Buss Finance

What is the principal amount of a bond that is repaid at the end of the loan term called Face value
A bond’s annual interest divided by its face value is referred to as the: coupon rate.
. The market-required rate of return on a bond that is held for its entire life is called the: . yield to maturity.
The written agreement that contains the specific details related to a bond issue is called the bond: indenture.
This morning, Jeff found an aged bond certificate lying on the street. He picked it up and noticed that it was a 50-year bond that matured today. He presented the bond to the bank teller at his local bank and received payment for both the entire principal and the final interest payment. The bond that Jeff found must have been which one of the following? Bearer-form bond
. Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt can be described as a: debenture.
. A call provision grants the bond issuer the: option of repurchasing the bonds prior to maturity at a prespecified price.
Travis recently purchased a callable bond. However, that bond cannot be currently redeemed by the issuer. Thus, the bond must currently be: call protected.
Which one of the following terms applies to a bond that initially sells at a deep discount and only makes one payment to bondholders? Zero coupon
The price at which a dealer will purchase a bond is referred to as the bid
The price at which an investor can purchase in the bond market is called the _____ price. asked
A bond trader just purchased and resold a bond. The amount of profit earned by the trader from this purchase and resale is referred to as the: bid-ask spread.
Which one of the following is the quoted price of a bond? Clean price
Which one of the following is the price that an investor pays to purchase an outstanding bond? Dirty price
A real rate of return is defined as a rate that has been adjusted for which one of the following? Inflation
The rate of return an investor earns on a bond prior to adjusting for inflation is called the: nominal rate.
The relationship between nominal returns, real returns, and inflation is referred to as the: . Fisher effect.
The term structure of interest rates represents the relationship between which of the following? Nominal rates on default-free, pure discount bonds and time to maturity
The inflation premium: compensates investors for expected price increases.
Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk? Interest rate risk premium
. The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities. maturity
Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected? Default risk premium
Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value? Liquidity premium
When a bond’s yield to maturity is less than the bond’s coupon rate, the bond: is selling at a premium.
The yield to maturity on a discount bond is: greater than both the current yield and the coupon rate.
. All else held constant, the present value of a bond increases when the: . yield to maturity decreases.
Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis. semiannual
Which one of the following bonds is the most sensitive to changes in market interest rates? 10-year, zero coupon
. An unexpected decrease in market interest rates will cause a: coupon bond’s yield to maturity to decrease.
Of these choices, a risk-adverse investor who prefers to minimize interest rate risk is most apt to invest in: . 2-year, 7 percent coupon bonds.
Which statement is true? An indenture is a contract between a bond’s issuer and its holders.
A debenture is: an unsecured bond.
The primary purpose of protective covenants is to help: . protect bondholders from issuer actions.
Bond ratings classify bonds based on: default risk only.
A bond dealer sells at the _____ price and buys at the _____ price. asked; bid
The R in the Fisher effect formula represents the: nominal return.
An upward-sloping term structure of interest rates indicates: . the nominal rate is increasing even though the real rate is constant as the time to maturity increases.
f inflation is expected to steadily decrease in the future, the term structure of interest rates will most likely be: . downward sloping.
The term structure of interest rates is primarily based on which three of the following? Interest rate risk premiumReal rate of interestInflation premium
Suppose that a small, rural city in the countryside of North Dakota plans to issue $150,000 worth of 10-year bonds. Which one of the following components of the bond’s yield will be affected by the fact that no active secondary market is expected for these bonds? Liquidity premium
Which one of the following bonds is most apt to have the smallest liquidity premium? Treasury bill
A $1,000 face value bond is currently quoted at 100.8. The bond pays semiannual payments of $22.50 each and matures in six years. What is the coupon rate? . 4.50 percent
A bond has a par value of $1,000, a current yield of 6.25 percent, and semiannual interest payments. The bond quote is 100.8. What is the amount of each coupon payment? $31.50
Which one of the following types of securities has the lowest priority in a bankruptcy proceeding? Common stock
There are two open seats on the board of directors. If two separate votes occur to elect the new directors, the firm is using a type of voting that is best described as _____ voting. straight
Kate could not attend the last shareholders’ meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which term applies to this granting of authority? Proxy
Dividends are best defined as: cash or stock payments to shareholders.
Newly issued securities are sold to investors in which one of the following markets? Primary
What is the market called that facilitates the sale of shares between individual investors? Secondary
An agent who buys and sells securities from inventory is called a: dealer.
. A broker is an agent who: brings buyers and sellers together.
Any person who owns a license to trade on the NYSE is called a: member.
. A person who executes customer orders to buy and sell securities on the floor of the NYSE is called a: Floor broker.
Most trades on the NYSE are executed: electronically.
Which one of the following will increase the current value of a stock? . Increase in the capital gains yield
. Gleason, Inc., elects its board of directors on a staggered basis using cumulative voting. This implies that: shareholders can accumulate their votes over multiple years and cast all those votes in one election.
Which statement is true? rom a legal perspective, preferred stock is a form of corporate equity.

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