Which of the following types of bonds may the issuer buy back before maturity?
A. Callable bond
B. Putable bond
C. Convertible bond
D. Zero-coupon bondMoody's has developed a corporate bond default-risk rating system using capital and lowercase letters and numbers. Below are several examples of Moody's ratings. Which answer choice lists a collection of ratings for "high credit investment grade" bonds?
A. Baa1, A1, A3
B. Ba1, Baa2, Baa3
C. Aa2, Aa3, A1
D. Caa, Ca, CWhich of the following is NOT a category for rating classifications of bonds?
A. Investment grade bonds
B. American grade bonds
C. Extremely speculative grade bonds
D. Speculative grade bond
As the rating of a bond increases (for example, from A, to AA, to AAA), it generally means that:
A. the credit rating increases, the default risk increases, and the required rate of return decreases.
B. the credit rating increases, the default risk decreases, and the required rate of return increases.
C. the credit rating increases, the default risk decreases, and the required rate of return decreases.
D. the credit rating decreases, the default risk decreases, and the required rate of return decreases.
Which of the following is NOT a category for rating classifications of bonds?
A. Investment grade bonds
B. American grade bonds
C. Extremely speculative grade bonds
D. Speculative grade bond
As the rating of a bond increases (for example, from A, to AA, to AAA), it generally means that:
A. the credit rating increases, the default risk increases, and the required rate of return decreases.
B. the credit rating increases, the default risk decreases, and the required rate of return increases.
C. the credit rating increases, the default risk decreases, and the required rate of return decreases.
D. the credit rating decreases, the default risk decreases, and the required rate of return decreases.
The __________ is the return the bondholder receives on the bond if held to maturity.
A. coupon
B. coupon rate
C. yield to maturity
D. par rate
Blackburn Inc. has issued 30-year, $1,000 face value, 10% annual coupon bonds, with a yield to maturity of 9%. The annual interest payment for the bond is:
The __________ is the annual coupon payment divided by the current price of the bond, and is not always an accurate indicator.
A. current yield
B. yield to maturity
C. bond discount rate
D. coupon rate
A. $100.
B. $90.
C. $50.
D. $45.
When real property is used as collateral for a bond, it is termed a/an:
When a company is in financial difficulty and cannot fully pay all of its creditors, the first lenders to be paid are the:
A. stockholders.
B. sinking fund holders.
C. junior debtholders.
D. senior debtholders.
A. debenture.
B. mortgaged security.
C. indenture.
D. senior bond.
When the __________ is less than the yield to maturity, the bond sells at a/the __________ the par value.
A. coupon rate; premium over
B. coupon rate; discount to
C. time to maturity; discount to
D. time to maturity; same price as
Most U.S. corporate and government bonds choose to make __________ coupon payments.
A. annual
B. semiannual
C. quarterly
D. monthly
The __________ is the regular interest payment of the bond.
A. dividend
B. par
C. coupon rate
D. coupon
Which of the following types of bonds, as characterized by a feature, by definition has two coupon payments per year?
A. Consol
B. Semiannual
C. Zero-coupon
D. Putable
Zero-coupon U.S. Government bonds are known as:
A. STRIPS.
B. muni-bonds.
C. Uncle Sam's Empty Pockets.
D. BLANKS.
The __________ is the expiration date of the bond.
The four steps to determining the price of a bond are:
A. determine the amount and timing of the present cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and add the PVs of the principal and coupons.
B. determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the future value of the lump-sum principal and the annuity stream of coupons, and add the FVs of the principal and coupons.
C. determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and multiply the PVs of the principal and coupons.
D. determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the present
value of the lump-sum principal and the annuity stream of coupons, and add the PVs of the principal and coup ons.
A. future value
B. yield to maturity
C. maturity date
D. coupon
Which of the following statements about the relationship between yield to maturity and bond prices is false?
A. When the yield to maturity and coupon rate are the same, the bond is called a par value bond.
B. A bond selling at a premium means that the coupon rate is greater than the yield to maturity.
C. When interest rates go up, bond prices go up.
D. A bond selling at a discount means that the coupon rate is less than the yield to maturity.
From 1980 to 2006, the default risk premium differential between Aaa-rated bonds and Aa-rated bonds has averaged between:
A. 50 to 150 basis points.
B. 90 to 190 basis points.
C. 120 to 220 basis points.
D. 250 to 350 basis points.
Junk" bonds are a street name for __________ grade bonds.
A. investment
B. speculative
C. extremely speculative
D. speculative and investment
The value of a financial asset is the:
A. present value of all of the future cash flows that will be received.
B. sum of all previous cash flows received.
C. future value of just the capital gains but not the dividends.
D. present value of just the capital gains but not the dividends.
__________ refers to how quickly information is reflected in the available prices for trading.
A. Market efficiency
B. Mechanical efficiency
C. Informational efficiency
D. Operational efficiency
There are two typical ways to alter the one vote/one share standard. One way is:
A. to have companies buy back nonvoting common stock.
B. to not have companies pay dividends.
C. to have companies issue classes of stock whereby one or more classes have super voting rights.
D. to not have companies issue bonds. If we know the dividend stream, the future price of the stock, the future selling date of the stock, and the required return, we can price stocks just as we priced:
A. annuities.
B. perpetuities.
C. bonds.
D. preferred stocks.
Dividend models suggest that the value of a financial asset is determined by the __________ the owner is entitled to while holding the asset.
A. present cash flows
B. past cash flows
C. future cash flows
D. past and present cash flows
Which of the statements below is FALSE?
The __________ are quite dynamic in terms of processing trades and incorporating information in prices and thus are considered very efficient markets.
A. domestic bond markets
B. equity markets
C. fixed income markets
D. foreign bond markets
A. The profits for common stock owners come before payment to employees, suppliers, government, and creditors.
B. Shareholders elect the board of directors, which ultimately selects the management team that runs the day-to-day operations of the company.
C. Stock is a major financing source for public companies.
D. Common stock's ownership claim on the assets and cash flow of a company is often referred to as a residual claim.
Which of the statements below is FALSE? Answer: D
A. The dividend model requires that a firm have a cash dividend history and that the dividend history shows a constant dividend or a positive growth in dividends.
B. A problem with using the dividend growth model is that it appears to underestimate the expected return for some stocks.
C. A problem with using the dividend growth model is that it produces a negative expected return whenever a firm cuts its dividends.
D. A problem with using the dividend growth model is that it appears to underestimate the expected return for all stocks.
You want to invest in a stock that pays $3.50 annual cash dividends for the next six years. At the end of the six years, you will sell the stock for $22.50. If you want to earn 12.5% on this investment, what is a fair price for this stock if you buy it today?
A. About $25.94
B. About $25.29
C. About $12.45
D. About $14.25
You want to invest in a stock that pays $6 annual cash dividends for the next five years. At the end of the five years, you will sell the stock for $30. If you want to earn 10% on this investment, what is a fair price for this stock if you buy it today?
A. $41.37
B. $40.37
C. $22.75
D. $18.63
Which of the statements below is FALSE?
A. If an investor purchases 20% of the initial issue of the company, the investor then owns 20% of the company, given the one vote/one share norm.
B. After an initial offering, the company can sell more shares to the public at a later date. If the investor who originally purchased 20% does not purchase 20% of the subsequent issue, his or her ownership is diluted below 20%.
C. A preemptive right enables one to maintain one's proportional level of ownership.
D. A preemptive right is never particularly valuable to shareholders with large ownership percentages.
__________ has to do with the speed and accuracy of processing a buy or sell order at the best available price.
A. Market efficiency
B. Mechanical efficiency
C. Informational efficiency
D. Operational efficiency Strong-form efficient markets theory proclaims that:
A. one can chart historical stock prices to predict future stock prices such that you can identify mispriced stocks and routinely outperform the market.
B. one can exploit publicly available news or financial statement information to routinely outperform the market.
C. current prices reflect the price and volume history of the stock, all publicly available information, and all private information.
A. The dealers of stock are not allowed to make money on the difference between what they buy the stock for and what they sell it for.
B. A bear market is a prolonged rising market, one in which stock prices in general are increasing.
C. The ask price is the price at which a dealer is willing to sell, and the bid price is the price at which a dealer is willing to buy.
D. A bull market is a prolonged declining market, one in which stock prices in general are decreasing.
Which of the statements below is true?
A. The profits for common stock owners come after payment to the employees, suppliers, government, and creditors.
B. Shareholders elect the board of directors, which ultimately selects the bondholder team that runs the day-to-day operations of the company.
C. Stock is a minor financing source for public companies.
D. Stockholders are paid before debtholders (bondholders) if a company fails.
D. current prices reflect the price and volume history of the stock, all publicly available information, but no private information.
A typical practice of many companies is to distribute part of the earnings to shareholders through:
A. quarterly stock splits.
B. quarterly cash dividends.
C. semiannual cash dividends.
D. annual stock dividends.
You can think of the __________ as the "used stock" market because these shares have been owned or "used" previously.
A. secondary market
B. primary market
C. NYSE market
D. initial public offering market
The dividend model requires that a firm has a cash dividend history and that the dividend history shows a:
A. constant dividend or a constant growth in price where constant growth can be either positive or negative.
B. positive dividend or a negative growth in dividends.
C. constant dividend or a positive growth in dividends.
D. constant price or a positive growth in dividends.
The hiring process for an investment banker can happen in two ways. Which of the below is one of these ways?
A. Randomly choose an investment banking firm from a list of underwriting firms.
B. Pick a desirable investment banking firm, usually basing the choice on the reputation and history of the banker in its particular industry.
C. Have the primary government regulator of your industry choose the best investment banking firm for your company.
D. Solicit advice from a government agency and use it as your primary guide in choosing an investment banker. __________ means that the percentage increase in the dividend is the same each year.
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