finance data bank

26. Unsystematic risk is the relevant portion of an asset's risk attributable to market factors that affect all firms.

27. The required return on an asset is an increasing function of its nondiversifiable risk.

28. The empirical measurement of beta can be approached by using least-squares regression analysis to find the regression coefficient (bj) in the equation for the slope of the "characteristic line."

29. Nico owns 100 shares of stock X which has a price of $12 per share and 200 shares of stock Y which has a price of $3 per share. What is the proportion of Nico's portfolio invested in stock X?

A) 77%

B) 67%

C) 50%

D) 33%

30. Nico wants to invest all of his money in just two assets: the risk free asset and the market portfolio. What is Nico's portfolio beta if he invests a quarter of his money in the market portfolio and the rest in the risk free asset?

A) 0.00

B) 0.25

C) 0.75

D) 1.00

31. What is the expected market return if the expected return on asset X is 20 percent, its beta is 1.5, and the risk free rate is 5 percent?

A) 5.0%

B) 7.5%

C) 15.0%

D) 22.5%

32. The term structure of interest rates is the graphical presentation of the relationship between the annual rate of interest earned on a security purchased on a given day and held to maturity and the remaining time to maturity.

33. An inverted yield curve is a downward-sloping yield curve that indicates generally cheaper long-term borrowing costs than short-term borrowing costs.

34. A yield curve that reflects relatively similar borrowing costs for both short- and long-term loans is called a normal yield curve.

35. Upward-sloping yield curves result from higher future inflation expectations, lender preferences for shorter maturity loans, and greater supply of short-term as opposed to long-term loans relative to their respective demand.

36. The risk free rate of interest is equal to the sum of the real rate of interest plus an inflation risk premium.

37. An inverted yield curve is upward-sloping and indicates generally cheaper long-term borrowing costs than short-term borrowing costs.

38. A yield curve that reflects relatively similar borrowing costs for both short-term and long-term loans is called

A) normal yield curve.

B) inverted yield curve.

C) flat yield curve.

D) none of the above.

39. The theory suggesting that for any given issuer, long-term interest rates tends to be higher than short-term rates is called

period where lower future inflation is expected would most likely be

A) upward-sloping.

B) flat.

C) downward-sloping.

D) linear.

42. In a bond indenture, the term security interest refers to the fact that most firms that issue bonds are required to establish sinking fund provisions to protect bondholders.

43. In a bond indenture, the term security interest refers to collateral pledged against the bond.

44. The length of the maturity on a bond offering affects its cost. In general, the longer the maturity, the higher the cost.

45. The length of the maturity on a bond offering affects its cost. In general, the longer the maturity, the lower the cost.

46. All of the following are examples of long-term debt EXCEPT

A) bonds.

B) lines of credit.

C) term loans.

D) debentures.

47. The legal contract setting forth the terms and provisions of a corporate bond is a(n)

A) indenture.

B) debenture.

C) loan document.

D) promissory note.

48. ________ is a stipulation in a long-term debt agreement that subsequent or less important creditors agree to wait until all claims of the ________ are satisfied before having their claims satisfied.

A) Subordination; common stockholders

B) Subordination; senior debt

C) The combination restriction; senior debt

D) The senior debt; common stockholders

49. Violation of any standard or restrictive provision by the borrower gives the lender the right to do all of the following EXCEPT

A) alter the terms of the initial agreement, for example accelerate the maturity date.

B) demand immediate repayment.

C) increase the interest rate.

D) seize the loan collateral.

50. To compensate for the uncertainty of future interest rates and the fact that the longer the term of a loan the higher the probability that the borrower will default, the lender typically

A) charges a higher interest rate on long-term loans.

B) reserves the right to change the terms of the loan at any time.

C) includes excessively restrictive debt provisions.