Finance Test 2
An example of a Eurobond is a bond issued in Asia by a U.S. Corporation with interest and principal payments made in U.S. dollars
True
For a given stated interest rate, an investor would receive a greater future value with daily compounding as opposed to monthly compounding
True
If a bond has a market value that is higher than its par value, then the required return on the bond must be less than the bonds coupon rate.
True
If a bond sells for its par value, the coupon interest rate and yield to maturity are equal.
True
The same underlying formula is used for computing both the future value and present value
True
The time value of money is the opportunity cost of passion up the earning potential of a dollar today.
True
Total risk equals systematic risk plus unsystematic risk
True
The Wall Street Jounral bond quotes indicate that the net close for a bond with a $1,000 par value is 100 3/4. The closing price for that bond was $100.75
False
The beta of a T-bill is one
False
The value of a bond is the present value of both the future interest to be received and the price of the bond.
False
When repaying an amortized loan, the interest payments increase over time due to the compounding process
False
A bond's yield to maturity varies from investor to investor because each investor has his or her own required return.
False
Actual returns are always less than expected returns because actual returns are determined at the end of the period and must be discounted back to present value.
False
Adding stocks to a bond portfolio will increase the riskiness of the portfolio because stocks have higher standard deviations of returns than bonds.
False
An investment earning simple interest is preferred over an investment earnings compound interest because the simplicity adds value
False
Because risk is measure by variability of returns, how long we hold our investments does not matter very much when it comes to reducing risk
False
Bond A has a current yield of 6% and Bond B has a current yield of 8%. If the market price of both bonds is the same, then the yield to maturity on Bond B must be higher than the yield to maturity on Bond A
False
For a well-diversified investor, an investment with an expected return of 10% with a standard deviation of 3% dominates an investment with an expected return of 10% with a standard deviation of 5%
False
A firm's bond rating would be favorably affected if they have a low use of financial leverage(debt).
True
A share of preferred stock that pays the same annual dividend forever is an example of a perpetuity.
True
It is never appropriate to compare nominal rates unless they include the same number of compounding periods per year
True
Small company stocks have historically had higher average annual returns than large company stocks, and also a higher risk premium.
True
Subordinated debentures are more risky than in subordinated debentures because the claims of subordinated debentures holders are less likely to be honored in the event of liquidation
True
The CAPM designates the Risk-return grade off existing in the market, where risk is defined in terms of beta.
True
The benefits of diversification occur as long as the investments in a portfolio are not perfectly positively correlated.
True
The present value of a deferred annuity(an annuity that starts 10 years from today) can be calculated in two steps: (1) calculate the future value of the annuity, and (2) calculate the present value of the amount determined in step (1)
True
