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You are trying to compare the present values of two separate streams of cash flows that have equivalent risks. One stream is expressed in nominal values and the other stream is expressed in real values. You decide to discount the nominal cash flows using a nominal annual rate of 8 percent. What rate should you use to discount the real cash flows?

Comparable real rate

A company has four open seats on its board of directors. There are seven candidates vying for these four positions. There will be a single election to determine the winners. As the owner of 100 shares of stock, you will receive one vote per share for each open seat. You decide to cast all 400 of your votes for a single candidate. What is this type of voting called?

Cumulative

Today, June 15, you want to buy a bond with a quoted price of 98.64. The bond pays interest on January 1 and July 1. Which one of the following prices represents your total cost of purchasing this bond today?

Dirty price

The weighted average cost of capital for a firm may be dependent upon the firm's: I. rate of growth. II. debt-equity ratio. III. preferred dividend payment. IV. retention ratio.

I, II, III, and IV

An increase in which of the following will increase the current value of a stock according to the dividend growth model? I. dividend amount II. number of future dividends, provided the current number is less than infinite III. discount rate IV. dividend growth rate

I, II, and IV only

Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond?

Interest rate risk

Of the options listed below, which is the best example of systematic risk?

Investors panic causing security prices around the globe to fall precipitously.

Based on the capital asset pricing model (CAPM), which of the following should earn the highest risk premium?

Stock with a beta of 1.24

Which one of the following is the electronic system used by the NYSE for directly transmitting orders to specialists?

SuperDOT

Green Roof Inns is preparing a bond offering with a 6 percent, semiannual coupon and a face value of $1,000. The bonds will be repaid in 10 years and will be sold at par. Given this, which one of the following statements is correct?

The bonds will sell at a premium if the market rate is 5.5 percent.

Which one of the following statements is correct?

The greater the volatility of returns, the greater the risk premium.

Assume you are an analyst monitoring Okello stock. Which one of the following would be reflected in Okello's expected return?

This morning Okello confirmed that, as expected, the CFO is retiring at the end of the year.

A six-year, $1,000 face value bond issued by Nguyen Corporation pays interest semiannually on February 1 and August 1. Assume today is October 1. What is the current difference, if any, between this bond's clean and dirty prices?

Two months' interest

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

All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.

a discount; less than

Which one of the following transactions occurs in the primary market?

a purchase of newly issued stock from AT&T

When calculating a firm's weighted average cost of capital, the capital structure weights:

are based on the market values of the outstanding securities.

Bonds issued by the U.S. government:

are considered to be free of default risk.

The return earned in an average year over a multi-year period is called the _____ average return.

arithmetic

Velasquez Manufacturing has two vastly different lines of business: Alpha and Omega. The Alpha line is the riskiest of the two, and accounts for 72 percent of the firm's sales. When deciding which project proposals should be accepted, the managers should:

assign appropriate, but differing, discount rates to each business line and then select the projects with the highest net present values.

The subjective approach to project analysis:

assigns discount rates to projects based on the discretion of the senior managers of a firm.

An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

broker.

Which one of following is the rate at which a stock's price is expected to appreciate?

capital gains yield

The person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a(n):

commission broker.

Mary just purchased a bond which pays $60 a year in interest. What is this $60 called?

coupon

An agent who maintains an inventory from which he or she buys and sells securities is called a:

dealer.

The Walthers Company has a semi-annual coupon bond outstanding. An increase in the market rate of interest will have which one of the following effects on this bond?

decrease the market price

Which one of the following is computed by dividing next year's annual dividend by the current stock price?

dividend yield

Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities. Which one of the following terms best defines that market?

efficient capital market

An individual on the floor of the NYSE who owns a trading license and buys and sells for his or her personal account is called a:

floor trader.

The average compound return earned per year over a multi-year period is called the _____ average return.

geometric

Incorporating flotation costs into the analysis of a project will:

increase the initial cash outflow of the project.

To convince investors to accept greater volatility, you must:

increase the risk premium.

Real rates are defined as nominal rates that have been adjusted for which of the following?

inflation

A "fallen angel" is a bond that has moved from:

investment grade to speculative grade.

According to theory, studying historical stock price movements to identify mispriced stocks:

is ineffective even when the market is only weak form efficient.

Individuals who continually monitor the financial markets seeking mispriced securities:

make the markets increasingly more efficient.

The secondary market is best defined by which one of the following?

market where outstanding shares of stock are resold

Given a well-diversified stock portfolio, the variance of the portfolio:

may be less than the variance of the least risky stock in the portfolio.

The owner of one of the 1,366 trading licenses for the NYSE is called a:

member.

Municipal bonds:

pay interest that is federally tax-free.

The counter area on the floor of the NYSE where a specialist operates is called a:

post.

Callander Enterprises stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will occur in which one of the following markets?

primary

The weighted average cost of capital for a firm is the:

rate of return a firm must earn on its existing assets to maintain the current value of its stock.

The cost of preferred stock is equivalent to the:

rate of return on a perpetuity.

The excess return is computed as the:

return on a risky security minus the risk-free rate.

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent. Which one of the following terms refers to the difference between these two rates of return?

risk premium

For any given capital project proposal, the discount rate should be based on the:

risks associated with the use of the funds required by the project.

A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a:

specialist.

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

spread.

The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than _____ form efficient.

strong

Inside information has the least value when financial markets are:

strong form efficient.

An indenture is:

the legal agreement between the bond issuer and the bondholders.

Efficient financial markets fluctuate continuously because:

the markets are continually reacting to new information.

The discount rate assigned to an individual project should be based on:

the risks associated with the use of the funds required by the project.

The flotation cost for a company is computed as:

the weighted average of the flotation costs associated with each form of financing.

Standard deviation is a measure of which one of the following?

volatility

Flotation costs for a levered firm should be:

weighted and included in the initial cash flow.

The expected return of a stock, based on the likelihood of various economic outcomes, equals the:

weighted average of the returns for each economic state.

Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston Industries. The 11.6 percent is referred to as which one of the following?

yield to maturity

A bond that has only one payment, which occurs at maturity, defines which one of the following?

zero coupon