Question 1

A bond with a coupon rate of 4% and a discount rate of 6% will pay $60 in interest each year.

Accepted Answer

A) True 
 B)False

Question 2

Rolling stock is raw material or finished goods that are on a truck or train while being transported to or from the firm.

Accepted Answer

A) True 
 B)False

Question 3

The dividends paid on stock issued by corporations in the United States are tax deductible to the issuing corporation.

Accepted Answer

A) True 
 B)False

Question 4

A perpetuity is an annuity that never ends.

Accepted Answer

A) True 
 B)False

Question 5

Long term business funds are obtained by issuing commercial paper and corporate bonds.

Accepted Answer

A) True 
 B)False

Question 6

An example of asset securitization is:

Accepted Answer

A)  a bond backed by credit card receivables 
B)  a debenture 
C)  a subordinated debenture 
D)  convertible bond 
A)  a bond backed by credit card receivables 
B)  a debenture 
C)  a subordinated debenture 
D)  convertible bond

Question 7

You can receive interest from bearer bonds without the issuer knowing your name or address.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following risks would not be faced by investors in domestic bonds?

Accepted Answer

A)  credit (or default) risk 
B)  interest rate risk 
C)  reinvestment rate (or rollover) risk 
D)  exchange rate risk 
A)  credit (or default) risk 
B)  interest rate risk 
C)  reinvestment rate (or rollover) risk 
D)  exchange rate risk

Question 9

All of the following represent bonds secured by real assets except a(n):

Accepted Answer

A)  closed-end mortgage bond 
B)  equipment trust certificate 
C)  debenture 
D)  open-end mortgage bond 
A)  closed-end mortgage bond 
B)  equipment trust certificate 
C)  debenture 
D)  open-end mortgage bond

Question 10

Ameritech has just issued a $1,000 par value bond that will mature in 10 years. This bond pays interest of $45 every six months. If the annual yield to maturity of this bond is 8%, what is the price of the Ameritech bond if the market is in equilibrium?

Accepted Answer

A)  $991.50 
B)  $1,067.96 
C)  $1,112.82 
D)  $1,141.19 
A)  $991.50 
B)  $1,067.96 
C)  $1,112.82 
D)  $1,141.19

Question 11

The _____________ policy states that dividends will vary based upon how much excess funds the firm has from year-to-year, whereas under a ________________ policy the firm pays a constant percentage of earnings as dividends, so as earnings rise and fall so does the dollar amount of dividends.

Accepted Answer

A)  constant payout ratio, residual dividend 
B)  residual dividend, constant payout ratio 
C)  constant dividend, variable payout ratio 
D)  variable payout ratio, constant dividend 
A)  constant payout ratio, residual dividend 
B)  residual dividend, constant payout ratio 
C)  constant dividend, variable payout ratio 
D)  variable payout ratio, constant dividend

Question 12

Private placements:

Accepted Answer

A)  are not sold to the general public 
B)  have expedited SEC scrutiny 
C)  require public disclosure of the firm's financial information 
D)  are only issued by governments 
A)  are not sold to the general public 
B)  have expedited SEC scrutiny 
C)  require public disclosure of the firm's financial information 
D)  are only issued by governments

Question 13

Bond holders have no voting rights.

Accepted Answer

A) True 
 B)False

Question 14

A bond will sell at a discount if its required return or discount rate is greater than its coupon rate.

Accepted Answer

A) True 
 B)False

Question 15

Chrysler has a bond outstanding with eight years remaining to maturity, a coupon rate of 5 percent, and semiannual payments. If the market price of the Chrysler bond is $729.05, what is the yield to maturity?

Accepted Answer

A)  7 percent 
B)  9 percent 
C)  10 percent 
D)  11 percent 
A)  7 percent 
B)  9 percent 
C)  10 percent 
D)  11 percent

Question 16

Common stock always receives dividends.

Accepted Answer

A) True 
 B)False

Question 17

The Internal Revenue Service (IRS) assumes interest is paid over the life of the bond so, with zero-coupon bonds, investors must pay tax on interest they don't receive.

Accepted Answer

A) True 
 B)False

Question 18

The immediate value of a share of stock, currently selling for $100, after it has a 5 for 1 split is:

Accepted Answer

A)  $20 
B)  $50 
C)  $200 
D)  $500 
A)  $20 
B)  $50 
C)  $200 
D)  $500

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Issuing bearer bonds is prohibited in the United States.

Accepted Answer

A) True 
 B)False

A bond with a coupon rate of 4% and a discount rate of 6% will pay $60 in interest each year.

Rolling stock is raw material or finished goods that are on a truck or train while being transported to or from the firm.

The dividends paid on stock issued by corporations in the United States are tax deductible to the issuing corporation.

A perpetuity is an annuity that never ends.

Long term business funds are obtained by issuing commercial paper and corporate bonds.

An example of asset securitization is:

You can receive interest from bearer bonds without the issuer knowing your name or address.

Which of the following risks would not be faced by investors in domestic bonds?

All of the following represent bonds secured by real assets except a(n):

Ameritech has just issued a $1,000 par value bond that will mature in 10 years. This bond pays interest of $45 every six months. If the annual yield to maturity of this bond is 8%, what is the price of the Ameritech bond if the market is in equilibrium?

The _ policy states that dividends will vary based upon how much excess funds the firm has from year-to-year, whereas under a ____ policy the firm pays a constant percentage of earnings as dividends, so as earnings rise and fall so does the dollar amount of dividends.

Private placements:

Bond holders have no voting rights.

A bond will sell at a discount if its required return or discount rate is greater than its coupon rate.

Chrysler has a bond outstanding with eight years remaining to maturity, a coupon rate of 5 percent, and semiannual payments. If the market price of the Chrysler bond is $729.05, what is the yield to maturity?

Common stock always receives dividends.

The Internal Revenue Service (IRS) assumes interest is paid over the life of the bond so, with zero-coupon bonds, investors must pay tax on interest they don't receive.

The immediate value of a share of stock, currently selling for $100, after it has a 5 for 1 split is:

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

Issuing bearer bonds is prohibited in the United States.

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

Exam 10: Bonds and Stocks: Characteristics and Valuations

A bond with a coupon rate of 4% and a discount rate of 6% will pay $60 in interest each year.

Rolling stock is raw material or finished goods that are on a truck or train while being transported to or from the firm.

The dividends paid on stock issued by corporations in the United States are tax deductible to the issuing corporation.

A perpetuity is an annuity that never ends.

Long term business funds are obtained by issuing commercial paper and corporate bonds.

An example of asset securitization is:

You can receive interest from bearer bonds without the issuer knowing your name or address.

Which of the following risks would not be faced by investors in domestic bonds?

All of the following represent bonds secured by real assets except a(n):

Ameritech has just issued a $1,000 par value bond that will mature in 10 years. This bond pays interest of $45 every six months. If the annual yield to maturity of this bond is 8%, what is the price of the Ameritech bond if the market is in equilibrium?

The _____________ policy states that dividends will vary based upon how much excess funds the firm has from year-to-year, whereas under a ________________ policy the firm pays a constant percentage of earnings as dividends, so as earnings rise and fall so does the dollar amount of dividends.

Private placements:

Bond holders have no voting rights.

A bond will sell at a discount if its required return or discount rate is greater than its coupon rate.

Chrysler has a bond outstanding with eight years remaining to maturity, a coupon rate of 5 percent, and semiannual payments. If the market price of the Chrysler bond is $729.05, what is the yield to maturity?

Common stock always receives dividends.

The Internal Revenue Service (IRS) assumes interest is paid over the life of the bond so, with zero-coupon bonds, investors must pay tax on interest they don't receive.

The immediate value of a share of stock, currently selling for $100, after it has a 5 for 1 split is:

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

Issuing bearer bonds is prohibited in the United States.

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

The _ policy states that dividends will vary based upon how much excess funds the firm has from year-to-year, whereas under a ____ policy the firm pays a constant percentage of earnings as dividends, so as earnings rise and fall so does the dollar amount of dividends.