Finance Exam 2
An ordinary annuity is best defined as
equal payments paid at the end of regular intervals over a stated time period.
A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a:
floor broker.
Which one of the following represents the capital gains yield as used in the dividend growth model?
g
When using the two-stage dividend growth model,:
g1 can be greater than R.
A loan that calls for periodic interest payments and a lump sum principal payment is referred to as a(n) ____ loan.
interest-only
A "fallen angel" is a bond that has moved from:
investment grade to speculative grade.
A bond's principal is repaid on the ________ date.
maturity
For a project with conventional cash flows, the NPV is ______ if the required return is less than the IRR, and it is ______ if the required return is greater than the IRR.
positive, negative
Net __ value is a measure of how much value is created or added today by undertaking an investment
present
Which one of the following statements related to loan interest rates is correct?
When comparing loans you should compare the effective annual rates
The three attributes of NPV are that it:
discounts the cash flows properly, uses all the cash flows of a project, uses cash flows.
A Canadian consol is best categorized as a(n):
perpetuity.
Which one of the following statements related to annuities and perpetuities is correct?
A perpetuity comprised of $100 monthly payments is worth more than an annuity of $100 monthly payments provided the discount rates are equal.
A(n) ________ loan has regular payments that include both principal and interest but these payments are insufficient to pay off the loan
Balloon
The most common type of medium-term, amortized business loans has which one of these characteristics over its life?
Equal principal payments
A $1,000 par value corporate bond that pays $45 annually in interest was issued last year. Which one of these would apply to this bond today if the current price of the bond is $989.42?
The current yield exceeds the coupon rate.
Which one of the following statements concerning interest rates is correct?
The effective annual rate equals the annual percentage rate when interest is compounded annually.
Which one of the following statements correctly defines a time value of money relationship?
Time and present value are inversely related, all else held constant.
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
Your credit card charges you .85 percent interest per month. This rate when multiplied by 12 is called the ____ rate.
annual percentage
The interest rate that is most commonly quoted by a lender is referred to as the:
annual percentage rate.
An agent who maintains an inventory from which he or she buys and sells securities is called a:
dealer
Which one of these statements related to preferred stock is correct?
Cumulative preferred shares are more valuable than comparable noncumulative shares.
Chavez & Hwang just issued 15-year, 6.4 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms?
Debenture
Which capital budgeting decision method finds the present value of each cash flow before calculating a payback period?
Discounted payback period
What are the distributions of either cash or stock to shareholders by a corporation called?
Dividends
Which of the following are advantage(s) of AAR?
Needed information is usually available, Is easy to compute.
Which one of these statements related to growing annuities and perpetuities is correct?
The present value of a growing perpetuity will decrease if the discount rate is increased.
A bond that has only one payment, which occurs at maturity, defines which one of these types of bonds?
Zero coupon
All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.
a discount; less than
A project should be __________ if its NPV is greater than zero.
accepted
Payback period tells the time it takes to break even in an ____ sense. Discounted payback period tells the time it takes to break even in an ______ or financial sense.
accounting; economic
Protective covenants:
are primarily designed to protect bondholders.
A bond that is payable to whomever has physical possession of the bond is said to be in:
bearer form.
An agent who arranges a transaction between a buyer and a seller of equity securities is called a:
broker
Capital ______ is the decision-making process for accepting and rejecting projects
budgeting
A call-protected bond is a bond that:
cannot be called during a given period of time.
Ana just received the semiannual payment of $35 on a bond she owns. This is called the ______ payment.
coupon
The actual interest rate on a loan that is compounded monthly but expressed as an annual rate is referred to as the _____ rate
effective annual
Dilan owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the:
face value.
The point at which the NPV profile crosses the horizontal axis is the:
internal rate of return
An amortized loan:
may have equal or increasing amounts applied to the principal from each loan payment.
The owner of a trading license for the NYSE is called a(n):
member.
If a borrower receives money today and must repay the loan in a single lump sum on a future date, the loan is called a(n) ________ loan.
pure discount
The entire repayment of a(n) _____ loan is calculated by computing one single future value
pure discount
According to the basic IRR rule, we should _____.
reject a project if the IRR is less than the required return
With an interest-only loan the principal is
repaid in one lump sum at the end of the loan period.
The point at which the NPV profile crosses the vertical axis is the:
sum of the cash flows of the project
A perpetuity is defined as:
unending equal payments paid at equal time intervals.