Finance HW

Bonds are issued by which of the following?corporationsfederal government or its agenciesstate and local governmentsall of these All of these
Which of these statements answers why bonds are known as fixed income securities?Many investors on fixed incomes buy them.Investors know how much they will receive in interest payments.Investors will not receive their principal when the bond’s term is up.All of these All of these
Regarding a bond’s characteristic, which of the following is the principal loan amount that the borrower must repay?call premium maturity date par or face value time to maturity value Par or face value
To compensate the bondholders for getting the bond called, the issuer pays which of the following? call feature call premium coupon rate original issue premium Call premium
Which of the following is NOT a factor that determines the coupon rate of a company’s bonds? The amount of uncertainty about whether the company will be able to make all the payments. The term of the loan. The level of interest rates in the overall economy at the time. All of these are factors that determine the coupon rate of a company’s bonds. All of these are factors that determine the coupon rate of a company’s bonds.
Which of the following is a true statement? If interest rates fall, U.S. Treasury bonds will have decreasing values. If interest rates fall, corporate bonds will have decreasing values. If interest rates fall, no bonds will enjoy rising values. If interest rates fall, all bonds will enjoy rising values. If interest rates fall, all bonds will enjoy rising values
Time to Maturity A bond issued by a corporation on September 1, 1989 is scheduled to mature on September 1, 2051. If today is September 2, 2009, what is this bond’s time to maturity? 51 years 42 years 20 years 62 years 42 years (Scheduled to mature – current date)
Interest Payments Determine the interest payment for the following three bonds: 5½ percent coupon corporate bond (paid semi-annually), 6.45 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.) $5.50, $6.45, $0, respectively $27.50, $32.25, $0, respectively $27.50, $32.25, $100, respectively $55.00, $64.50, $0, respectively $27.50, $32.25, $0, respectively
*Bond Quotes Consider the following three bond quotes; a Treasury note quoted at 102:24, and a corporate bond quoted at 99.15, and a municipal bond quoted at 102.75. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars? (Round your answers to 2 decimal places.)rev: 03_05_2012 $1,000, $1,000, $5,000, respectively $1,002.60, $1,000, $1,000, respectively $1,027.50, $991.50, $5,137.50, respectively $1,002.60, $991.50, $5,013.75 respectively $1,027.50, $991.50, $5,137.50, respectively
*Zero Coupon Bond Price Calculate the price of a zero coupon bond that matures in 7 years if the market interest rate is 4 percent. (Round your answer to 2 decimal places.) $1,000.00 $759.92 $960.00 $757.86 $757.86
*Compute Bond Price Compute the price of a 6 percent coupon bond with 10 years left to maturity and a market interest rate of 8.75 percent. (Assume interest payments are semi-annual and par value is $1,000.) Is this a discount or premium bond? discount premium Discount
*Bond Prices and Interest Rate Changes A 6 percent coupon bond with 12 years left to maturity is priced to offer a 6.5 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.25 percent. What is the change in price the bond will experience in dollars? (Assume semi-annual interest payments and $1,000 par value.) $19.67 $21.55 $25.00 $41.22 $21.55
*Current Yield What’s the current yield of a 10 percent coupon corporate bond quoted at a price of 102.60? (Round your answer to 1 decimal place.) 10.0% 10.3% 10.3% 9.7% 9.7%
*Call Premium A 4.50 percent corporate coupon bond is callable in four years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond? $1,000.00 $180.00 $45.00 $1,045.00 $1,045.00
Yield to Call A 7.25 percent coupon bond with 25 years left to maturity can be called in 5 years. The call premium is one year of coupon payments. It is offered for sale at $1066.24. What is the yield to call of the bond? (Assume that interest payments are paid semi-annually and par value is $1,000.) 3.41% 3.45% 3.51% 6.90% 6.90%
These investors earn returns from receiving dividends and from stock price appreciation. bondholders stockholders investment bankers managers Stockholders
As residual claimants, these investors claim any cash flows to the firm that remain after the firm pays all other claims. creditors bondholders preferred stockholders common stockholders Common stockholders
This will only be executed if the order’s price conditions are met. a trade a limit order an unlimited order a spread A limit order
Investors buy stock at the dealer price. bid price. quoted ask price. broker price. Quoted ask price
We can estimate a stock’s value by using the book value of the total stockholder equity section. discounting the future dividends and future stock price appreciation. compounding the past dividends and past stock price appreciation. using the book value of the total assets divided by the number of shares outstanding. discounting the future dividends and future stock price appreciation
We often use the P/E ratio model with the firm’s growth rate to estimate required rates of return. inflation. a stock’s current price. a stock’s future price. a stock’s future price
Value stocks usually have low P/E ratios and high growth rates. high P/E ratios and low growth rates. low P/E ratios and low growth rates. high P/E ratios and high growth rates. Low P/E ratios and high growth rates
*Dividend Initiation and Stock Value A firm does not pay a dividend. It is expected to pay its first dividend of $0.10 per share in 2 years. This dividend will grow at 11 percent indefinitely. Using a 13 percent discount rate, compute the value of this stock. $4.42 $4.59 $5.43 $7.21 $4.42
*P/E Ratio Model and Future Price Walmart (WMT) recently earned a profit of $3.13 per share and has a P/E ratio of 14.22. The dividend has been growing at a 12.5 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio declined to 10 in five years. $6.08, $5.04 respectively $72.22, $50.40 respectively $80.20, $56.40 respectively $86.46, $60.80 respectively $80.20, $56.40 respectively
*Value of Future Cash Flows A firm recently paid a $1.00 annual dividend. The dividend is expected to increase by 10 percent in each of the next four years. In the fourth year, the stock price is expected to be $100. If the required rate for this stock is 14 percent, what is its current value?rev: 07_16_2012 $25.00 $36.60 $62.87 $72.30 $62.87
This is the average of the possible returns weighted by the likelihood of those returns occurring. efficient return expected return market return required return Expected return
The set of probabilities for all possible occurrences. probability probability distribution stock market bubble market probabilities probability distribution
This is typically considered the return on U.S. government bonds and bills and equals the real interest plus the expected inflation premium. required return risk-free rate risk premium market risk premium risk free rate
This is the reward investors require for taking risk. required return risk-free rate risk premium market risk premium risk premium
This is the reward for taking systematic stock market risk. required return risk-free rate risk premium market risk premium market risk premium
The asset pricing theory based on a beta, a measure of market risk. Behavioral Asset Pricing Model Capital Asset Pricing Model Efficient Markets Asset Pricing Model Efficient Market Hypothesis Capital assets pricing model
A measure of the sensitivity of a stock or portfolio to market risk. behavioral finance beta efficient market hedge beta
Similar to the Capital Market Line except risk is characterized by beta instead of standard deviation. Market Risk Line Probability Market Line Security Market Line Stock Market Line security market line
This is a measure summarizing the overall past performance of an investment. average return dollar return market return percentage return average return
Which of these statements is true? When people purchase a stock, they know exactly what their dollar and percent return are going to be. Many people purchase stocks as they find comfort in the certainty for this safe form of investing. When people purchase a stock, they know the short-term return, but not the long term return. When people purchase a stock, they do not know what their return is going to be – either short term or in the long run When people purchase a stock, they do not know what their return is going to be – either short term or in the long run
This is defined as the volatility of an investment, which includes firm specific risk as well as market risk. diversifiable risk market risk standard deviation total risk total risk
This is defined as a combination of investment assets held by an investor. bundle market basket portfolio All of these portfolio
This is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification. firm specific risk market risk modern portfolio risk total risk firm specific risk
This is the portion of total risk that is attributable to overall economic factors. firm specific risk market risk modern portfolio risk total risk market risk
This is the term for portfolios with the highest return possible for each risk level. efficient portfolios modern portfolios optimal portfolios total portfolios efficient portfolios
This is a measurement of the co-movement between two variables that ranges between -1 and +1. coefficient of variation correlation standard deviation total risk correlation
Which statement is true? The larger the standard deviation, the lower the total risk. The larger the standard deviation, the higher the total risk. The larger the standard deviation, the more portfolio risk. The standard deviation is not an indication of total risk. The larger the standard deviation, the higher the total risk

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