Question 1

The types of risk faced by investors in domestic bonds include all of the following except:

Accepted Answer

A)  political risk 
B)  credit risk 
C)  interest rate risk 
D)  reinvestment rate risk 
A)  political risk 
B)  credit risk 
C)  interest rate risk 
D)  reinvestment rate risk

Question 2

Eurodollar bond interest rates are low relative to U.S. rates.

Accepted Answer

A) True 
 B)False

Question 3

Zero coupon bonds are not suited for tax-exempt accounts such as IRAs or pension funds.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements is correct?

Accepted Answer

A)  A closed-end mortgage bond is one that allows the same assets to be used as security in all future bond issues. 
B)  Covenants in a trust indenture restrict or limit the actions the firm can take. 
C)  Retractable bonds can be redeemed prior to maturity by the firm. 
D)  junk bonds are never secured with hard assets 
A)  A closed-end mortgage bond is one that allows the same assets to be used as security in all future bond issues. 
B)  Covenants in a trust indenture restrict or limit the actions the firm can take. 
C)  Retractable bonds can be redeemed prior to maturity by the firm. 
D)  junk bonds are never secured with hard assets

Question 5

A debt holder may force the firm to abide by the terms of the debt contract even if the result is reorganization or dissolution of the firm.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not a component of the Gordon (or constant dividend growth rate) model for valuing stocks?

Accepted Answer

A)  next year's expected dividend 
B)  a constant dividend growth rate 
C)  next year's expected earnings 
D)  a discount rate that reflects the riskiness of the stock 
A)  next year's expected dividend 
B)  a constant dividend growth rate 
C)  next year's expected earnings 
D)  a discount rate that reflects the riskiness of the stock

Question 7

These bonds have coupons that are "clipped" and presented, like a check, to the bank for payment.

Accepted Answer

A)  Unregistered bonds 
B)  Secret bonds 
C)  Bearer bonds 
D)  Registered bonds 
A)  Unregistered bonds 
B)  Secret bonds 
C)  Bearer bonds 
D)  Registered bonds

Question 8

You are trying to determine the fair price to pay for a share of Philip Morris. If you buy this stock, you plan to hold it for a year. At the end of the year, you expect to receive a dividend of $5.50 and to sell the stock for $154. The discount rate for Philip Morris stock is 16%. What should be the price of this stock?

Accepted Answer

A)  $99.80 
B)  $137.50 
C)  $144.22 
D)  $151.66 
A)  $99.80 
B)  $137.50 
C)  $144.22 
D)  $151.66

Question 9

Global bonds are generally denominated in euros and are marketed globally.

Accepted Answer

A) True 
 B)False

Question 10

Represents ownership shares in a corporation.

Accepted Answer

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

Question 11

Which of the following bonds can be redeemed prior to maturity by the firm?

Accepted Answer

A)  callable bonds 
B)  convertible bonds 
C)  putable bonds 
D)  retractable bonds 
A)  callable bonds 
B)  convertible bonds 
C)  putable bonds 
D)  retractable bonds

Question 12

All other things being equal, a bond's value will be below its maturity value of $1,000 if it pays interest of $100 per year and investors require a rate of return that is,:

Accepted Answer

A)  less than 10% 
B)  exactly 10% 
C)  higher than 10% 
D)  either less than or greater than 10% 
A)  less than 10% 
B)  exactly 10% 
C)  higher than 10% 
D)  either less than or greater than 10%

Question 13

Bonds that have coupons that are literally clipped and presented, like a check, to the bank for payment, and where the bond issuer does not know who is receiving the coupon payments are called:

Accepted Answer

A)  registered bonds 
B)  coupon bonds 
C)  bearer bonds 
D)  yankee bonds 
A)  registered bonds 
B)  coupon bonds 
C)  bearer bonds 
D)  yankee bonds

Question 14

Bonds rated higher than BB+ by Standard & Poors and Fitch are considered to be investment grade issues.

Accepted Answer

A) True 
 B)False

Question 15

Horizon risk premium is the same as horizon spread.

Accepted Answer

A) True 
 B)False

Question 16

Securitization involves issuing bonds whose coupon and principal payments arise from another existing cash flow stream.

Accepted Answer

A) True 
 B)False

Question 17

Dividend payout ratio = Earnings per share (EPS) / dividends per share.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is false?

Accepted Answer

A)  Preferred stock that is both cumulative and convertible is a popular financing choice for investors purchasing shares of stock in small firms with high growth potential. 
B)  Bond issues of a single firm can have different bond ratings if their security provisions differ. 
C)  Yankee bonds are dollar-denominated bonds that are sold outside the United States. 
D)  Eurodollar bonds are denominated in dollars. 
A)  Preferred stock that is both cumulative and convertible is a popular financing choice for investors purchasing shares of stock in small firms with high growth potential. 
B)  Bond issues of a single firm can have different bond ratings if their security provisions differ. 
C)  Yankee bonds are dollar-denominated bonds that are sold outside the United States. 
D)  Eurodollar bonds are denominated in dollars.

Question 19

Which of the following bond types would describe unsecured obligations that depend on the general credit strength of the corporation?

Accepted Answer

A)  collateralized bonds 
B)  mortgage bonds 
C)  equipment trust certificates 
D)  debenture bonds 
A)  collateralized bonds 
B)  mortgage bonds 
C)  equipment trust certificates 
D)  debenture bonds

Question 20

Private placements must be approved by the Securities and Exchange Commission (SEC).

Accepted Answer

A) True 
 B)False

The types of risk faced by investors in domestic bonds include all of the following except:

Eurodollar bond interest rates are low relative to U.S. rates.

Zero coupon bonds are not suited for tax-exempt accounts such as IRAs or pension funds.

Which of the following statements is correct?

A debt holder may force the firm to abide by the terms of the debt contract even if the result is reorganization or dissolution of the firm.

Which of the following is not a component of the Gordon (or constant dividend growth rate) model for valuing stocks?

These bonds have coupons that are "clipped" and presented, like a check, to the bank for payment.

Global bonds are generally denominated in euros and are marketed globally.

Represents ownership shares in a corporation.

Which of the following bonds can be redeemed prior to maturity by the firm?

All other things being equal, a bond's value will be below its maturity value of $1,000 if it pays interest of $100 per year and investors require a rate of return that is,:

Bonds that have coupons that are literally clipped and presented, like a check, to the bank for payment, and where the bond issuer does not know who is receiving the coupon payments are called:

Bonds rated higher than BB+ by Standard & Poors and Fitch are considered to be investment grade issues.

Horizon risk premium is the same as horizon spread.

Securitization involves issuing bonds whose coupon and principal payments arise from another existing cash flow stream.

Dividend payout ratio = Earnings per share (EPS) / dividends per share.

Which of the following statements is false?

Which of the following bond types would describe unsecured obligations that depend on the general credit strength of the corporation?

Private placements must be approved by the Securities and Exchange Commission (SEC).

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

The types of risk faced by investors in domestic bonds include all of the following except:

Eurodollar bond interest rates are low relative to U.S. rates.

Zero coupon bonds are not suited for tax-exempt accounts such as IRAs or pension funds.

Which of the following statements is correct?

A debt holder may force the firm to abide by the terms of the debt contract even if the result is reorganization or dissolution of the firm.

Which of the following is not a component of the Gordon (or constant dividend growth rate) model for valuing stocks?

These bonds have coupons that are "clipped" and presented, like a check, to the bank for payment.

Global bonds are generally denominated in euros and are marketed globally.

Represents ownership shares in a corporation.

Which of the following bonds can be redeemed prior to maturity by the firm?

All other things being equal, a bond's value will be below its maturity value of $1,000 if it pays interest of $100 per year and investors require a rate of return that is,:

Bonds that have coupons that are literally clipped and presented, like a check, to the bank for payment, and where the bond issuer does not know who is receiving the coupon payments are called:

Bonds rated higher than BB+ by Standard & Poors and Fitch are considered to be investment grade issues.

Horizon risk premium is the same as horizon spread.

Securitization involves issuing bonds whose coupon and principal payments arise from another existing cash flow stream.

Dividend payout ratio = Earnings per share (EPS) / dividends per share.

Which of the following statements is false?

Which of the following bond types would describe unsecured obligations that depend on the general credit strength of the corporation?

Private placements must be approved by the Securities and Exchange Commission (SEC).

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