Question 1

Real assets are claims against the income or assets of individuals, businesses, and governments.

Accepted Answer

A) True 
 B)False  False

Question 2

The following factors may affect a bond rating:

Accepted Answer

A) security provisions 
B) indenture provisions 
C) expected trends of industry operations 
D) all the above 
E) none of the above 
A) security provisions 
B) indenture provisions 
C) expected trends of industry operations 
D) all the above 
E) none of the above D

Question 3

Suppose a firm just issued a $1,000 par value convertible bond.Its conversion ratio is 30 and the stock currently sells for $25 per share.Would it make better financial sense to hold onto the bond or convert it?

Accepted Answer

A) hold onto the bond 
B) convert the bond 
C) can't tell from this information 
D) none of the above 
A) hold onto the bond 
B) convert the bond 
C) can't tell from this information 
D) none of the above A

Question 4

Governmental agencies may not issue debenture bonds.
Not in the chapter

Accepted Answer

A) True 
 B)False

Question 5

Which of the following bond types would describe unsecured obligations that depend on the general credit strength of the corporation?

Accepted Answer

A) collateralized bonds 
B) mortgage bonds 
C) equipment trust certificates 
D) debenture bonds 
A) collateralized bonds 
B) mortgage bonds 
C) equipment trust certificates 
D) debenture bonds

Question 6

When the market interest rate is the same as 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 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

Which of the following is not a rating category used when rating bonds?

Accepted Answer

A) AAA 
B) BBB 
C) B 
D) D 
E) F 
A) AAA 
B) BBB 
C) B 
D) D 
E) F

Question 10

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) all of the above 
E) none of the above 
A) stock dividends, stock splits 
B) cash dividends, stock dividends 
C) cash dividends, stock splits 
D) all of the above 
E) none of the above

Question 11

The largest annual supply of external funds for business corporations comes from issuance of which one of the following sources?

Accepted Answer

A) privately placed stocks 
B) bonds 
C) preferred stocks 
D) common stocks 
A) privately placed stocks 
B) bonds 
C) preferred stocks 
D) common stocks

Question 12

When the market interest rate falls below the coupon rate for a particular quality of bond, the "current yield:"

Accepted Answer

A) will be below the coupon rate 
B) will be the same as the coupon rate 
C) will be above the coupon rate 
D) cannot be determined 
A) will be below the coupon rate 
B) will be the same as the coupon rate 
C) will be above the coupon rate 
D) cannot be determined

Question 13

You are considering buying a 10-year, $1,000 par value bond issued by IBM.The coupon rate is 8% annually, with interest being paid semiannually.If you expect to earn a 10% rate of return on this bond, what is the maximum price you should be willing to pay for this IBM bond?

Accepted Answer

A) $189.93 
B) $875.39 
C) $898.54 
D) $911.46 
A) $189.93 
B) $875.39 
C) $898.54 
D) $911.46

Question 14

Reasons for stock repurchases include all of the following EXCEPT:

Accepted Answer

A) to acquire shares used in management stock option incentive programs, in which managers can purchase shares of stock at pre-specified prices. 
B) to use in stock-based acquisitions of other firms. 
C) the firm has the cash and sees its own stock as one of its most attractive investment alternatives. 
D) all of the above 
E) none of the above 
A) to acquire shares used in management stock option incentive programs, in which managers can purchase shares of stock at pre-specified prices. 
B) to use in stock-based acquisitions of other firms. 
C) the firm has the cash and sees its own stock as one of its most attractive investment alternatives. 
D) all of the above 
E) none of the above

Question 15

Most of the annual funds raised from security issues come from corporate bond sales.

Accepted Answer

A) True 
 B)False

Question 16

The higher the discount rate or yield to maturity, the lower the price of a bond.

Accepted Answer

A) True 
 B)False

Question 17

The _____________ is the difference in return earned by investing in a longer termcorporate bond that has the same credit riskmaturity as a shorter-termgovernment bond.

Accepted Answer

A) purchasing power spread * 
B) credit risk premium 
C) yield slope premium 
D) two of the above 
E) none of the above 
A) purchasing power spread * 
B) credit risk premium 
C) yield slope premium 
D) two of the above 
E) none of the above

Question 18

The value of a share of stock currently selling for $50 after a 1 for 5 split is:

Accepted Answer

A) $10 
B) $200 
C) $500250 
D) $1000500 
E) none of the above 
A) $10 
B) $200 
C) $500250 
D) $1000500 
E) none of the above

Question 19

A bond with a coupon rate of 4% and a discount rate of 6% will pay $60 in interest each year.

Accepted Answer

A) True 
 B)False

Question 20

Mortgage bonds are secured by home mortgages.

Accepted Answer

A) True 
 B)False

Real assets are claims against the income or assets of individuals, businesses, and governments.

The following factors may affect a bond rating:

Suppose a firm just issued a $1,000 par value convertible bond.Its conversion ratio is 30 and the stock currently sells for $25 per share.Would it make better financial sense to hold onto the bond or convert it?

Governmental agencies may not issue debenture bonds. Not in the chapter

Which of the following bond types would describe unsecured obligations that depend on the general credit strength of the corporation?

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

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:

Which of the following is not a rating category used when rating bonds?

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

The largest annual supply of external funds for business corporations comes from issuance of which one of the following sources?

When the market interest rate falls below the coupon rate for a particular quality of bond, the "current yield:"

You are considering buying a 10-year, $1,000 par value bond issued by IBM.The coupon rate is 8% annually, with interest being paid semiannually.If you expect to earn a 10% rate of return on this bond, what is the maximum price you should be willing to pay for this IBM bond?

Reasons for stock repurchases include all of the following EXCEPT:

Most of the annual funds raised from security issues come from corporate bond sales.

The higher the discount rate or yield to maturity, the lower the price of a bond.

The _____________ is the difference in return earned by investing in a longer termcorporate bond that has the same credit riskmaturity as a shorter-termgovernment bond.

The value of a share of stock currently selling for $50 after a 1 for 5 split is:

A bond with a coupon rate of 4% and a discount rate of 6% will pay $60 in interest each year.

Mortgage bonds are secured by home mortgages.

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 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 Valuation

Real assets are claims against the income or assets of individuals, businesses, and governments.

The following factors may affect a bond rating:

Suppose a firm just issued a $1,000 par value convertible bond.Its conversion ratio is 30 and the stock currently sells for $25 per share.Would it make better financial sense to hold onto the bond or convert it?

Governmental agencies may not issue debenture bonds. Not in the chapter

Which of the following bond types would describe unsecured obligations that depend on the general credit strength of the corporation?

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

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:

Which of the following is not a rating category used when rating bonds?

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

The largest annual supply of external funds for business corporations comes from issuance of which one of the following sources?

When the market interest rate falls below the coupon rate for a particular quality of bond, the "current yield:"

You are considering buying a 10-year, $1,000 par value bond issued by IBM.The coupon rate is 8% annually, with interest being paid semiannually.If you expect to earn a 10% rate of return on this bond, what is the maximum price you should be willing to pay for this IBM bond?

Reasons for stock repurchases include all of the following EXCEPT:

Most of the annual funds raised from security issues come from corporate bond sales.

The higher the discount rate or yield to maturity, the lower the price of a bond.

The _____________ is the difference in return earned by investing in a longer termcorporate bond that has the same credit riskmaturity as a shorter-termgovernment bond.

The value of a share of stock currently selling for $50 after a 1 for 5 split is:

A bond with a coupon rate of 4% and a discount rate of 6% will pay $60 in interest each year.

Mortgage bonds are secured by home mortgages.

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 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.