FI 302 Test 2

Bonds are different from stocks because ________ a. bonds promise fixed payments for the length of their maturity b. bonds give payments only after other owners are paid c. bonds do not have maturity date d. bonds promise growth in earnings

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

when the ___ is less than the yield to maturity, the bond sells at a/the ____ par value a. coupon rate; discount to b. coupon rate; premium over c. time to maturity, same price as d. time to maturity; discount to

a. coupon rate; discount to

the terms ____ and ____ mean the same thing a. diversifiable risk/ unsystematic risk b. total risk/ unique risk c. nondiversifiable risk/ unsystematic risk d. diversifiable/ systematic

a. diversifiable risk/ unsystematic risk

the practice of not putting all your eggs in one basket is an illustration of a. diversification b. portion control c. variance d. expected return

a. diversification

_____ has to do with the speed and accuracy of processing a buy or sell order at the best available price a. operational efficiency b. market efficiency c. mechanical efficiency d. operational efficiency

a. operational efficiency

you can think of the _____ as the "used" stock market because these shares have been owned or "used" previously a. initial public offering market b. secondary market c. primary market d. NYSE market

b. secondary market

which of the following is NOT a definition of beta? a. a measure of nondiversifiable risk b. a statistical measure of an individual's asset's or portfolio's co-movement with the returns of the market c. a measure of risk that can be avoided d. a measure of systematic risk

c. a measure of risk that can be avoided

the value of a financial asset is the _____ a. sum of all previous cash flows recieved b. future value of just the capital gains but not the dividends c. present value of all the future cash flows that will be received d. present value of just the capital gains but not the dividends

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

the ____ is the yield an individual would receive if the individual purchased the bond today and help the bond to the end of its life a. coupon rate b. current yield c. yield to maturity d. prime rate

c. yield to maturity

the ____ is the interest rate printed on the bond a. compound rate b. semi annual coupon rate c. coupon rate d. yield to maturity

coupon rate

stocks differ from bonds because: a. firms pay bond cash flows prior to paying taxes while stock cash flows are after tac b. the ending par value of a bond is known at purchase while the ending value of a share of stock is unknown at purchase c. bond cash flows are known while stock cash flows are uncertain d. all f the above

d. all f the above

beta is ____ a. a measure of nondiversifiable risk b. measure of systematic risk c. appropriate measure of risk for a well-diversified portfolio d. all of the above

d. all of the above

unsystematic risk a. is equal to 2 times the systematic risk b. is the system wide risk c. is also known as nondiversifable risk d. can be diversified away

d. can be diversified away

______ means the percentage increase in the dividend is the same each year a. inconsistent growth b. no growth c. constant cash flow d. constant growth

d. constant growth

the ____ is the regular interest payment of the bond a. dividend b. coupon rate c. par d. coupon

d. coupon

the holder of preferred stock is entitled to a constant dividend a. only when earnings are positive b. only when the stock price increases c. only when earnings are positive and only when the stock price increases d. every period

d. every period

a beta of 1.0 is the beta of the ____, while a beta is 0.0 is the measure for a ____ a. risk-free security, market b. market; sing security held on its own c. risk-free security; single security held on its own d. market; risk free security

d. market; risk free security

which of the following investments is considered to be default risk-free? a. AAA rated corporate bonds b. currency options c. common stock d. treasury bills

d. treasury bills

in ______, current prices reflect the price history and trading volume of the stock. It is of no use to chart historical stock prices to predict future stock prices such that you can identify mispriced stocks and routinely outperform the market a. operational efficient market b. semi-strong-form efficient markets c. strong form efficient markets d. weak form efficient markets

d. weak form efficient markets

____ refers to how quickly information is reflected in the available prices for trading a. informational efficiency b. market efficiency c. mechanical efficiency d. operational efficiency

informational

which of these statements below is true? a. investors want to maximize return and minimize 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 maximize risk

investors want to maximize return and minimize risk

A bond is a ________ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates in the future. a. long term debt b. short term equity c. derivative d. long term equity

long term debt

the ____ is the expiration date of the bond a. maturity date b. coupon c. yield to maturity d. future value

maturity date

zero-coupon bonds are: a. tax exempt b. priced at a deep discount c. sold at a premium d. priced using semi annual instead of annual

priced at a deep discount

"junk" bonds are a street name for ____ grade bonds a. speculative and investment b. speculative c. investment d. extremely speculative

speculative

the appropriate rate to use to discount the cash flows of a bond in order to determine the current price is the a. coupon rate b. yield to maturity c. par rate d. current yield

yield to maturity