Question 1

Private placements:

Accepted Answer

A) are sold to the general public 
B) have expedited SEC scrutiny 
C) require public disclosure of the firm's financial information 
D) none of the above 
A) are sold to the general public 
B) have expedited SEC scrutiny 
C) require public disclosure of the firm's financial information 
D) none of the above

Question 2

The largest annual supply of external funds for business corporations comes from issuance of which one of the following sources?

Accepted Answer

A) privately placed stocks 
B) bonds 
C) preferred stocks 
D) common stocks 
A) privately placed stocks 
B) bonds 
C) preferred stocks 
D) common stocks

Question 3

Global bonds usually are denominated in U.S.dollars and have offering sizes that typically exceed $1 billion.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) $20 
B) $40 
C) $500 
D) $1000 
E) none of the above 
A) $20 
B) $40 
C) $500 
D) $1000 
E) none of the above

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

What is the value of GM which currently has a dividend of $2 and is growing at 7%? The investor's required rate of return is 11%.

Accepted Answer

A) $46 
B) $50 
C) $52 
D) none of the above 
A) $46 
B) $50 
C) $52 
D) none of the above

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

Which type of bond is currently prohibited from being issued in the United States?

Accepted Answer

A) bearer bonds 
B) unregulated debentures 
C) tax avoidance bonds 
D) income bonds 
A) bearer bonds 
B) unregulated debentures 
C) tax avoidance bonds 
D) income bonds

Question 10

A firm's stock is expected to pay a $2 annual dividend next year,and the current $50 stock price is expected to rise to $53 over the next year.What is the expected return?

Accepted Answer

A) 8% 
B) 10% 
C) 12% 
D) 15% 
A) 8% 
B) 10% 
C) 12% 
D) 15%

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

Firms issue more bonds than equities.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Two sources of risk that investors in nondomestic securities face beyond those of domestic securities include:

Accepted Answer

A) political risk 
B) exchange rate risk 
C) corruption risk 
D) two of the above 
E) all of the above 
A) political risk 
B) exchange rate risk 
C) corruption risk 
D) two of the above 
E) all of the above

Question 16

When the market interest rate is the same as the coupon rate for a particular quality of bond,the bond will be priced:

Accepted Answer

A) below its par value 
B) at its par value 
C) above its par value 
D) The bond price cannot be determined 
A) below its par value 
B) at its par value 
C) above its par value 
D) The bond price cannot be determined

Question 17

A (n)_____________ gives the bondholder a claim to specific assets (identified through serial numbers)such as railroad cars or airplanes.

Accepted Answer

A) first mortgage bond 
B) equipment trust certificate 
C) inventory bond 
D) collateralized bond 
A) first mortgage bond 
B) equipment trust certificate 
C) inventory bond 
D) collateralized bond

Question 18

The risk of having a bond issuer request the bond back from the bondholder thus forcing the bondholder to reinvest the proceeds at a lower interest rate is called:

Accepted Answer

A) call risk 
B) reinvestment rate risk 
C) interest rate risk 
D) none of the above 
A) call risk 
B) reinvestment rate risk 
C) interest rate risk 
D) none of the above

Question 19

RJR Nabisco recently experienced a market reevaluation due to a number of tobacco lawsuits.The firm has a bond outstanding with 15 years to maturity,and a coupon rate of 8%,with interest being paid semiannually.The required yield to maturity has risen to 16%.What is the price of the RJR Nabisco bond?

Accepted Answer

A) $1,000 
B) $804 
C) $767 
D) $550 
A) $1,000 
B) $804 
C) $767 
D) $550

Question 20

Callable bonds can be redeemed prior to maturity by the firm.

Accepted Answer

A) True 
 B)False

Private placements:

The largest annual supply of external funds for business corporations comes from issuance of which one of the following sources?

Global bonds usually are denominated in U.S.dollars and have offering sizes that typically exceed $1 billion.

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

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

What is the value of GM which currently has a dividend of $2 and is growing at 7%? The investor's required rate of return is 11%.

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

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

Which type of bond is currently prohibited from being issued in the United States?

A firm's stock is expected to pay a $2 annual dividend next year,and the current $50 stock price is expected to rise to $53 over the next year.What is the expected return?

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

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.

Firms issue more bonds than equities.

Two sources of risk that investors in nondomestic securities face beyond those of domestic securities include:

When the market interest rate is the same as the coupon rate for a particular quality of bond,the bond will be priced:

A (n)_____________ gives the bondholder a claim to specific assets (identified through serial numbers)such as railroad cars or airplanes.

The risk of having a bond issuer request the bond back from the bondholder thus forcing the bondholder to reinvest the proceeds at a lower interest rate is called:

Callable bonds can be redeemed prior to maturity by the firm.

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

Private placements:

The largest annual supply of external funds for business corporations comes from issuance of which one of the following sources?

Global bonds usually are denominated in U.S.dollars and have offering sizes that typically exceed $1 billion.

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

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

What is the value of GM which currently has a dividend of $2 and is growing at 7%? The investor's required rate of return is 11%.

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

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

Which type of bond is currently prohibited from being issued in the United States?

A firm's stock is expected to pay a $2 annual dividend next year,and the current $50 stock price is expected to rise to $53 over the next year.What is the expected return?

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

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.

Firms issue more bonds than equities.

Two sources of risk that investors in nondomestic securities face beyond those of domestic securities include:

When the market interest rate is the same as the coupon rate for a particular quality of bond,the bond will be priced:

A (n)_____________ gives the bondholder a claim to specific assets (identified through serial numbers)such as railroad cars or airplanes.

The risk of having a bond issuer request the bond back from the bondholder thus forcing the bondholder to reinvest the proceeds at a lower interest rate is called:

Callable bonds can be redeemed prior to maturity by the firm.

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