Finance Final

Key differences between common stock and bonds include all of the following EXCEPTA) common stockholders have a voice in management; bondholders do not.B) common stockholders have a junior claim on assets and income relative to bondholders.C) bonds have a stated maturity but stock does not.D) dividends paid to bondholders are tax-deductible but interest paid to stockholders is not. Answer: D
Following the theory of the “efficient market hypothesis” all of the following are true EXCEPTA) securities are typically in equilibrium, meaning they are fairly priced and their expected returns equal their required returns.B) insider trading scandals have proven that stocks are not fully and fairly priced; as a result, it would be worthwhile for investors should spend time searching for mispriced (over- or under-valued) stocks.C) at any point in time, security prices fully reflect all public information available about the firm and its securities, and these prices react swiftly to new information.D) since stocks are fully and fairly price, it follows that investors should not waste their time trying to find and capitalize on miss-priced (under- or over-valued) securities. Answer: B
Cash outlays that had been previously made and have no effect on the cash flows relevant to a current decision are calledA) incremental historical costs.B) incremental past expenses.C) opportunity costs foregone.D) sunk costs. Answer: D
If a bond pays $1,000 plus interest at maturity, $1,000 is called theA) stated value.B) market value.C) par value.D) long-term value. Answer: C
All of the following are examples of restrictive debt covenants EXCEPTA) prohibition on selling accounts receivable.B) supplying the creditor with audited financial statements.C) constraint on subsequent borrowing.D) prohibition on entering certain types of lease arrangements. Answer: B
The ________ feature permits the issuer to repurchase bonds at a stated price prior to maturity.A) callB) conversionC) putD) capitalization Answer: A
The less certain a cash flow, the ________ the risk, and the ________ the present value of the cash flow.A) lower; higherB) lower; lowerC) higher; lowerD) higher; higher Answer: C
A bond will sell ________ when the stated rate of interest exceeds the required rate of return, ________ when the stated rate of interest is less than the required return, and ________ when the stated rate of interest is equal to the required return.A) at a premium; at a discount; equal to the par valueB) at a premium; equal to the par value; at a discountC) at a discount; at a premium; equal to the par valueD) equal to the par value; at a premium; at a discount Answer: A
Tangshan Industries has issued a bond which has a $1,000 par value and a 15 percent annual coupon interest rate. The bond will mature in ten years and currently sells for $1,250. Using this information, the yield to maturity on the Tangshan Industries bond isA) 10.79 percent.B) 11.39 percent.C) 12.19 percent.D) 13.29 percent. Answer: A

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