Question 1

A current yield on a corporate bond is calculated as:

Accepted Answer

A) coupon interest amount divided by par value 
B) coupon interest rate times the par value 
C) coupon interest amount divided by the current price 
D) coupon interest rate times the current price 
A) coupon interest amount divided by par value 
B) coupon interest rate times the par value 
C) coupon interest amount divided by the current price 
D) coupon interest rate times the current price

Question 2

The interest received by individuals on bonds issued by corporations in the United States is not tax deductible to the investor.

Accepted Answer

A) True 
 B)False

Question 3

A sinking fund:

Accepted Answer

A) is a special fund set up to pay of the creditors of bankrupt firms 
B) requires specific approval by the firm's the board of directors 
C) requires the issuer to retire a bond issue incrementally over time 
D) none of the above 
A) is a special fund set up to pay of the creditors of bankrupt firms 
B) requires specific approval by the firm's the board of directors 
C) requires the issuer to retire a bond issue incrementally over time 
D) none of the above

Question 4

Which of the following bonds may be secured by home mortgages?

Accepted Answer

A) mortgage bonds 
B) collateralized mortgage obligations 
C) closed-end mortgage bonds 
D) open-end mortgage bonds 
A) mortgage bonds 
B) collateralized mortgage obligations 
C) closed-end mortgage bonds 
D) open-end mortgage bonds

Question 5

Convertible preferred stock has a special provision that makes it possible to convert it to common stock of the corporation,generally at the stockholder's option.

Accepted Answer

A) True 
 B)False

Question 6

___________________ is often called a hybrid security.

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

A bond that allows the same assets to be used as security in future issues is called a (n):

Accepted Answer

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

Question 9

The value of a share of stock currently selling for $50 after a 1 for 5 split is:

Accepted Answer

A) $10 
B) $200 
C) $500 
D) $1000 
E) none of the above 
A) $10 
B) $200 
C) $500 
D) $1000 
E) none of the above

Question 10

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 11

Real assets are claims against the income or assets of individuals,businesses,and governments.

Accepted Answer

A) True 
 B)False

Question 12

When the market interest rate rises above the coupon rate for a particular quality of bond and the bond price declines,the new expected yield is called the:

Accepted Answer

A) coupon rate or yield 
B) current yield 
C) book value yield 
D) net present value yield 
A) coupon rate or yield 
B) current yield 
C) book value yield 
D) net present value yield

Question 13

Consolidated Edison has just paid an annual dividend of $3 per share.If the expected growth rate for Con Ed is 10%,and your required rate of return is 16%,how much are you willing to pay for this stock?

Accepted Answer

A) $55 
B) $50 
C) $46.50 
D) none of the above 
A) $55 
B) $50 
C) $46.50 
D) none of the above

Question 14

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) none of the above 
A) $991.50 
B) $1,067.96 
C) $1,112.82 
D) none of the above

Question 15

Mary wants to purchase a 20-year bond that has a par value of $1,000 and makes semiannual interest payments of $40.If her required yield to maturity is 10%,how much should Mary be willing to pay for the bond?

Accepted Answer

A) $902 
B) $925 
C) $1000 
D) none of the above 
A) $902 
B) $925 
C) $1000 
D) none of the above

Question 16

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

Accepted Answer

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

Question 17

An unrated bond:

Accepted Answer

A) is perceived as having lower than average risk 
B) are termed as "debentures" 
C) generally has a lower than rated bonds 
D) none of the above 
A) is perceived as having lower than average risk 
B) are termed as "debentures" 
C) generally has a lower than rated bonds 
D) none of the above

Question 18

The _____________ is the difference in return earned by investing in a longer term bond that has the same credit risk as a shorter-term bond.

Accepted Answer

A) purchasing power spread 
B) credit risk premium 
C) horizon risk premium 
D) two of the above 
E) none of the above 
A) purchasing power spread 
B) credit risk premium 
C) horizon risk premium 
D) two of the above 
E) none of the above

Question 19

Bond covenants are the best way for bondholders to protect themselves against dubious management actions.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

A current yield on a corporate bond is calculated as:

The interest received by individuals on bonds issued by corporations in the United States is not tax deductible to the investor.

A sinking fund:

Which of the following bonds may be secured by home mortgages?

Convertible preferred stock has a special provision that makes it possible to convert it to common stock of the corporation,generally at the stockholder's option.

___________________ is often called a hybrid security.

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

A bond that allows the same assets to be used as security in future issues is called a (n):

The value of a share of stock currently selling for $50 after a 1 for 5 split is:

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

Real assets are claims against the income or assets of individuals,businesses,and governments.

When the market interest rate rises above the coupon rate for a particular quality of bond and the bond price declines,the new expected yield is called the:

Consolidated Edison has just paid an annual dividend of $3 per share.If the expected growth rate for Con Ed is 10%,and your required rate of return is 16%,how much are you willing to pay for this stock?

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?

Mary wants to purchase a 20-year bond that has a par value of $1,000 and makes semiannual interest payments of $40.If her required yield to maturity is 10%,how much should Mary be willing to pay for the bond?

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

An unrated bond:

The _____________ is the difference in return earned by investing in a longer term bond that has the same credit risk as a shorter-term bond.

Bond covenants are the best way for bondholders to protect themselves against dubious management actions.

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

A current yield on a corporate bond is calculated as:

The interest received by individuals on bonds issued by corporations in the United States is not tax deductible to the investor.

A sinking fund:

Which of the following bonds may be secured by home mortgages?

Convertible preferred stock has a special provision that makes it possible to convert it to common stock of the corporation,generally at the stockholder's option.

___________________ is often called a hybrid security.

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

A bond that allows the same assets to be used as security in future issues is called a (n):

The value of a share of stock currently selling for $50 after a 1 for 5 split is:

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

Real assets are claims against the income or assets of individuals,businesses,and governments.

When the market interest rate rises above the coupon rate for a particular quality of bond and the bond price declines,the new expected yield is called the:

Consolidated Edison has just paid an annual dividend of $3 per share.If the expected growth rate for Con Ed is 10%,and your required rate of return is 16%,how much are you willing to pay for this stock?

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?

Mary wants to purchase a 20-year bond that has a par value of $1,000 and makes semiannual interest payments of $40.If her required yield to maturity is 10%,how much should Mary be willing to pay for the bond?

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

An unrated bond:

The _____________ is the difference in return earned by investing in a longer term bond that has the same credit risk as a shorter-term bond.

Bond covenants are the best way for bondholders to protect themselves against dubious management actions.

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