Finance 302 test 2

Stocks are different from bonds because _______.

stocks, unlike bonds, represent residual ownership

The difference between the price and the par value of a zero-coupon bond represents ________.

the accumulated interest over the life of the bond

Beta is

-a measure of systematic risk -a measure of nondiversifiable risk -the appropriate measure of risk for a well-diversified portfolio

Bonds are different from stocks because

Bonds promise fixed payments for the length of their maturity

When the ___ is less than the yield to maturity, the bond sells at/the ___ par value

Coupon rate; discount rate

________ refers to how quickly information is reflected in the available prices for trading.

Informational efficiency

________ has to do with the speed and accuracy of processing a buy or sell order at the best available price.

Operational efficiency

The measure of systematic risk is called ________.

beta

Which of the following types of bonds may the issuer buy back before maturity?

callable bond

A bond may be issued by ________.

companies state governments the federal government

________ 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

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/ year

Treasury ________ and ________ are semiannual bonds, while Treasury ________ are zero-coupon instruments.

notes; bonds; bills

Most U.S. corporate and government bonds choose to make ________ coupon payments.

semiannual

________ is the absence of knowledge of the outcome of an event before it happens.

uncertainty

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 misplaced stocks and routinely outperform the market.

weak-form efficient markets

The ________ is a market derived interest rate used to discount the future cash flows of the bond.

yield to maturity

Which of the following statements about probabilities is INCORRECT?

-The sum of all probabilities of a particular event must sum to 100%. -Probability is a statistical tool for estimating future outcomes. -Each possible outcome must have a non-negative probability. -Probability is associated with an ex-post view. (THIS ONE)

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.

the ____ is the expiration date of the bond

maturity date

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

A more risky stock has a higher ________.

standard deviation and variance

Which of the following investments is considered to be default risk-free

treasury bills

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