Finance Final
Eurobond
A bond issued in multiple countries but denominated in a single currency.
registration statement
A document required by the SEC for new public issues that contains the issuing firm's financial information, financial history, and details of the existing business is known as the ____.
(a) and (b)
A risk to the issuing firm of a "best efforts" underwriting agreement is: (more than 1) (a) the issuing firm will not raise the needed capital (b) all the shares won't be sold (c) the underwriter will oversee the issue (d) the underwriter will sell the shares for a price other than the offering price
ADR
A security issued in the US that represents shares of foreign stock
(d) systematic; an average risky asset
Beta tells u the amount of ______ risk of an asset or portfolio relative to _______. (a) unsystematic; the risk free asset (b) unsystematic; an average risky asset (c) systematic; the risk free asset (d) systematic; an average risky asset
(a), (b), (d), and (e)
Flotation costs for issuing securities include which of the following? (more than 1) (a) management time (b) legal fees and taxes (c) compensation for underpricing losses (d) underpricing (e) underwriter's spread
(c) absolute purchasing power parity holds
If a commodity costs the same regardless of the currency used to purchase it or the country where it is sold, then _________________. (a) relative purchasing power (b) purchasing power equality (c) absolute purchasing power parity holds
(a) long term exposures to exchange rate risk
Unanticipated changes in relative economic conditions that affect the value of a foreign operation are known as ___________. (a) long term exposures to exchange rate risk (b) short term exposures to exchange rate risk (c) the international fisher effect (d) the interest rate parity effect
(a), (b), and (d)
Underwriters of an IPO may do which of following for the issuing client? (more than 1) (a) sell the securities (b) price the securities (c) provide after-market support for the issue (d) assist with the SEC registration process
(b), (a), (c), (e), and (d)
What are the steps involved in issuing securities to the public? (a) prepare and file a registration statement (b) obtain approval from the firm's board of directors (c) prepare and distribute preliminary prospectus copies (d) prepare and distribute a final prospectus (e) determine a selling price
(c) underpricing
Which new issue cost results from the stock being sold for less than its true value? (a) over promoting (b) under promoting (c) under pricing (d) over selling
b and c
Which of the following is true about a firm's cost of debt? (more than 1) (a) yields can be checked by using the DDE model (b)Yields can be calculated from observable data (c) it is easier to estimate than the cost of equity.
(b) and (d)
Which of the following refer to a firm with a large portion of its business outside of its parent country? (a) A franchise (b) An international corporation (c) An indirect foreign investment (d) A multinational
competitive offer
With the ____ method of selecting a syndicate, the issuing firm offers its securities to the highest bidding underwriter.
a, b, and c
_____ risk is reduced as more securities are added to the portfolio (more than 1) (a) diversifiable (b) unsystematic (c) company specific (d) marketwide
(b), (d), (e), and (f)
a company may consider a reverse stock plit for which of the following reasons? (a) increase the number of shares outstanding (b) reduce transaction costs to investors (c) reduce share price to a popular trading range (d) to increase the share price to a respectable level (e) to meet exchange listing requirements (f) to increase liquidity
shares of common stock
a dividend can be in the form of cash or _____________
(a) and (d)
a stock dividend will result in which of the following? (more than one) (a) increase in shares outstanding (b) decrease in shares outstanding (c) increase in the value per share (d) decrease in the value per share (e) will have no affect on share value
(c) the total owners' equity remains constant
a stock split increases the number of outstaning shares, while ____________ (a) firm's value increases (b) stock price increases (c) total owner's equity remains constant (d) total owner's equity decreases
decline
a stock's price tends to ___________ when dividends are paid
stock repurchase
an alternative way to pay out a firm's earnings to shareholders instead of cash dividends is a :
(a) information
an efficient market is one that fully reflects all available ___________ (a) information (b) inefficiencies (c) redundancies (d) investments
small company stocks, large company stocks, LT corp bonds, LT gov bonds, US treasury bills
arrange investments from highest to lowest risk US treasury bills LT corp bonds small company stocks large company stocks LT gov bonds
U.S treasury bills, LT corporate bonds, large company stocks, small company stocks
arrange the following investments from lowest historical risk premium to highest historical risk premium LT corporate bonds U.S treasury bills small company stocks large company stocks
small, large
dividends are heavily concentrated among a relatively _____________ (small/large) number of _____(small/large), mature firms
(a), (c), and (d)
dividends received by shareholders can be expressed in which of the following ways? (more than 1) (a) dividends per share (b) dividends per shareholder (c) dividend payout (d) dividend yield
currencies
foreign exchange market allows for the trading of __________
10%
if a preferred stock pays a dividend of $2 per year and is selling for $20 the yield is?
(a) 5%
if the variance of a portfolio is .0025, what is the standard deviation? (a) 5% (b) 12.5% (c) 6.25% (d) 25%
(a) you must invest in stocks of more than one corporation
if you wish to create a portfolio of stocks, what is the required minimum number of stocks? (a) you must invest in stocks of more than one corporation (b) you must invest in at least 2 stocks of 1 corporation (c) you must invest in the stocks of at least 30 corporations (d) you must invest in stocks of at least 10 corporations
mezzanine
private equity financing AFTER ground floor financing is known is termed as ______________ financing
(c) retaining earnings to reinvest in the firm
relatively young firms should consider a dividend policy aimed at _________ (a) paying out all free cash flows (b) issuing stock to pay dividends (c) retaining earnings to reinvest in the firm (d) borrowing funds to pay dividends
(b) all public information
semi strong form efficiency (a) all information (b) all public information (c) historical stock prices
(a) all information
strong form efficiency (a) all information (b) all public information (c) historical stock prices
b and d
studying market history can reward us by demonstrating that: (a) the stock market is nothing but a casino (b) there is a reward for bearing risk (c) the greater potential reward, the lower the risk (d) the greater potential reward, the greater the risk
calculate the expected return, calculate the deviation of each return from the expected return, square each deviation, calculate the average squared deviation
the computation of variance requires 4 steps. Place the steps in correct order: -calculate the deviation of each return from the expected return -square each deviation -calculate the expected return -calculate the average squared deviation
Purchasing power parity
the concept that exchange rates adjust to keep purchasing power constant among currencies is referred to as ______________
dividends
the dividend growth model is applicable to companies that pay ________
(d) well organized
the efficient markets hypothesis contends that ____________ capital markets such as the NYSE are efficient (a) monopolized (b) fewer (c) newer (d) well organized
(a) handsomely rewarded
the second lesson from studying capital market history is that risk is: (a) handsomely rewarded (b) largely ignored (c) always detrimental to returns (d) to be avoided all together
b and c
the second lesson from studying capital market history states that the ________ the potential reward, the ______ the risk (a) less; greater (b) less; less (c) greater; greater (d) greater; less
(b) variance
the square of the standard deviation is equal to the _________ (a) sharpe ratio (b) variance (c) mean (d) median return
b and c
the systematic risk principle argues that the market does not reward risks: (more than 1 answer) (a) in any circumstances (b) that are borne unnecessarily (c) that are diversifiable (d) that are systematic
a and d
the true risk of any investment comes from: (more than 1) (a) unanticipated events (b) forecasts (c) expectations (d) surprises
b and d
unsystematic risk will affect (a) the market as a whole (b) firms in a single industry (c) all manufacturing firms (d) a specific firm
(c) historical stock prices
weak form efficiency (a) all information (b) all public information (c) historical stock prices
(b) it is a graphical depiction of the capital asset pricing model
what does the security market line depict? (a) it depicts the relationship between expected return and the standard deviation of returns (b) it is a graphical depiction of the capital asset pricing model (c) it depicts the relationship between systematic risk and unsystematic risk (d) it depicts the relationship between the return on the S&P 500 and an individual security's return
(a) 11%
what is the expected return for a security if the risk free rate is 5%, the expected return on the market is 9%, and the security's beta is 1.5? (a) 11% (b) 13.5% (c) 4% (d) 6.5%
tender offer
when a firm announces to all of its stockholders that it is willing to buy a fixed number of shares at a specific price, it is referred to as a _____________
c and d
which of the following are examples of info that may impact the risky return of a stock? (more than 1) (a) last year's net income as a percentage of sales and gross fixed assets (b) the trend in sales growth over the last 10 years (c) the outcome of an application currently pending with the FDA (d) The Fed's decision on interest rates at their meeting next week
(a), (b), and (d)
which of the following are reasons why investors might favor a high dividend payout? (more than 1) (a) a preference for current income (b) stock sales are time consuming (c) low brokerage fees make it easier to sell stock (d) transaction costs for selling low dividend stocks can be avoided
(b) and (d)
which of the following is true about stock dividends and stock splits? (more than 1) (a) both will increase the share price (b) both will increase the total number of shares (c) both will reduce the total number of shares (d) both will reduce the share price
b and c
which of the following statements is (are) true about variance? (more than 1) (a) variance measures a security's expected return over many periods (b) variance is a measure of the squared deviations of a security's return from its expected return (c) Standard deviation is the square root of variance (d) computation of variance requires the use of a computer
(c) and (d)
Accounting for the time value of money, which of the following is true of an increase in dividend payout at a point in time? (more than 1) (a)will result in an increase in the stock price (b) will result in a decrease in the value of the firm (c) the net effect is zero (d) it is exactly offset by a decrease somewhere else
US dollar
Almost all currency trading takes place in terms of the __________
(c) 37%
In 2008, the S&P 500 plunged _______% (a) 45% (b) 30% (c) 37% (d) 47%
(a), (b), and (c)
In return for early stage financing, venture capitalists will frequently receive which of the following? (more than 1) (a) convertible preferred stock (b) ability to name some management seats on the board (c) seats on the board (d) stock with no voting rights (e) free products
Eurocurrency
Money deposited in a financial center outside of the country with the involved currency.
c and d
Preferred stock ____. (more than 1) (a) will never be repaid (b) does not pay dividends (c) pays a constant dividend (d)pays dividends in perpetuity
Ibbotson, Sinquefield
Roger ________ and Rex _________ presented a year to year historical rates of return on five important types of financial investments
prospectus
The SEC's logic for requiring the "quiet period" is that all relevant information should already be publicly available in the ___.
(e) the overall firm
The WACC is the minimum required return for _____ (a) the SEC (b) the NYSE (c) firm's stockholders (d) firm's bondholders (e) the overall firm
(b) cost of capital
The appropriate discount rate to use to elevate a new project is the ______/ (a) risk free rate (b) cost of capital (c) average market return
invest it for shareholders
The crux of dividend policy is whether the firm should pay out money to its shareholders or take that money and...
(a), (b), and (c)
The different types of exchange rate risk include which of the following? (more than 1) (a) Long-term exposure (b) Translation exposure (c)Short-term exposure (d) arbitrage exposure
Cross Rate
The implicit exchange rate between two currencies quoted in a third currency.
price the issue
The most difficult job the underwriter of an IPO must perform for the issuing client is to:
forward
The use of ________ exchange agreements can help reduce the short term exposure to exchange rate risk
