure Spring Water Inc. is considered a liquid company because of its generous dividend policy. Prior to the​ firm's ex-dividend date of June​ 15th, the stock is selling for a price of​ $31.25 per share. If you purchase the stock prior to June​ 15th, you will receive a dividend of​ $1.60. If you waited until June 16th to buy the​ stock, and there was no other event to change the price of the​ stock, what would be the​ stock's expected​ price?

31.25-1.60 $29.65

Kwak motors Inc, pays a 1.77 preferred dividend every quarter and will maintain this policy forever. What price should you pay for one share of preferred stock if you want annual return of 9.25% on your investment a. 66.54 B 70.54 c. 74.54 D. 76.54

=.0925/4 Take that and divide 1.77 D. 76.54

Which of the following dividends does not actually involve the distribution of​ money? A. Stock dividends .B. Liquidating dividends C. Special dividends D. All of the dividends above involve the payment of cash to the stockholder.

A. Stock dividends

Which of the following investments is considered to be default risk-free? A. Treasury bills .B. Common stock C. AAA rated corporate bonds D. Currency options

A. Treasury bills

You want to invest in a stock that pays​ $1.50 annual cash dividends for the next six years. At the end of the six​ years, you will sell the stock for​ $18.50. If you want to earn​ 7.5% on this​ investment, what is a fair price for this stock if you buy it​ today? A. about​ $19.03 .B. about​ $15.29 C. about​ $22.45 D. about​ $18.45

A. about​ $19.03 Use Excel solve for PV

The​ ________ is the regular interest payment of the bond. A. coupon .B. coupon rate C. dividend D. par

A. coupon

Legal capital can be thought of as the original contributions of the owners consisting of A. par value plus paid-in-capital in excess of par value paid by the shareholders. .B. par value paid by the shareholders. C. retained earnings paid by the shareholders. D. par value plus retained earnings paid by the shareholders.

A. par value plus paid-in-capital in excess of par value paid by the shareholders.

The value of a financial asset is the​ ________. A. present value of all of the future cash flows that will be received B. present value of just the capital gains but not the dividends C. sum of all previous cash flows received D. future value of just the capital gains but not the dividends

A. present value of all of the future cash flows that will be received

The​ ________ is the market of first sale in which companies first sell their authorized shares to the public. A. primary market .B. secondary market C. Nasdaq market D. both primary and secondary markets

A. primary market

Both assets A and B plot on the SML. Asset A has an expected return of​ 15% and a beta of 1.7. Asset B has an expected return of​ 12% and a beta of 1.1. What is the expected return on the market​ portfolio? A. ​11.5% .B. ​6.5% C. ​5.0% D. It cannot be determined from this information.

A. ​11.5% No clue why this is the answer

It is more common for companies to choose a​ ________ dividend policy over a​ ________ dividend policy. A. ​sticky; residual .B. ​zero; positive C. ​residual; sticky .D. There have been no empirical studies done on this question.

A. ​sticky; residual

Which of the following is NOT a reason for a low-dividend-payout ​policy? A. The avoidance or postponement of taxes on distributions for shareholders B. Low-dividend-payout clientele are willing to pay a higher price per share than high-dividend payout clientele .C. Higher potential future returns for shareholders .D. Less need for additional costly outside funding

B. Low-dividend-payout clientele are willing to pay a higher price per share than high-dividend payout clientele

Bonds are different from stocks because​ ________. A. bonds do not have maturity dates B. bonds promise fixed payments for the length of their maturity C. bonds promise growth in earnings D. bonds give payments only after other owners are paid

B. bonds promise fixed payments for the length of their maturity

Bonds are sometimes called​ ________ securities because they pay set amounts on specific future dates. A. variable-income B. fixed-income .C. bully D. real

B. fixed-income

Investors who buy stock in lots of fewer than 100 shares are said to be purchasing​ ________. A. off lots B. odd lots .C. round lots D. small lots

B. odd lots

The​ ________ is the yield an individual would receive if the individual purchased the bond today and held the bond to the end of its life. A. prime rate B. yield to maturity .C. coupon rate D. current yield

B. yield to maturity

Lila purchased Hampton Industries Inc. stock for​ $18.35 and sold it 6 months later for​ $21.45 after receiving a​ $0.50 dividend. What was her holding period return​ (HPR), Annual Percentage Rate​ (APR), and Effective Annual Rate​ (EAR)? A. ​14.17%, 28.34%,​ 30.35% B. ​19.62%, 39.24%,​ 43.09% .C. ​20.34%, 40.68%,​ 9.70% D. ​20.34%, 40.68%,​ 44.82%

B. ​19.62%, 39.24%,​ 43.09% HPR=ending price+distributions-beginning price/beginning price 21.45+.50-18.35/18.35 APR=HPR*2???

Which of the following statements is NOT​ true? A. Researchers have found that after a straight stock​ split, companies generally tend to move into the preferred trading range of​ $20 to​ $40 a share. B. A reverse split is often taken to engineer a​ stock's price up into the preferred trading range. C. After a straight stock​ split, the equity value of the company increases because there are now more shares to trade. .D. A straight stock split is often taken to engineer a​ stock's price down into the preferred trading range.

C. After a straight stock​ split, the equity value of the company increases because there are now more shares to trade.

Which of the statements below is​ FALSE? A. Stock is a major financing source for public companies. B. Shareholders elect the board of​ directors, which ultimately selects the management team that runs the day-to-day operations of the company. C. The profits for common stock owners come before payment to​ employees, suppliers,​ government, and creditors. .D. Common​ stock's ownership claim on the assets and cash flow of a company is often referred to as a residual claim.

C. The profits for common stock owners come before payment to​ employees, suppliers,​ government, and creditors.

After placing an order to buy or sell shares of stock through your​ broker, which of the following statements is TRUE regarding the settlement date for the​ order? A. The settlement date is one day after the agreed-upon trade. B. The settlement date is three days after the agreed-upon trade. C. The settlement date is two days after the agreed-upon trade. .D. The settlement date is the same day as the agreed-upon trade.

C. The settlement date is two days after the agreed-upon trade.

Part of the negotiation with the investment banker during the selection process has to do with how the investment banker will be compensated for taking the company public. One of these two standard compensation packages involves​ ________. A. a firm-commitment ​approach, in which the investment banker essentially buys the entire stock issue from the company at several prices B. a firm-commitment ​approach, in which the investment banker pledges to do his or her best to sell the shares and will take a small percentage of the sale of each stock C. a best efforts​ approach, in which the investment banker pledges to do his or her best to sell the shares and will take a small percentage of the sale of each stock .D. a best efforts​ approach, in which the investment banker essentially buys the entire stock issue from the company at one price and then sells the issue at the auction for a higher price

C. a best efforts​ approach, in which the investment banker pledges to do his or her best to sell the shares and will take a small percentage of the sale of each stock

The dividend policy of a firm may be influenced by all of the following​ EXCEPT: A. the fact that bondholder covenants can place constraints on dividend policy. B. the fact that there may not be enough cash on hand. C. the fact that loans are a typical resource for paying dividends. .D. the fact that firms cannot pay out cash dividends from their legal capital.

C. the fact that loans are a typical resource for paying dividends.

There are two typical ways to alter the one vote-one share standard. One way is​ ________. A. to not have companies pay dividends B. to not have companies issue bonds C. to have companies issue classes of stock whereby one or more classes have super voting rights .D. to have companies buy back nonvoting common stock

C. to have companies issue classes of stock whereby one or more classes have super voting rights

Stock splits and stock dividends​ ________. A. are just paper financial transactions B. may be used to signal​ management's intentions to the marketplace C. divide the​ firm's existing shares into multiple shares with the same total dollar value D. All of the above

D. All of the above

Stocks differ from bonds​ because: A. the ending par value of a bond is known at purchase while the ending value of a share of stock is unknown at purchase. B. bond cash flows are known while stock cash flows are uncertain. C. firms pay bond cash flows prior to paying taxes while stock cash flows are after tax. D. All of the above

D. All of the above

Which of the statements below is​ TRUE? A. Investors want to maximize return and maximize risk. B. Investors want to minimize return and maximize risk. C. Investors want to minimize return and minimize risk. D. Investors want to maximize return and minimize risk.

D. Investors want to maximize return and minimize risk.

True/False Bond covenants are frequently used to limit the dividends payable to stockholders.

True

True/False Optimal dividend policy will differ among shareholders for reasons including personal income tax status and future expectations for the firm

True

True/False A stock dividend pays shareholders of record with additional shares of stock rather than with cash.

True

True/False The holding period return​ (HPR) is the return measured from the initial purchase to the final sale of the investment without regard to the length of time the investment is held.

True

True/False Zero-coupon bonds are priced at deep discounts.

True

How do you calculate outstanding shares?

multiply % of dividend by number of shares outstanding 300,000 outstandning 2% stock dividend 300,000*.02= 6000 new shares