Question 1

Which of the following statements is most correct?

Accepted Answer

A) A closed-end mortgage bond is one that allows the same assets to be used as security in future bond issues. 
B) Positive 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) Most of the annual funds raised from security issues come from corporate bond sales. 
A) A closed-end mortgage bond is one that allows the same assets to be used as security in future bond issues. 
B) Positive 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) Most of the annual funds raised from security issues come from corporate bond sales.

Question 2

Credit risk is another term for default risk.

Accepted Answer

A) True 
 B)False

Question 3

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) all the above affect stock price 
A) the firm's expected growth rate in dividends 
B) the number of shares outstanding 
C) the shareholder's required return 
D) all the above affect stock price

Question 4

___________________ has the lowest claim on the assets and cash flow of the firm.

Accepted Answer

A) A bond 
B) A subordinated debenture 
C) Preferred stock 
D) Common stock 
A) A bond 
B) A subordinated debenture 
C) Preferred stock 
D) Common stock

Question 5

The par value of a common stock is meaningful in that it is often used to determine the fixed annual dividend.

Accepted Answer

A) True 
 B)False

Question 6

A document which is administered by a trustee,and includes in great detail the various provisions of the loan agreement is called the:

Accepted Answer

A) trust indenture 
B) debenture 
C) bond covenant 
D) bearer bond 
A) trust indenture 
B) debenture 
C) bond covenant 
D) bearer bond

Question 7

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 8

An example of a collateralized bond is:

Accepted Answer

A) a bond backed by credit card receivables 
B) a debenture 
C) a subordinated debenture 
D) all the above 
A) a bond backed by credit card receivables 
B) a debenture 
C) a subordinated debenture 
D) all the above

Question 9

Which of the following bonds has the greatest interest rate risk?

Accepted Answer

A) a 5 year,10% coupon bond 
B) a 10 year,10% coupon bond 
C) a 5 year,5% coupon bond 
D) a 10 year,5% coupon bond 
A) a 5 year,10% coupon bond 
B) a 10 year,10% coupon bond 
C) a 5 year,5% coupon bond 
D) a 10 year,5% coupon bond

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

In actual practice,most corporate bonds pay interest:

Accepted Answer

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

Question 12

__________________ allows stock to be held in the name of a brokerage house.

Accepted Answer

A) The Federal Reserve 
B) Street name 
C) The Securities Exchange Act of 1944 
D) none of the above 
A) The Federal Reserve 
B) Street name 
C) The Securities Exchange Act of 1944 
D) none of the above

Question 13

The three 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 14

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 15

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 16

Which of the following types of stocks have the lowest risk to shareholders?

Accepted Answer

A) common stock 
B) cumulative preferred stock 
C) non-cumulative preferred stock 
D) callable preferred stock 
A) common stock 
B) cumulative preferred stock 
C) non-cumulative preferred stock 
D) callable preferred stock

Question 17

The constant dividend growth model assumes:

Accepted Answer

A) a constant annual dividend 
B) a constant dividend growth rate for no more than the first 10 years 
C) that the discount rate must be greater than the dividend growth rate 
D) two of above are true assumptions 
A) a constant annual dividend 
B) a constant dividend growth rate for no more than the first 10 years 
C) that the discount rate must be greater than the dividend growth rate 
D) two of above are true assumptions

Question 18

Eurodollar bonds are dollar-denominated bonds that are sold outside the United States.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not an advantage of owning debt securities?

Accepted Answer

A) high claim on cash flows of a firm 
B) highest return of corporate securities 
C) high claim on assets of in liquidation 
D) none of the above 
A) high claim on cash flows of a firm 
B) highest return of corporate securities 
C) high claim on assets of in liquidation 
D) none of the above

Question 20

The higher the discount rate or yield to maturity,the lower the price of a bond.

Accepted Answer

A) True 
 B)False

Which of the following statements is most correct?

Credit risk is another term for default risk.

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

___________________ has the lowest claim on the assets and cash flow of the firm.

The par value of a common stock is meaningful in that it is often used to determine the fixed annual dividend.

A document which is administered by a trustee,and includes in great detail the various provisions of the loan agreement is called the:

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

An example of a collateralized bond is:

Which of the following bonds has the greatest interest rate risk?

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

In actual practice,most corporate bonds pay interest:

__________________ allows stock to be held in the name of a brokerage house.

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

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

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

Which of the following types of stocks have the lowest risk to shareholders?

The constant dividend growth model assumes:

Eurodollar bonds are dollar-denominated bonds that are sold outside the United States.

Which of the following is not an advantage of owning debt securities?

The higher the discount rate or yield to maturity,the lower the price of a bond.

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 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 Valuation

Which of the following statements is most correct?

Credit risk is another term for default risk.

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

___________________ has the lowest claim on the assets and cash flow of the firm.

The par value of a common stock is meaningful in that it is often used to determine the fixed annual dividend.

A document which is administered by a trustee,and includes in great detail the various provisions of the loan agreement is called the:

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

An example of a collateralized bond is:

Which of the following bonds has the greatest interest rate risk?

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

In actual practice,most corporate bonds pay interest:

__________________ allows stock to be held in the name of a brokerage house.

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

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

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

Which of the following types of stocks have the lowest risk to shareholders?

The constant dividend growth model assumes:

Eurodollar bonds are dollar-denominated bonds that are sold outside the United States.

Which of the following is not an advantage of owning debt securities?

The higher the discount rate or yield to maturity,the lower the price of a bond.

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 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