Question 1

Dollar-denominated bonds sold outside the United States.

Accepted Answer

A)  Bearer bonds 
B)  Global bonds 
C)  Eurodollar bonds 
D)  Yankee bonds 
A)  Bearer bonds 
B)  Global bonds 
C)  Eurodollar bonds 
D)  Yankee bonds C

Question 2

With bond covenants, a bank represents the bondholders to ensure the bond issuer respects the indenture's provisions.

Accepted Answer

A) True 
 B)False  False

Question 3

Zero-coupon bonds pay absolutely no interest.

Accepted Answer

A) True 
 B)False  True

Question 4

U.S. firms are not allowed to borrow funds overseas.

Accepted Answer

A) True 
 B)False

Question 5

Consolidated Edison has just paid an annual dividend of $3 per share. If the expected growth rate for Con Ed is 10%, and your required rate of return is 16%, how much are you willing to pay for this stock?

Accepted Answer

A)  $55 
B)  $50 
C)  $46.50 
D)  $45 
A)  $55 
B)  $50 
C)  $46.50 
D)  $45

Question 6

An individual or organization that represents the bondholders to ensure the indenture's provisions are respected by the bond issuer is called a(n):

Accepted Answer

A)  trust indenture 
B)  trustee 
C)  investment banker 
D)  trust organization 
A)  trust indenture 
B)  trustee 
C)  investment banker 
D)  trust organization

Question 7

A sinking fund protects the bond purchaser if the price of the bond drops prior to maturity.

Accepted Answer

A) True 
 B)False

Question 8

Mary wants to purchase a 20-year bond that has a par value of $1,000 and makes semiannual interest payments of $40. If her required yield to maturity is 10%, which of the following is closest to how much should Mary be willing to pay for the bond?

Accepted Answer

A)  $902 
B)  $925 
C)  $1000 
D)  $828 
A)  $902 
B)  $925 
C)  $1000 
D)  $828

Question 9

The value of a share of stock currently selling for $100 after it has a 5 for 1 split is:

Accepted Answer

A)  $20 
B)  $40 
C)  $500 
D)  $1000 
A)  $20 
B)  $40 
C)  $500 
D)  $1000

Question 10

The United States government rates bonds.

Accepted Answer

A) True 
 B)False

Question 11

The risk of having a bond issuer request the bond back from the bondholder thus forcing the bondholder to reinvest the proceeds at a lower interest rate is called:

Accepted Answer

A)  call risk 
B)  reinvestment rate risk 
C)  interest rate risk 
D)  indenture risk 
A)  call risk 
B)  reinvestment rate risk 
C)  interest rate risk 
D)  indenture risk

Question 12

The effect of ______________ and _______________ on the value of a firm's stock and the wealth of shareholders is zero.

Accepted Answer

A)  stock dividends, stock splits 
B)  cash dividends, stock dividends 
C)  cash dividends, stock splits 
D)  bond dividends, stock splits 
A)  stock dividends, stock splits 
B)  cash dividends, stock dividends 
C)  cash dividends, stock splits 
D)  bond dividends, stock splits

Question 13

Participating preferred stock allows preferred shareholders to participate with common shareholders when larger dividend payouts are available.

Accepted Answer

A) True 
 B)False

Question 14

Most bonds currently issued in the United States today are bearer bonds.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following bonds has the greatest interest rate risk?

Accepted Answer

A)  a 5 year, 10 percent coupon bond 
B)  a 10 year, 10 percent coupon bond 
C)  a 5 year, 5 percent coupon bond 
D)  a 10 year, 5 percent coupon bond 
A)  a 5 year, 10 percent coupon bond 
B)  a 10 year, 10 percent coupon bond 
C)  a 5 year, 5 percent coupon bond 
D)  a 10 year, 5 percent coupon bond

Question 16

Bondholders have priority claims over equity holders to a firm's assets and cash flows.

Accepted Answer

A) True 
 B)False

Question 17

When the market interest rate is below the coupon rate for a particular quality of bond, the bond will be priced:

Accepted Answer

A)  below its par value 
B)  at its par value 
C)  above its par value 
D)  The bond price cannot be determined 
A)  below its par value 
B)  at its par value 
C)  above its par value 
D)  The bond price cannot be determined

Question 18

A firm's stock is expected to pay a $2 annual dividend next year, and the current $50 stock price is expected to rise to $53 over the next year. What is the expected return?

Accepted Answer

A)  8% 
B)  10% 
C)  12% 
D)  15% 
A)  8% 
B)  10% 
C)  12% 
D)  15%

Question 19

A (n) _____________ gives the bondholder a claim to specific assets (identified through serial numbers) such as railroad cars or airplanes.

Accepted Answer

A)  first mortgage bond 
B)  equipment trust certificate 
C)  inventory bond 
D)  collateralized bond 
A)  first mortgage bond 
B)  equipment trust certificate 
C)  inventory bond 
D)  collateralized bond

Question 20

Coupon rates on newly-issued highly rated bonds are lower than those on lower-rated newly-issued bonds because of the risk-expected return trade-off.

Accepted Answer

A) True 
 B)False

Dollar-denominated bonds sold outside the United States.

With bond covenants, a bank represents the bondholders to ensure the bond issuer respects the indenture's provisions.

Zero-coupon bonds pay absolutely no interest.

U.S. firms are not allowed to borrow funds overseas.

Consolidated Edison has just paid an annual dividend of $3 per share. If the expected growth rate for Con Ed is 10%, and your required rate of return is 16%, how much are you willing to pay for this stock?

An individual or organization that represents the bondholders to ensure the indenture's provisions are respected by the bond issuer is called a(n):

A sinking fund protects the bond purchaser if the price of the bond drops prior to maturity.

Mary wants to purchase a 20-year bond that has a par value of $1,000 and makes semiannual interest payments of $40. If her required yield to maturity is 10%, which of the following is closest to how much should Mary be willing to pay for the bond?

The value of a share of stock currently selling for $100 after it has a 5 for 1 split is:

The United States government rates bonds.

The risk of having a bond issuer request the bond back from the bondholder thus forcing the bondholder to reinvest the proceeds at a lower interest rate is called:

The effect of and _ on the value of a firm's stock and the wealth of shareholders is zero.

Participating preferred stock allows preferred shareholders to participate with common shareholders when larger dividend payouts are available.

Most bonds currently issued in the United States today are bearer bonds.

Which of the following bonds has the greatest interest rate risk?

Bondholders have priority claims over equity holders to a firm's assets and cash flows.

When the market interest rate is below the coupon rate for a particular quality of bond, the bond will be priced:

A firm's stock is expected to pay a $2 annual dividend next year, and the current $50 stock price is expected to rise to $53 over the next year. What is the expected return?

A (n) _____________ gives the bondholder a claim to specific assets (identified through serial numbers) such as railroad cars or airplanes.

Coupon rates on newly-issued highly rated bonds are lower than those on lower-rated newly-issued bonds because of the risk-expected return trade-off.

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters

Exam 10: Bonds and Stocks: Characteristics and Valuations

Dollar-denominated bonds sold outside the United States.

With bond covenants, a bank represents the bondholders to ensure the bond issuer respects the indenture's provisions.

Zero-coupon bonds pay absolutely no interest.

U.S. firms are not allowed to borrow funds overseas.

Consolidated Edison has just paid an annual dividend of $3 per share. If the expected growth rate for Con Ed is 10%, and your required rate of return is 16%, how much are you willing to pay for this stock?

An individual or organization that represents the bondholders to ensure the indenture's provisions are respected by the bond issuer is called a(n):

A sinking fund protects the bond purchaser if the price of the bond drops prior to maturity.

Mary wants to purchase a 20-year bond that has a par value of $1,000 and makes semiannual interest payments of $40. If her required yield to maturity is 10%, which of the following is closest to how much should Mary be willing to pay for the bond?

The value of a share of stock currently selling for $100 after it has a 5 for 1 split is:

The United States government rates bonds.

The risk of having a bond issuer request the bond back from the bondholder thus forcing the bondholder to reinvest the proceeds at a lower interest rate is called:

The effect of ______________ and _______________ on the value of a firm's stock and the wealth of shareholders is zero.

Participating preferred stock allows preferred shareholders to participate with common shareholders when larger dividend payouts are available.

Most bonds currently issued in the United States today are bearer bonds.

Which of the following bonds has the greatest interest rate risk?

Bondholders have priority claims over equity holders to a firm's assets and cash flows.

When the market interest rate is below the coupon rate for a particular quality of bond, the bond will be priced:

A firm's stock is expected to pay a $2 annual dividend next year, and the current $50 stock price is expected to rise to $53 over the next year. What is the expected return?

A (n) _____________ gives the bondholder a claim to specific assets (identified through serial numbers) such as railroad cars or airplanes.

Coupon rates on newly-issued highly rated bonds are lower than those on lower-rated newly-issued bonds because of the risk-expected return trade-off.

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters

The effect of and _ on the value of a firm's stock and the wealth of shareholders is zero.