Exam 12: Investing in Stocks and Bonds

Assume you're contemplating the purchase of a $1,000,5% annual coupon income bond with 10 years remaining to maturity and that the bond currently is trading at $925.The approximate yield to maturity on this bond will be

Bond prices are impacted by both the direction and magnitude of market interest rate changes.

Corporate ownership is evidenced by

The minimum rate of return you would like to receive in compensation for the amount of risk you have assumed is the

Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement. -Treasury securities are yielding 6%.A growth stock with an expected return of 8% [would | would not] be considered a viable investment candidate by most investors.

Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement. -More speculative investors would prefer stocks with [higher | lower] betas.

A company has a beta of 1.0; if the market goes down by 8%,the value of the company's stock will likely

The risk-free rate of return is often measured by the return on U.S.Treasury bills.

A bond with a yield to maturity that equaled or exceeded an investor's desired rate of return is considered an attractive investment.

Purchasing power risk is of most concern during economic recession.

You received a cash dividend from your stock investment this year.This is taxable income.

Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement. -A growth stock would be expected to pay a [high | low] level of dividends.

To the issuing company,bonds are liabilities.

When a bond is sold between coupon payment dates,the buyer pays the seller for the accrued interest.

Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement. -If the value of the underlying stock dropped drastically,the owner of a convertible bond [would still receive the face value of the bond | would receive the market value of the stock] at maturity.

Low price/earnings ratios indicate limited or low investor confidence.

Assume you're contemplating the purchase of a $1,000,6% annual coupon income bond with 5 years remaining to maturity and that the bond currently is trading at $950.The approximate yield to maturity on this bond will be

Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement. -The [lower | higher] a bond's rating,the more likely the issuer will default.

Common stockholders are entitled to a prorated share of a company's earnings only after all of the firm's other obligations have been met.

Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement. -The safest bond you could purchase would be a [corporate | Treasury] bond.