Finance Ch 7 & 8

A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond

Callable

The rate at which a stock's price is expected to appreciate

Capital gains yield

Stock that receives no preferential treatment in respect to either dividends or bankruptcy proceedings

Common

A decrease in ____ will increase the current value of a stock according to the dividend growth model

Discount Rate

Model that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate

Dividend Growth Model

Computed by dividing next year's annual dividend by current stock price

Dividend Yield

If you expect the market rate of return to increase across the board on all equity securities, then you should also expect

A decrease in all stock values

Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond's interest or principal payments as expected?

Default Risk

Real rates are defined as nominal rates that have been adjusted for

Inflation

Which bond would you generally expect to have the highest yield

Long-term, taxable junk bond

DLQ Inc. bonds mature in 12 years and have a coupon rate of 6%. If the market rate of interest increases, then the

Market Price of the bond will decrease

Equity security that has a fixed dividend and a priority status over other equity securities

Preferred stock

The items included in an indenture that limit certain actions of the issuer in order to protect a bondholder's interests are referred to as the

Protective Covenants

Market where outstanding shares of stock are resold

Secondary Market

The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the

Spread

The pure time value of money is known as the

Term Structure of interest rates

Defines the relationship between real rates, nominal rate, and inflation

The Fisher Effect = (1 + Nominal Rate) = (1 + real rate)(1 + inflation rate)

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called?

Voting by proxy

A bond has a market price that exceeds its face value. Which one of these features currently applies to this bond

YTM is less than coupon rate

The bond market requires a return of 9.8% on the 5 year bonds issued by JW industries. The 9.8% is referred to as which of the following

Yield to Maturity