Question 1

Which of the following relationships is true regarding the costs of issuing the following securities?

Accepted Answer

A) common stock > bonds > preferred stock 
B) preferred stock > common stock > bonds 
C) bonds > common stock > preferred stock 
D) common stock > preferred stock > bonds 
A) common stock > bonds > preferred stock 
B) preferred stock > common stock > bonds 
C) bonds > common stock > preferred stock 
D) common stock > preferred stock > bonds

Question 2

The Sarbanes-Oxley Act of 2002 holds all of the following groups strictly accountable in a legal sense for any instances of misconduct EXCEPT

Accepted Answer

A) company officers. 
B) outside members of the board of directors. 
C) lawyers. 
D) investors. 
A) company officers. 
B) outside members of the board of directors. 
C) lawyers. 
D) investors.

Question 3

A "Dutch auction" was used by Google to raise money in 2004.A Dutch auction involves

Accepted Answer

A) selling bonds in Europe. 
B) allowing investors to submit bids saying how many shares they'd like to buy and at what price. 
C) allowing investment banking firms to submit bids on how many shares they are willing to sell and at what price. 
D) hiring a Dutch firm to sell a company's securities at auction. 
A) selling bonds in Europe. 
B) allowing investors to submit bids saying how many shares they'd like to buy and at what price. 
C) allowing investment banking firms to submit bids on how many shares they are willing to sell and at what price. 
D) hiring a Dutch firm to sell a company's securities at auction.

Question 4

An example of a primary market transaction is

Accepted Answer

A) a new issue of common stock by AT&T. 
B) a sale of some outstanding common stock of AT&T by an investor. 
C) AT&T repurchasing its own stock from a stockholder. 
D) all of the above 
A) a new issue of common stock by AT&T. 
B) a sale of some outstanding common stock of AT&T by an investor. 
C) AT&T repurchasing its own stock from a stockholder. 
D) all of the above

Question 5

When a company repurchases its own common stock,it is likely that

Accepted Answer

A) the stock price will increase because the company views the stock as undervalued. 
B) the stock price will decrease because the company is creating artificial demand for its stock. 
C) the stock price will remain the same as this is simply an internal transaction. 
D) the board of directors will be fired for incompetence. 
A) the stock price will increase because the company views the stock as undervalued. 
B) the stock price will decrease because the company is creating artificial demand for its stock. 
C) the stock price will remain the same as this is simply an internal transaction. 
D) the board of directors will be fired for incompetence.

Question 6

Registration of securities by the SEC indicates to investors that the risk of those securities is reasonable.

Accepted Answer

A) True 
 B)False

Question 7

When the corporation sells securities directly to the investment public without involving an investment banker,it is called a privileged subscription.

Accepted Answer

A) True 
 B)False

Question 8

Preferred stock is traded in the money market,while common stock is traded in the capital market.

Accepted Answer

A) True 
 B)False

Question 9

Money market instruments include

Accepted Answer

A) common stock. 
B) preferred stock. 
C) T-bonds. 
D) T-bills. 
A) common stock. 
B) preferred stock. 
C) T-bonds. 
D) T-bills.

Question 10

The money market includes transactions in short-term financial instruments.

Accepted Answer

A) True 
 B)False

Question 11

You are considering an investment in a AAA-rated U.S.corporate bond but you are not sure what rate of interest it should pay.Assume that the real risk-free rate of interest is 1.0%; inflation is expected to be 1.5%; the maturity risk premium is 2.5%; and,the default risk premium for AAA-rated corporate bonds is 3.5%.What rate of interest should the U.S.corporate bond pay?

Accepted Answer

A) 8.5% 
B) 6.0% 
C) 5.0% 
D) 2.5% 
A) 8.5% 
B) 6.0% 
C) 5.0% 
D) 2.5%

Question 12

If provided the nominal rate of interest (r)of 7.4% and the anticipated rate of inflation (i)of 4.5%,what is the real rate of interest (R)?

Accepted Answer

r = R + i + Ri .074

Question 13

A liquidity-risk premium is the additional return required by investors in longer-term securities to compensate them for the greater risk of price fluctuation on those securities caused by interest rate changes.

Accepted Answer

A) True 
 B)False

Question 14

What was the average annual rate of return on common stocks of small firms during the period 1926 to 2011?

Accepted Answer

A) 15.4% 
B) 18.6% 
C) 11.9% 
D) 9.5% 
A) 15.4% 
B) 18.6% 
C) 11.9% 
D) 9.5%

Question 15

The provisions of the Sarbanes-Oxley Act of 2002,or SOX,apply to all U.S.-based corporations,as well as to foreign corporations conducting business in U.S.markets.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements is MOST correct concerning flotation costs?

Accepted Answer

A) Flotation costs are the same for common stock,preferred stock and bonds because they reflect mainly printing costs and legal fees. 
B) Flotation costs are generally higher for bonds rather than stocks because the dollar amounts involved are much higher,allowing for economies of scale. 
C) Flotation costs as a percentage of gross proceeds increase as the size of the security issue increases. 
D) Flotation costs are higher for common stocks than for preferred stocks and bonds due to the higher level of risk associated with owning common stock. 
A) Flotation costs are the same for common stock,preferred stock and bonds because they reflect mainly printing costs and legal fees. 
B) Flotation costs are generally higher for bonds rather than stocks because the dollar amounts involved are much higher,allowing for economies of scale. 
C) Flotation costs as a percentage of gross proceeds increase as the size of the security issue increases. 
D) Flotation costs are higher for common stocks than for preferred stocks and bonds due to the higher level of risk associated with owning common stock.

Question 17

The ________ is the premium to compensate for the price change expected to occur over the life of the bond or investment instrument.

Accepted Answer

A) inflation-risk premium 
B) maturity premium 
C) real risk-free interest rate premium 
D) default-risk premium 
A) inflation-risk premium 
B) maturity premium 
C) real risk-free interest rate premium 
D) default-risk premium

Question 18

Which of the following statements concerning private placements is MOST correct?

Accepted Answer

A) Private placements do not involve investment bankers. 
B) Although not selling the securities to the public,investment bankers may provide advice on the evaluation of prospective buyers and the terms of sale for private placements. 
C) Private placements are limited to stocks,not bonds. 
D) More than half of all private placements are sold to federal,state,or local governments or government agencies. 
A) Private placements do not involve investment bankers. 
B) Although not selling the securities to the public,investment bankers may provide advice on the evaluation of prospective buyers and the terms of sale for private placements. 
C) Private placements are limited to stocks,not bonds. 
D) More than half of all private placements are sold to federal,state,or local governments or government agencies.

Question 19

Financial intermediaries

Accepted Answer

A) offer indirect securities. 
B) include the national and regional stock exchange. 
C) usually are underwriting syndicates. 
D) constitute the various secondary markets. 
A) offer indirect securities. 
B) include the national and regional stock exchange. 
C) usually are underwriting syndicates. 
D) constitute the various secondary markets.

Question 20

Transactions in common stock occur in the money market,due to the large amount of money involved in such transactions.

Accepted Answer

A) True 
 B)False

Which of the following relationships is true regarding the costs of issuing the following securities?

The Sarbanes-Oxley Act of 2002 holds all of the following groups strictly accountable in a legal sense for any instances of misconduct EXCEPT

A "Dutch auction" was used by Google to raise money in 2004.A Dutch auction involves

An example of a primary market transaction is

When a company repurchases its own common stock,it is likely that

Registration of securities by the SEC indicates to investors that the risk of those securities is reasonable.

When the corporation sells securities directly to the investment public without involving an investment banker,it is called a privileged subscription.

Preferred stock is traded in the money market,while common stock is traded in the capital market.

Money market instruments include

The money market includes transactions in short-term financial instruments.

If provided the nominal rate of interest (r)of 7.4% and the anticipated rate of inflation (i)of 4.5%,what is the real rate of interest (R)?

A liquidity-risk premium is the additional return required by investors in longer-term securities to compensate them for the greater risk of price fluctuation on those securities caused by interest rate changes.

What was the average annual rate of return on common stocks of small firms during the period 1926 to 2011?

The provisions of the Sarbanes-Oxley Act of 2002,or SOX,apply to all U.S.-based corporations,as well as to foreign corporations conducting business in U.S.markets.

Which of the following statements is MOST correct concerning flotation costs?

The ________ is the premium to compensate for the price change expected to occur over the life of the bond or investment instrument.

Which of the following statements concerning private placements is MOST correct?

Financial intermediaries

Transactions in common stock occur in the money market,due to the large amount of money involved in such transactions.

An Introduction to the Foundations of Financial Management

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters

Exam 2: The Financial Markets and Interest Rates

Which of the following relationships is true regarding the costs of issuing the following securities?

The Sarbanes-Oxley Act of 2002 holds all of the following groups strictly accountable in a legal sense for any instances of misconduct EXCEPT

A "Dutch auction" was used by Google to raise money in 2004.A Dutch auction involves

An example of a primary market transaction is

When a company repurchases its own common stock,it is likely that

Registration of securities by the SEC indicates to investors that the risk of those securities is reasonable.

When the corporation sells securities directly to the investment public without involving an investment banker,it is called a privileged subscription.

Preferred stock is traded in the money market,while common stock is traded in the capital market.

Money market instruments include

The money market includes transactions in short-term financial instruments.

If provided the nominal rate of interest (r)of 7.4% and the anticipated rate of inflation (i)of 4.5%,what is the real rate of interest (R)?

A liquidity-risk premium is the additional return required by investors in longer-term securities to compensate them for the greater risk of price fluctuation on those securities caused by interest rate changes.

What was the average annual rate of return on common stocks of small firms during the period 1926 to 2011?

The provisions of the Sarbanes-Oxley Act of 2002,or SOX,apply to all U.S.-based corporations,as well as to foreign corporations conducting business in U.S.markets.

Which of the following statements is MOST correct concerning flotation costs?

The ________ is the premium to compensate for the price change expected to occur over the life of the bond or investment instrument.

Which of the following statements concerning private placements is MOST correct?

Financial intermediaries

Transactions in common stock occur in the money market,due to the large amount of money involved in such transactions.

An Introduction to the Foundations of Financial Management

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters