Question 1

Which of the following bonds can be redeemed prior to maturity by the firm?

Accepted Answer

A) callable bonds 
B) convertible bonds 
C) putable bonds 
D) retractable bonds 
A) callable bonds 
B) convertible bonds 
C) putable bonds 
D) retractable bonds

Question 2

Bonds that have coupons that are literally clipped and presented, like a check, to the bank for payment, and where the bond issuer does not know who is receiving the coupon payments are called:

Accepted Answer

A) registered bonds 
B) coupon bonds 
C) bearer bonds 
D) none of the above 
A) registered bonds 
B) coupon bonds 
C) bearer bonds 
D) none of the above

Question 3

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 4

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 5

Which of the following constitute default on a bond?

Accepted Answer

A) nonpayment of par value 
B) nonpayment of coupon 
C) violation of the indenture 
D) all the above 
E) none of the above 
A) nonpayment of par value 
B) nonpayment of coupon 
C) violation of the indenture 
D) all the above 
E) none of the above

Question 6

Which of the following statements is most correct?

Accepted Answer

A) The par value of a common stock or preferred stock is not important. 
B) A convertible preferred stock gives the corporation the right to retire the preferred stock at its option. 
C) The U.S.security markets are the only public financial markets in which preferred stock can be sold. 
D) Similar to bonds, the fixed preferred stock dividend is a tax-deductible expense. 
A) The par value of a common stock or preferred stock is not important. 
B) A convertible preferred stock gives the corporation the right to retire the preferred stock at its option. 
C) The U.S.security markets are the only public financial markets in which preferred stock can be sold. 
D) Similar to bonds, the fixed preferred stock dividend is a tax-deductible expense.

Question 7

A bond that does not permit future bond issues to be secured by any of the assets pledged as security to it 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 8

According to Standard & Poors and Fitch, bonds rated ______ and below are considered to be speculative or "junk."

Accepted Answer

A) BBB+ 
B) BB+ 
C) B+ 
D) CCC 
A) BBB+ 
B) BB+ 
C) B+ 
D) CCC

Question 9

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 10

Reasons for stock repurchases include all of the following EXCEPT:

Accepted Answer

A) to sell off shares used in management stock option incentive programs, in which managers can purchase shares of stock at pre-specified prices. 
B) to use in stock-based sell-offs of other firms. 
C) the firm has too little cash and sees its own stock as one of its most attractive sales alternatives. 
D) all of the above 
E) none of the above 
A) to sell off shares used in management stock option incentive programs, in which managers can purchase shares of stock at pre-specified prices. 
B) to use in stock-based sell-offs of other firms. 
C) the firm has too little cash and sees its own stock as one of its most attractive sales alternatives. 
D) all of the above 
E) none of the above

Question 11

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 12

Several factors will be considered by the board of directors and management as they consider the level of dividend payout.Some of these factors include:

Accepted Answer

A) the ability of the firm to generate cash to sustain the level of dividends. 
B) legal and contractual considerations 
C) growth opportunities 
D) all of the above 
E) none of the above 
A) the ability of the firm to generate cash to sustain the level of dividends. 
B) legal and contractual considerations 
C) growth opportunities 
D) all of the above 
E) none of the above

Question 13

Zero coupon bonds are not suited for tax-exempt accounts such as IRAs or pension funds.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Which of the following are not bond rating agencies?

Accepted Answer

A) Standard and Poor's 
B) Fitch's 
C) Duff and PhelpsMoody's 
D) all the above are rating agencies 
E) none of the above are rating agencies 
A) Standard and Poor's 
B) Fitch's 
C) Duff and PhelpsMoody's 
D) all the above are rating agencies 
E) none of the above are rating agencies

Question 16

___________________ 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 17

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 18

Which of the following types of bonds have the lowest bondholder security risk?

Accepted Answer

A) closed-end mortgage bond 
B) subordinated debenture 
C) open-end mortgage bond 
D) all the above would have the same risk 
A) closed-end mortgage bond 
B) subordinated debenture 
C) open-end mortgage bond 
D) all the above would have the same risk

Question 19

___________________ 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 20

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

Which of the following bonds can be redeemed prior to maturity by the firm?

Bonds that have coupons that are literally clipped and presented, like a check, to the bank for payment, and where the bond issuer does not know who is receiving the coupon payments are called:

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?

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:

Which of the following constitute default on a bond?

Which of the following statements is most correct?

A bond that does not permit future bond issues to be secured by any of the assets pledged as security to it is called a (n):

According to Standard & Poors and Fitch, bonds rated ______ and below are considered to be speculative or "junk."

Reasons for stock repurchases include all of the following EXCEPT:

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.

Several factors will be considered by the board of directors and management as they consider the level of dividend payout.Some of these factors include:

Zero coupon bonds are not suited for tax-exempt accounts such as IRAs or pension funds.

A current yield on a corporate bond is calculated as:

Which of the following are not bond rating agencies?

___________________ is often called a hybrid security.

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 bonds have the lowest bondholder security risk?

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

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

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 bonds can be redeemed prior to maturity by the firm?

Bonds that have coupons that are literally clipped and presented, like a check, to the bank for payment, and where the bond issuer does not know who is receiving the coupon payments are called:

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?

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:

Which of the following constitute default on a bond?

Which of the following statements is most correct?

A bond that does not permit future bond issues to be secured by any of the assets pledged as security to it is called a (n):

According to Standard & Poors and Fitch, bonds rated ______ and below are considered to be speculative or "junk."

Reasons for stock repurchases include all of the following EXCEPT:

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.

Several factors will be considered by the board of directors and management as they consider the level of dividend payout.Some of these factors include:

Zero coupon bonds are not suited for tax-exempt accounts such as IRAs or pension funds.

A current yield on a corporate bond is calculated as:

Which of the following are not bond rating agencies?

___________________ is often called a hybrid security.

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 bonds have the lowest bondholder security risk?

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

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

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