Exam 2: Investment Alternatives

In the case of a corporate bankruptcy,bondholders are paid before any distributions are paid to preferred or common stockholders.

Interest on bonds is typically paid:

Which of the following would not be considered a capital market security?

Investors in high tax brackets would be unlikely to invest in municipal bonds.

Callable bonds attract investors because they can be redeemed early.

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

TIPS adjust for inflation by adjusting the rate of interest paid on the bond.

The major bond rating service is Dun & Bradstreet.

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

The deeper the discount on a zero-coupon bond,the lower the effective return.

If a preferred stock issue is cumulative,this means:

Money market securities generally carry a low chance of default.

Does the options market help stabilize or destabilize the stock market?Explain.

Explain how writing option contracts (both puts and calls)can generate income for owners of the underlying stock.

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

Bonds called in are likely to be: