Question 1

Several types of futures contracts are available to hedge against price changes in such items as gold, agricultural products, and so forth.

Accepted Answer

A) True 
 B)False

Question 2

T-bills are issued electronically with face values ranging from $1,000 to $5 million and with maturities of 4, 13, 26, or 52 weeks at the time of issue.

Accepted Answer

A) True 
 B)False

Question 3

Eurodebt is the term used to designate

Accepted Answer

A)  Debt sold by a foreign borrower that is denominated in the currency of the country where it is sold. 
B)  European bank loans that are denominated in the new Euro currency. 
C)  Debt that is denominated in a currency that is different than the currency of the country in which it is sold. 
D)  Equity instruments of one country that are sold in another country. 
E)  The certificates that represent ownership in foreign companies that are sold in the United States. 
A)  Debt sold by a foreign borrower that is denominated in the currency of the country where it is sold. 
B)  European bank loans that are denominated in the new Euro currency. 
C)  Debt that is denominated in a currency that is different than the currency of the country in which it is sold. 
D)  Equity instruments of one country that are sold in another country. 
E)  The certificates that represent ownership in foreign companies that are sold in the United States.

Question 4

Companies can issue different classes of common stock.Which of the following statements concerning stock classes is correct?

Accepted Answer

A)  All common stocks fall into one of three classes: A, B, and C. 
B)  Most firms have several classes of common stock outstanding. 
C)  All common stock, regardless of class, must have voting rights. 
D)  All common stock, regardless of class, must have the same dividend privileges. 
E)  None of the above statements is necessarily true. 
A)  All common stocks fall into one of three classes: A, B, and C. 
B)  Most firms have several classes of common stock outstanding. 
C)  All common stock, regardless of class, must have voting rights. 
D)  All common stock, regardless of class, must have the same dividend privileges. 
E)  None of the above statements is necessarily true.

Question 5

Current liabilities are liabilities that must be paid during the next twelve months.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is false?

Accepted Answer

A)  Any bond sold outside the country of the borrower is called an international bond. 
B)  Foreign bonds and Eurobonds are two important types of international bonds. 
C)  Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold. 
D)  The term Eurobond specifically applies to any foreign bonds denominated in U.S.currency. 
E)  None of the above. 
A)  Any bond sold outside the country of the borrower is called an international bond. 
B)  Foreign bonds and Eurobonds are two important types of international bonds. 
C)  Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold. 
D)  The term Eurobond specifically applies to any foreign bonds denominated in U.S.currency. 
E)  None of the above.

Question 7

Income bonds pay interest only when the amount of the interest is actually earned by the company.Thus, these securities cannot bankrupt a company and this makes them safer than regular bonds.

Accepted Answer

A) True 
 B)False

Question 8

Companies can have different types of preferred stock, such as Class A or Class B, with each type having different rights and privileges, but by law there can be only one class of common stock.

Accepted Answer

A) True 
 B)False

Question 9

As with common stock, preferred stock always has a par value, and also, like common stock, the par value is unimportant in the event of liquidation.However, the preferred stock dividend does depend on the par value and the dividend is usually stated as a percentage of par.

Accepted Answer

A) True 
 B)False

Question 10

A real asset is intangible, because it represents a promise that future cash flows will be paid to the owner.

Accepted Answer

A) True 
 B)False

Question 11

B & O Railroad's convertible debentures were issued at their $1,000 par value in 2008.At any time prior to maturity on February 1, 2028, a debenture holder can exchange a bond for 25 shares of common stock.What is the conversion price, Pc?

Accepted Answer

A)  $25 
B)  $1,000 
C)  $40 
D)  $1,025 
E)  $50 
A)  $25 
B)  $1,000 
C)  $40 
D)  $1,025 
E)  $50

Question 12

If a firm's stockholders are given the preemptive right, this means that a group of stockholders can call for a meeting to replace the management.Without the preemptive right, dissident stockholders would have to seek to oust management through a proxy fight.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is correct?

Accepted Answer

A)  One of the advantages of common stock financing is that there is no dilution of owners' equity, as there is with debt. 
B)  If the market price of a stock falls below its book value, the firm can be liquidated, with the book value proceeds then distributed to the shareholders.Thus, a stock's book value per share sets a floor below which the stock's market price is unlikely to fall. 
C)  The preemptive right gives a firm's preferred stockholders preference to assets over common stockholders in the event the firm is liquidated. 
D)  The steeper the demand curve for a firm's stock, the higher will be its flotation costs when it sells a new issue of common stock, other things held constant. 
E)  All of the above statements are false. 
A)  One of the advantages of common stock financing is that there is no dilution of owners' equity, as there is with debt. 
B)  If the market price of a stock falls below its book value, the firm can be liquidated, with the book value proceeds then distributed to the shareholders.Thus, a stock's book value per share sets a floor below which the stock's market price is unlikely to fall. 
C)  The preemptive right gives a firm's preferred stockholders preference to assets over common stockholders in the event the firm is liquidated. 
D)  The steeper the demand curve for a firm's stock, the higher will be its flotation costs when it sells a new issue of common stock, other things held constant. 
E)  All of the above statements are false.

Question 14

The income that an investor earns from municipal bonds is

Accepted Answer

A)  exempt from federal, state, and local taxes. 
B)  generally exempt from federal taxes, but most states impose local taxes. 
C)  generally exempt from state and local taxes, but taxed federally. 
D)  fully taxed by federal, state, and local authorities. 
A)  exempt from federal, state, and local taxes. 
B)  generally exempt from federal taxes, but most states impose local taxes. 
C)  generally exempt from state and local taxes, but taxed federally. 
D)  fully taxed by federal, state, and local authorities.

Question 15

Preferred stockholders have priority over common stockholders with respect to earnings.Dividends must be paid on preferred stock before they can be paid on common stock.In exchange for this priority to dividends, preferred stockholders give up their priority claims to common stockholders in the event of bankruptcy.

Accepted Answer

A) True 
 B)False

Question 16

Stock repurchases might be undertaken when

Accepted Answer

A)  the firm has excess cash but no "good" investment opportunities 
B)  the price of the firm's stock is undervalued 
C)  the firm wants to increase the proportion of its assets that are financed with debt 
D)  management wants to gain more ownership control of the firm-by repurchasing the stock of other investors 
E)  All of the above are reasons stock repurchases might be undertaken 
A)  the firm has excess cash but no "good" investment opportunities 
B)  the price of the firm's stock is undervalued 
C)  the firm wants to increase the proportion of its assets that are financed with debt 
D)  management wants to gain more ownership control of the firm-by repurchasing the stock of other investors 
E)  All of the above are reasons stock repurchases might be undertaken

Question 17

An option which gives the holder the right to sell a stock at a specified price at some time in the future is called a(n)

Accepted Answer

A)  Call option. 
B)  Put option. 
C)  Out-of-the-money option. 
D)  Naked option. 
E)  Covered option. 
A)  Call option. 
B)  Put option. 
C)  Out-of-the-money option. 
D)  Naked option. 
E)  Covered option.

Question 18

Typically, debentures have higher interest rates than mortgage bonds primarily because the mortgage bonds are backed by assets while debentures are unsecured.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is correct?

Accepted Answer

A)  A floating rate bond has an advantage over a fixed rate bond because its price is more stable and this makes a floating rate preferred bond more suitable as a liquid asset. 
B)  Convertible preferred stock would likely appeal more to income-oriented investors because they can convert their capital gains into bond income simply by converting their preferred stock into bonds. 
C)  One advantage of preferred stock from an issuer's perspective is that it has a lower after-tax cost than that of debt. 
D)  One principal advantage of preferred stock is that preferred stockholders have a legal enforceable right to their stock dividend, thus, preferred stock is generally less risky than unsecured debt. 
E)  Because of the 70% dividend exclusion rule for preferred stock dividends, the higher a company's tax bracket, the more likely it is to issue preferred stock. 
A)  A floating rate bond has an advantage over a fixed rate bond because its price is more stable and this makes a floating rate preferred bond more suitable as a liquid asset. 
B)  Convertible preferred stock would likely appeal more to income-oriented investors because they can convert their capital gains into bond income simply by converting their preferred stock into bonds. 
C)  One advantage of preferred stock from an issuer's perspective is that it has a lower after-tax cost than that of debt. 
D)  One principal advantage of preferred stock is that preferred stockholders have a legal enforceable right to their stock dividend, thus, preferred stock is generally less risky than unsecured debt. 
E)  Because of the 70% dividend exclusion rule for preferred stock dividends, the higher a company's tax bracket, the more likely it is to issue preferred stock.

Question 20

The interest rate paid on Eurodollar deposits depends on the particular bank's lending rate and on rates of return available on U.S.money market instruments.

Accepted Answer

A) True 
 B)False

Several types of futures contracts are available to hedge against price changes in such items as gold, agricultural products, and so forth.

T-bills are issued electronically with face values ranging from $1,000 to $5 million and with maturities of 4, 13, 26, or 52 weeks at the time of issue.

Eurodebt is the term used to designate

Companies can issue different classes of common stock.Which of the following statements concerning stock classes is correct?

Current liabilities are liabilities that must be paid during the next twelve months.

Which of the following statements is false?

Income bonds pay interest only when the amount of the interest is actually earned by the company.Thus, these securities cannot bankrupt a company and this makes them safer than regular bonds.

Companies can have different types of preferred stock, such as Class A or Class B, with each type having different rights and privileges, but by law there can be only one class of common stock.

As with common stock, preferred stock always has a par value, and also, like common stock, the par value is unimportant in the event of liquidation.However, the preferred stock dividend does depend on the par value and the dividend is usually stated as a percentage of par.

A real asset is intangible, because it represents a promise that future cash flows will be paid to the owner.

B & O Railroad's convertible debentures were issued at their $1,000 par value in 2008.At any time prior to maturity on February 1, 2028, a debenture holder can exchange a bond for 25 shares of common stock.What is the conversion price, P_c?

If a firm's stockholders are given the preemptive right, this means that a group of stockholders can call for a meeting to replace the management.Without the preemptive right, dissident stockholders would have to seek to oust management through a proxy fight.

Which of the following statements is correct?

The income that an investor earns from municipal bonds is

Stock repurchases might be undertaken when

An option which gives the holder the right to sell a stock at a specified price at some time in the future is called a(n)

Typically, debentures have higher interest rates than mortgage bonds primarily because the mortgage bonds are backed by assets while debentures are unsecured.

Which of the following statements is correct?

The interest rate paid on Eurodollar deposits depends on the particular bank's lending rate and on rates of return available on U.S.money market instruments.

An Overview of Finance

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Business Organizations and the Tax Environment

Analysis of Financial Statements

Financial Planning and Control

Time Value of Money

Valuation Concepts

Risk and Rates of Return

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment Concepts

Security Valuation and Selection

Filters

Exam 2: Financial Assets Instruments

Several types of futures contracts are available to hedge against price changes in such items as gold, agricultural products, and so forth.

T-bills are issued electronically with face values ranging from $1,000 to $5 million and with maturities of 4, 13, 26, or 52 weeks at the time of issue.

Eurodebt is the term used to designate

Companies can issue different classes of common stock.Which of the following statements concerning stock classes is correct?

Current liabilities are liabilities that must be paid during the next twelve months.

Which of the following statements is false?

Income bonds pay interest only when the amount of the interest is actually earned by the company.Thus, these securities cannot bankrupt a company and this makes them safer than regular bonds.

Companies can have different types of preferred stock, such as Class A or Class B, with each type having different rights and privileges, but by law there can be only one class of common stock.

As with common stock, preferred stock always has a par value, and also, like common stock, the par value is unimportant in the event of liquidation.However, the preferred stock dividend does depend on the par value and the dividend is usually stated as a percentage of par.

A real asset is intangible, because it represents a promise that future cash flows will be paid to the owner.

B & O Railroad's convertible debentures were issued at their $1,000 par value in 2008.At any time prior to maturity on February 1, 2028, a debenture holder can exchange a bond for 25 shares of common stock.What is the conversion price, Pc?

If a firm's stockholders are given the preemptive right, this means that a group of stockholders can call for a meeting to replace the management.Without the preemptive right, dissident stockholders would have to seek to oust management through a proxy fight.

Which of the following statements is correct?

The income that an investor earns from municipal bonds is

Stock repurchases might be undertaken when

An option which gives the holder the right to sell a stock at a specified price at some time in the future is called a(n)

Typically, debentures have higher interest rates than mortgage bonds primarily because the mortgage bonds are backed by assets while debentures are unsecured.

Which of the following statements is correct?

The interest rate paid on Eurodollar deposits depends on the particular bank's lending rate and on rates of return available on U.S.money market instruments.

An Overview of Finance

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Business Organizations and the Tax Environment

Analysis of Financial Statements

Financial Planning and Control

Time Value of Money

Valuation Concepts

Risk and Rates of Return

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment Concepts

Security Valuation and Selection

Filters

B & O Railroad's convertible debentures were issued at their $1,000 par value in 2008.At any time prior to maturity on February 1, 2028, a debenture holder can exchange a bond for 25 shares of common stock.What is the conversion price, P_c?