Question 1

Compare the cash flows an investor expects from coupon bonds, zero-coupon bonds, and preferred stock.

Accepted Answer

Coupon bonds - annuity of interest payments plus lump sum of
principal at maturity
Zero-coupon bonds - principal at maturity
Preferred stock - annuity ad infinitum (perpetuity)

Question 2

The par value of Blaze, Inc. common stock is $0.50, the earnings per share is $4, the stock price is $60, and the dividend per share is $1. Calculate the dividend payout ratio and the firm's retention ratio (plowback ratio).

Accepted Answer

Payout rate = $1/$4 = 0.25 = 25%
Retention ratio = 1 - payout ratio = 1 - 0.25 = 75%

Question 3

For U.S. companies, dividends are typically paid:

Accepted Answer

A)  monthly. 
B)  quarterly. 
C)  semi-annually. 
D)  yearly. 
A)  monthly. 
B)  quarterly. 
C)  semi-annually. 
D)  yearly. B

Question 4

The premium on an option is the:

Accepted Answer

A)  par value of the option. 
B)  price of the option. 
C)  book value of the option. 
D)  price at which a security may be bought or sold using the option. 
A)  par value of the option. 
B)  price of the option. 
C)  book value of the option. 
D)  price at which a security may be bought or sold using the option.

Question 5

An unsecured bond is known as a(n):

Accepted Answer

A)  debenture. 
B)  indenture. 
C)  mortgage bond. 
D)  junk bond. 
A)  debenture. 
B)  indenture. 
C)  mortgage bond. 
D)  junk bond.

Question 6

The earnings retention rate is calculated as 1 - dividend yield.

Accepted Answer

A) True 
 B)False

Question 7

In what sense is a stock selling for 12 times earnings "cheaper" than a stock with a P/E ratio of 20?

Accepted Answer

If a stock is trading at 12 ti

Question 8

The par value on common stock sets the value that stockholders will receive in case of bankruptcy.

Accepted Answer

A) True 
 B)False

Question 9

How is the earnings retention rate related to the dividend payout rate?

Accepted Answer

Earnings retention r

Question 10

Who benefits from a futures contract, a call contract, and a put contract, if prices fall?

Accepted Answer

The seller of the futures cont

Question 11

An example of indirect investing would be buying shares in a mutual fund.

Accepted Answer

A) True 
 B)False

Question 12

What are two direct and one indirect method for individuals to invest in foreign stocks?

Accepted Answer

Buy securities directly throug

Question 13

Savings accounts are:

Accepted Answer

A)  negotiable but are not liquid. 
B)  marketable but are not liquid. 
C)  liquid but are not personal. 
D)  liquid but are not marketable. 
A)  negotiable but are not liquid. 
B)  marketable but are not liquid. 
C)  liquid but are not personal. 
D)  liquid but are not marketable.

Question 14

Treasury notes represent the nontraded debt of the U.S. government.

Accepted Answer

A) True 
 B)False

Question 15

Term bonds have a single maturity.

Accepted Answer

A) True 
 B)False

Question 16

Marketable securities all fall into the category of capital market securities.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements regarding money market instruments is not true?

Accepted Answer

A)  They tend to be highly marketable. 
B)  They have maturities from 1 to 3 years. 
C)  They tend to have a low probability of default. 
D)  Their rates tend to move together. 
A)  They tend to be highly marketable. 
B)  They have maturities from 1 to 3 years. 
C)  They tend to have a low probability of default. 
D)  Their rates tend to move together.

Question 18

TL Bank is planning to purchase a T-bill with a $100,000 face value. The T-bill is quoted at a bank discount of 2.2% and has 300 days to maturity. What is the T-bill's bond equivalent yield (BEY)?

Accepted Answer

A)  2.21% 
B)  2.23% 
C)  2.25% 
D)  2.27% 
A)  2.21% 
B)  2.23% 
C)  2.25% 
D)  2.27%

Question 19

Certificates of deposit (CDs) and MMDA's are insured to $250,000 by the FDIC.

Accepted Answer

A) True 
 B)False

Question 20

Convertible bonds give their investors the right to convert the bond into common stock at their discretion.

Accepted Answer

A) True 
 B)False

Exam 2: Investment Alternatives

Compare the cash flows an investor expects from coupon bonds, zero-coupon bonds, and preferred stock.

The par value of Blaze, Inc. common stock is $0.50, the earnings per share is $4, the stock price is $60, and the dividend per share is $1. Calculate the dividend payout ratio and the firm's retention ratio (plowback ratio).

For U.S. companies, dividends are typically paid:

The premium on an option is the:

An unsecured bond is known as a(n):

The earnings retention rate is calculated as 1 - dividend yield.

In what sense is a stock selling for 12 times earnings "cheaper" than a stock with a P/E ratio of 20?

The par value on common stock sets the value that stockholders will receive in case of bankruptcy.

How is the earnings retention rate related to the dividend payout rate?

Who benefits from a futures contract, a call contract, and a put contract, if prices fall?

An example of indirect investing would be buying shares in a mutual fund.

What are two direct and one indirect method for individuals to invest in foreign stocks?

Savings accounts are:

Treasury notes represent the nontraded debt of the U.S. government.

Term bonds have a single maturity.

Marketable securities all fall into the category of capital market securities.

Which of the following statements regarding money market instruments is not true?

TL Bank is planning to purchase a T-bill with a $100,000 face value. The T-bill is quoted at a bank discount of 2.2% and has 300 days to maturity. What is the T-bill's bond equivalent yield (BEY)?

Certificates of deposit (CDs) and MMDA's are insured to $250,000 by the FDIC.

Convertible bonds give their investors the right to convert the bond into common stock at their discretion.

Understanding Investments

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risk and Return From Investing

Portfolio Theory

Portfolio Selection and Asset Allocation

Capital Market Theory and Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economymarket Analysis

Sectorindustry Analysis

Company Analysis

Technical Analysis

Bond Yields and Prices

Bonds: Analysis and Strategy

Options

Futures Contracts

Managing Your Financial Assets

Evaluation of Investment Performance

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