Exam 8: Valuation of Financial Securities

Over the period of 1948 to 1999, an investment of $1 in the TSX 300 composite index grew to$357.34. The annual compounded return earned by investors would have been

A common stock currently has a beta of 1.3, the risk-free rate is an annual rate of 6 percent, and the market return is an annual rate of 12 percent. The stock is expected to generate per-share benefitsof $5.20 during the coming period. A toxic spill results in a lawsuit and potential fines, and the beta of the stock jumps to 1.6. The new equilibrium price of the stock_________ .

The ABC company has two bonds outstanding that are the same except for the maturity date. BondD matures in 4 years, while Bond E matures in 7 years. If the required return changes by 15 percent

A preferred stockholder is sometimes referred to as a residual owner, since in essence he or she receives what is left-the residual-after all other claims on the firm's income and assets have been satisfied.

Standard debt provisions specify certain criteria of satisfactory record keeping and reporting, tax payment, and general business maintenance on the part of the lending firm.

Common stock in a business that was purchased for $100,000 and has a discounted cash flow value of $340,000 would be worth __________ per share in an efficient market; there are 100,000 shares outstanding.

Efficient market hypothesis is the theory describing the behavior of an assumed "perfect" market inwhich securities are typically in equilibrium, security prices fully reflect all public informationavailable and react swiftly to new information, and, because stocks are fairly priced, investors need not waste time looking for mispriced securities.

Hewitt Packing Company has an issue of $1,000 par value bonds with a 14 percent annual couponinterest rate. The issue has ten years remaining to the maturity date. Bonds of similar risk arecurrently selling to yield a 12 percent rate of return. The current value of each Hewitt bond is __________.

Commercial paper is a short-term fund on deposit at commercial banks having variable yields based on size, maturity, and prevailing money market conditions.

Interest rate risk and the time to maturity have a relationship that is best characterized as

The theory that explains only the tendency for the yield curve to be upward sloping is

A financial supermarket is an institution at which a customer can obtain a full array of financial services, such as checking, savings, brokerage, insurance, retirement and estate planning.

A foreign bond is a bond issued in a host country's financial market, in the host country's currency, by a foreign borrower.

_________of all future cash flows an asset is expected to provide over a relevant time period is the value of the asset.

The money market is a financial relationship created by a number of institutions and arrangements that allows suppliers and demanders of long-term funds to make transactions.

A firm has experienced a constant annual rate of dividend growth of 9 percent on its common stock and expects the dividend per share in the coming year to be $2.70. The firm can earn 12 percent on similar risk involvements. The value of the firm's common stock is _________ .

According to the efficient market theory,

A firm has a balance sheet common shares account with a value of $540,000. The firm has 40,000common shares outstanding. If the preferred shares account has a value of $250,000, the commonstock originally sold for

The value of an asset depends on the historical cash flow(s) up to the present time.

A primary market is a financial market in which pre-owned securities are traded.