FI 302 Test 2
stocks differ from bonds because
-bond cash flows are known while stock cash flows are uncertain -firms pay bond cash flows prior to paying taxes while stock cash flows are after tax -the ending par value of a bond is known at purchase while the ending value of a share of stock is unknown at purchase answer: all of the above
which of the statements below is TRUE? -investors want to minimize return and minimize risk -investors want to maximize return and maximize risk -investors want to maximize return and minimize risk -investors want to minimize return and maximize risk
-investors want to maximize return and minimize risk
beta is -a measure of nondiversifiable risk -the appropriate measure of risk for a well-diversified portfolio -a measure of systematic risk -all of the above
all of the above
unsystematic risk
can be diversified away
______ means that the percentage increase in the dividend is the same each year
constant growth
the _____ is the regular interest payment of the bond.
coupon
the _____ is the interest rate printed on the bond.
coupon rate
when the _______ is less than the yield to maturity, the bond sells a/the ______ the par value.
coupon rate; premium over
the practice of not putting all of your eggs in one basket is an illustration of
diversification
the holder of preferred stock is entitled to a constant dividend
every period
_______ refers to how quickly information is reflected in the available prices for trading.
informational efficiency
a bond is a ______ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates int he future.
long-term debt
a beta of 1.0 is the beta of the ____, while a beta of 0.0 is the measure for a ______.
market; risk-free security
the ____ is the expiration date of the bond.
maturity date
_______ has to do with the speed and accuracy of processing a buy or sell order at the best available price
operational efficiency
the value of a financial asset is the
present value of all of the future cash flows that will be received
zero-coupon bonds are
priced at a deep discount
you can think of the _______ as the "used stock" market because these shares have been owned or "used" previously
secondary market
in ______, current prices already reflect the price history and volume of the stock as well as all available public information.
semi-strong-form efficient markets
junk bonds are a street name for _______ grade bonds.
speculative
the type of risk that can be diversified away is called
unsystematic risk
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.
yield to maturity
which of the following investments is considered to be default risk-free? -common stock -treasury bills -currency options -AAA rated corporate bonds
treasury bills
