Exam 2: Financial Assets Instruments

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

Although common stock represents a riskier investment to an individual than do bonds, in the sense of exposing the firm to the risk of bankruptcy, bonds represent a riskier method of financing to a corporation than does common stock.

Which of the following statements is false?

Pure options are instruments that are

A publicly owned corporation is simply a company whose shares are held by the investing public, which may include other corporations and institutions.

Which of the following are generally considered advantages of term loans over publicly issued bonds?

Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?

Which of the following is NOT a type of debt?

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 current market price of Dell's stock is $42.50.If the price of Dell increases to $50 and the investor decides to exercise it, what will be the gain or loss that results from the exercise? Ignore taxes and commissions.

Restrictive covenants are designed so as to protect both the bondholder and the issuer even though they may constrain the actions of the firm's managers.Such covenants are contained in the bond's indenture.

Which of the following statements is correct?

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

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 $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.

Many bond indentures allow the company to acquire bonds for a sinking fund either by purchasing bonds in the market or by a lottery administered by the trustee for the purchase of a percentage of the issue through a call at face value.

A French firm is buying $1,000,000 of optical cable from a firm in the United States.The French firm will pay for the cable in thirty days.To protect itself from changes in the exchange rate between the Euro and dollar, the French firm enters into a futures contract to purchase $1,000,000 at a price of $1.25/€.How many Euros will it cost the French firm to purchase $1,000,000 using the futures contract?

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

A financial asset is tangible; it is a physically observable and touchable item.

One of the disadvantages to a firm in issuing zero coupon bonds is that the tax shield associated with the bonds' appreciation cannot be claimed until the bond matures.

A call provision gives bondholders the right to demand, or "call for," repayment of a bond.Typically, calls are exercised if interest rates rise, because when rates rise the bondholder can get the principal amount back and reinvest it elsewhere at higher rates.

Convertible securities are bonds or preferred stocks that, under specified terms and conditions, can be exchanged for common stock at the option of the holder.