Question 1

In general, research has shown that the performance of tracking stocks has exceeded that of parent company stocks.
Not in chapter

Accepted Answer

A) True 
 B)False

Question 2

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%, which of the following is closest to how much should Mary be willing to pay for the bond?

Accepted Answer

A) $902 
B) $925 
C) $1000 
D) none of the above$828 
A) $902 
B) $925 
C) $1000 
D) none of the above$828

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

The par value of a preferred stock is meaningful in that it is often used to determine the fixed annual dividend.

Accepted Answer

A) True 
 B)False

Question 5

The value of a share of stock, currently selling for $100, after it has a 2 for 1 split is:

Accepted Answer

A) $50 
B) $150 
C) $200 
D) $250 
E) none of the above 
A) $50 
B) $150 
C) $200 
D) $250 
E) none of the above

Question 6

The claims of collateralized bondholders are junior to the claims of debenture holders.

Accepted Answer

A) True 
 B)False

Question 7

The constant dividend growth model assumes:

Accepted Answer

A) a constant annual dividend 
B) a constant dividend growth rate for no more than the first 10 years 
C) that the discount rate must be greater than the dividend growth rate 
D) two of above are true assumptions 
A) a constant annual dividend 
B) a constant dividend growth rate for no more than the first 10 years 
C) that the discount rate must be greater than the dividend growth rate 
D) two of above are true assumptions

Question 8

The last dividend on GTE stock was $4, and the expected growth rate is 10%.If you require a rate of return of 20%, what is the highest price you should be willing to pay for GTE stock?

Accepted Answer

A) $40 
B) $42.50 
C) $44 
D) none of the above 
A) $40 
B) $42.50 
C) $44 
D) none of the above

Question 9

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 10

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 11

Many putable bonds possess a call deferment period which is a specified period of time after the issue during which the bonds cannot be called.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) purchasing power risk 
B) inflation rate risk 
C) corruption risk 
D) two of the above 
E) none of the above 
A) purchasing power risk 
B) inflation rate risk 
C) corruption risk 
D) two of the above 
E) none of the above

Question 13

The _____________ policy states that dividends will vary based upon how much excess funds the firm has from year-to-year, whereas under a ________________ policy the firm pays a constant percentage of earnings as dividends, so as earnings rise and fall so does the dollar amount of dividends.

Accepted Answer

A) constant payout ratio, regular dividend 
B) regular dividend, constant payout ratio 
C) constant dividend, variable payout ratio 
D) variable payout ratio, constant dividend 
E) none of the above 
A) constant payout ratio, regular dividend 
B) regular dividend, constant payout ratio 
C) constant dividend, variable payout ratio 
D) variable payout ratio, constant dividend 
E) none of the above

Question 14

Which of the following bonds has the greatest interest rate risk?

Accepted Answer

A) a 5 year, 10% coupon bond 
B) a 10 year, 10% coupon bond 
C) a 5 year, 5% coupon bond 
D) a 10 year, 5% coupon bond 
A) a 5 year, 10% coupon bond 
B) a 10 year, 10% coupon bond 
C) a 5 year, 5% coupon bond 
D) a 10 year, 5% coupon bond

Question 15

19100.Most bonds pay coupon interest

Accepted Answer

A) monthly 
B) quarterly 
C) semi-annually 
D) annually 
E) none of the above 
A) monthly 
B) quarterly 
C) semi-annually 
D) annually 
E) none of the above

Question 16

Which of the following is not a component of the Gordon (or constant dividend growth rate) model for valuing stocks?

Accepted Answer

A) a discount rate that reflects the riskiness of the stock 
B) a constant dividend growth rate 
C) next year's expected earnings 
D) next year's expected dividend 
A) a discount rate that reflects the riskiness of the stock 
B) a constant dividend growth rate 
C) next year's expected earnings 
D) next year's expected dividend

Question 17

A bond's value is the same as its principal amount when the coupon rate is:

Accepted Answer

A) the same as the required rate of return 
B) higher than the required rate of return 
C) lower than the required rate of return 
D) lower than the inflation rate 
A) the same as the required rate of return 
B) higher than the required rate of return 
C) lower than the required rate of return 
D) lower than the inflation rate

Question 18

Preferred stock can have which of the following characteristics _______________? It can be:

Accepted Answer

A) cumulative 
B) non-cumulative 
C) convertible 
D) all of the above 
A) cumulative 
B) non-cumulative 
C) convertible 
D) all of the above

Question 19

Corporate bonds are not as risky as common stocks; as a result, corporate bonds always earn lower returns to investors than do common stock.

Accepted Answer

A) True 
 B)False

Question 20

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

In general, research has shown that the performance of tracking stocks has exceeded that of parent company stocks. Not in chapter

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%, which of the following is closest to how much should Mary be willing to pay for the bond?

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

The par value of a preferred stock is meaningful in that it is often used to determine the fixed annual dividend.

The value of a share of stock, currently selling for $100, after it has a 2 for 1 split is:

The claims of collateralized bondholders are junior to the claims of debenture holders.

The constant dividend growth model assumes:

The last dividend on GTE stock was $4, and the expected growth rate is 10%.If you require a rate of return of 20%, what is the highest price you should be willing to pay for GTE stock?

Private placements:

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

Many putable bonds possess a call deferment period which is a specified period of time after the issue during which the bonds cannot be called.

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

The _ policy states that dividends will vary based upon how much excess funds the firm has from year-to-year, whereas under a ____ policy the firm pays a constant percentage of earnings as dividends, so as earnings rise and fall so does the dollar amount of dividends.

Which of the following bonds has the greatest interest rate risk?

19100.Most bonds pay coupon interest

Which of the following is not a component of the Gordon (or constant dividend growth rate) model for valuing stocks?

A bond's value is the same as its principal amount when the coupon rate is:

Preferred stock can have which of the following characteristics _______________? It can be:

Corporate bonds are not as risky as common stocks; as a result, corporate bonds always earn lower returns to investors than do common stock.

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:

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

In general, research has shown that the performance of tracking stocks has exceeded that of parent company stocks. Not in chapter

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%, which of the following is closest to how much should Mary be willing to pay for the bond?

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

The par value of a preferred stock is meaningful in that it is often used to determine the fixed annual dividend.

The value of a share of stock, currently selling for $100, after it has a 2 for 1 split is:

The claims of collateralized bondholders are junior to the claims of debenture holders.

The constant dividend growth model assumes:

The last dividend on GTE stock was $4, and the expected growth rate is 10%.If you require a rate of return of 20%, what is the highest price you should be willing to pay for GTE stock?

Private placements:

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

Many putable bonds possess a call deferment period which is a specified period of time after the issue during which the bonds cannot be called.

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

The _____________ policy states that dividends will vary based upon how much excess funds the firm has from year-to-year, whereas under a ________________ policy the firm pays a constant percentage of earnings as dividends, so as earnings rise and fall so does the dollar amount of dividends.

Which of the following bonds has the greatest interest rate risk?

19100.Most bonds pay coupon interest

Which of the following is not a component of the Gordon (or constant dividend growth rate) model for valuing stocks?

A bond's value is the same as its principal amount when the coupon rate is:

Preferred stock can have which of the following characteristics _______________? It can be:

Corporate bonds are not as risky as common stocks; as a result, corporate bonds always earn lower returns to investors than do common stock.

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:

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

The _ policy states that dividends will vary based upon how much excess funds the firm has from year-to-year, whereas under a ____ policy the firm pays a constant percentage of earnings as dividends, so as earnings rise and fall so does the dollar amount of dividends.