Question 1

A bond that allows investors to force the issuer to redeem the bond prior to maturity is called a:

Accepted Answer

A)  convertible bond 
B)  callable bond 
C)  debenture bond 
D)  putable bond 
A)  convertible bond 
B)  callable bond 
C)  debenture bond 
D)  putable bond

Question 2

Reason(s) for stock repurchases include all the following except:

Accepted Answer

A)  to acquire shares used in management stock option incentive programs, in which managers can purchase shares of stock at pre-specified prices. 
B)  to use in stock-based acquisitions of other firms. 
C)  the firm has the cash and sees its own stock as one of its most attractive investment alternatives. 
D)  all of the above 
A)  to acquire shares used in management stock option incentive programs, in which managers can purchase shares of stock at pre-specified prices. 
B)  to use in stock-based acquisitions of other firms. 
C)  the firm has the cash and sees its own stock as one of its most attractive investment alternatives. 
D)  all of the above

Question 3

A firm's stock is expected to pay a $3 annual dividend next year, the current stock price is $60, and the expected growth rate in dividends is 8 percent. Using the Gordon approach, what is the expected return?

Accepted Answer

A)  5% 
B)  8% 
C)  13.4% 
D)  13% 
A)  5% 
B)  8% 
C)  13.4% 
D)  13%

Question 4

According to the Gordon dividend model, which of the following variables would not affect a stock's price?

Accepted Answer

A)  the firm's expected growth rate in dividends 
B)  the number of shares outstanding 
C)  the shareholder's required return 
D)  next year's expected dividend 
A)  the firm's expected growth rate in dividends 
B)  the number of shares outstanding 
C)  the shareholder's required return 
D)  next year's expected dividend

Question 5

Fluctuating interest rates cause coupon or interest payments to be reinvested at different interest rates over time.

Accepted Answer

A)  Exchange rate risk 
B)  Political risk 
C)  Rollover risk 
D)  Interest rate risk 
A)  Exchange rate risk 
B)  Political risk 
C)  Rollover risk 
D)  Interest rate risk

Question 6

Equity security that has a senior claim to the firm's earnings and assets over common stock.

Accepted Answer

A)  Common stock 
B)  Special stock 
C)  Cumulative preferred stock 
D)  Preferred stock 
A)  Common stock 
B)  Special stock 
C)  Cumulative preferred stock 
D)  Preferred stock

Question 7

Open-end mortgage bonds allows the same assets to be used as security in future issues.

Accepted Answer

A) True 
 B)False

Question 8

Putable bonds allow the investor to force the issuer to redeem the bonds prior to maturity.

Accepted Answer

A) True 
 B)False

Question 9

A perpetuity is an infinite annuity.

Accepted Answer

A) True 
 B)False

Question 10

When the market interest rate is the same as the coupon rate for a particular quality of bond, the bond will be priced:

Accepted Answer

A)  below its par value 
B)  at its par value 
C)  above its par value 
D)  The bond price cannot be determined 
A)  below its par value 
B)  at its par value 
C)  above its par value 
D)  The bond price cannot be determined

Question 11

The residual dividend policy states that dividends will vary based upon how much excess funds the firm has from year to year.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is considered to be the most risky?

Accepted Answer

A)  U.S. government bonds 
B)  mortgage bonds 
C)  corporate bonds 
D)  common stocks 
A)  U.S. government bonds 
B)  mortgage bonds 
C)  corporate bonds 
D)  common stocks

Question 13

Actions by a sovereign nation to interrupt or change the value of cash flows accruing to foreign investments.

Accepted Answer

A)  Overthrow risk 
B)  Political risk 
C)  Sovereign risk 
D)  Interest rate risk 
A)  Overthrow risk 
B)  Political risk 
C)  Sovereign risk 
D)  Interest rate risk

Question 14

Bonds issued in the United States are known as domestic bonds.

Accepted Answer

A) True 
 B)False

Question 15

Bond issues of a single firm can have different bond ratings if their security provisions differ.

Accepted Answer

A) True 
 B)False

Question 16

The claims of collateralized bondholders are junior to the claims of debenture holders.

Accepted Answer

A) True 
 B)False

Question 17

Intrinsic value is the minimum price we should be willing to pay for an asset.

Accepted Answer

A) True 
 B)False

Question 18

Preferred stock does not represent an ownership claim.

Accepted Answer

A) True 
 B)False

Question 19

Common stock possesses the highest claim on the assets and cash flow of the firm.

Accepted Answer

A) True 
 B)False

Question 20

Bonds rated lower than BB+ by Standard & Poors and Fitch are considered to be junk bonds.

Accepted Answer

A) True 
 B)False

A bond that allows investors to force the issuer to redeem the bond prior to maturity is called a:

Reason(s) for stock repurchases include all the following except:

A firm's stock is expected to pay a $3 annual dividend next year, the current stock price is $60, and the expected growth rate in dividends is 8 percent. Using the Gordon approach, what is the expected return?

According to the Gordon dividend model, which of the following variables would not affect a stock's price?

Fluctuating interest rates cause coupon or interest payments to be reinvested at different interest rates over time.

Equity security that has a senior claim to the firm's earnings and assets over common stock.

Open-end mortgage bonds allows the same assets to be used as security in future issues.

Putable bonds allow the investor to force the issuer to redeem the bonds prior to maturity.

A perpetuity is an infinite annuity.

When the market interest rate is the same as the coupon rate for a particular quality of bond, the bond will be priced:

The residual dividend policy states that dividends will vary based upon how much excess funds the firm has from year to year.

Which of the following is considered to be the most risky?

Actions by a sovereign nation to interrupt or change the value of cash flows accruing to foreign investments.

Bonds issued in the United States are known as domestic bonds.

Bond issues of a single firm can have different bond ratings if their security provisions differ.

The claims of collateralized bondholders are junior to the claims of debenture holders.

Intrinsic value is the minimum price we should be willing to pay for an asset.

Preferred stock does not represent an ownership claim.

Common stock possesses the highest claim on the assets and cash flow of the firm.

Bonds rated lower than BB+ by Standard & Poors and Fitch are considered to be junk bonds.

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

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Exam 10: Bonds and Stocks: Characteristics and Valuations

A bond that allows investors to force the issuer to redeem the bond prior to maturity is called a:

Reason(s) for stock repurchases include all the following except:

A firm's stock is expected to pay a $3 annual dividend next year, the current stock price is $60, and the expected growth rate in dividends is 8 percent. Using the Gordon approach, what is the expected return?

According to the Gordon dividend model, which of the following variables would not affect a stock's price?

Fluctuating interest rates cause coupon or interest payments to be reinvested at different interest rates over time.

Equity security that has a senior claim to the firm's earnings and assets over common stock.

Open-end mortgage bonds allows the same assets to be used as security in future issues.

Putable bonds allow the investor to force the issuer to redeem the bonds prior to maturity.

A perpetuity is an infinite annuity.

When the market interest rate is the same as the coupon rate for a particular quality of bond, the bond will be priced:

The residual dividend policy states that dividends will vary based upon how much excess funds the firm has from year to year.

Which of the following is considered to be the most risky?

Actions by a sovereign nation to interrupt or change the value of cash flows accruing to foreign investments.

Bonds issued in the United States are known as domestic bonds.

Bond issues of a single firm can have different bond ratings if their security provisions differ.

The claims of collateralized bondholders are junior to the claims of debenture holders.

Intrinsic value is the minimum price we should be willing to pay for an asset.

Preferred stock does not represent an ownership claim.

Common stock possesses the highest claim on the assets and cash flow of the firm.

Bonds rated lower than BB+ by Standard & Poors and Fitch are considered to be junk bonds.

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters