Exam 2: Financial Assets Instruments

As with common stock,preferred stock always has a par value,and also,like common stock,the par value is unimportant in the event of liquidation.However,the preferred stock dividend does depend on the par value and the dividend is usually stated as a percentage of par.

Issuing zero coupon bonds might appeal to a company that is considering investing in a long-term project that will not generate positive cash flows for several years.

A(n)____ is generally obtained from a bank or insurance company and the borrower agrees to make a series of payments consisting of interest and principal.

Which of the following is NOT an example of a financial asset?

Firms generally do not call their convertibles unless their conversion value is greater than their call price.

An American Depository Receipt (ADR)represents

Which of the following statements is correct?

Several types of futures contracts are available to hedge against price changes in such items as gold,agricultural products,and so forth.

An investor purchased a call option that allows her to purchase 100 shares of Dell Computer common stock for $45 per share any time during the next six months.The price she paid for the option was $2.50 per share,or $250 total,and the current market price of Dell's stock is $42.50.If the price of Dell increases to $44.50 and the investor decides to exercise it,what will be the gain or loss that results from the option position that was held? Ignore taxes and commissions.

Founders' shares is a type of classified stock where the shares are owned by the firm's founders and they retain the sole voting rights to those shares but have restricted dividends for a specified time period.

The exercise price is the price that must be paid for a share of common stock when it is bought by exercising a warrant.

The Eurodollar market is essentially a long-term market;most loans and deposits have maturities of longer than one year.

Stock repurchases might be undertaken when

A Eurodollar is a U.S.dollar deposited in a bank outside the United States.

Companies A and B recently established a new jointly owned subsidiary,ABBA Corporation.ABBA now requires $100 million of capital.A and B will supply $40 million of common equity,$20 million each.The remaining $60 million will be raised by using some combination of debt and preferred stock.Which of the following statements is most correct?

Which of the following statements is correct?

The par value of a share of common stock represents the minimum price at which new shares can be sold.All new issues of common stock must have a par value equal to the current market price of the share.

Which of the following types of debt protect a bondholder against an increase in interest rates?

Preferred stockholders generally are given the right to vote for directors if

The additional paid-in capital account represents the difference between a stock's par value and the funds actually received from the sale of new common stock.