Finance 491 Exam 2

A bonds par value can also be called its: face value
A bonds yield to maturity takes into consideration: both current yield and price changes of a bond
The discount rate that makes the present value of a bonds payments equal to its price is termed the: yield to maturity
Which of the following is fixed (e.g., cannot change) for the life of a given bond? coupon rate
Which of the following identifies the distinction between a U.S. Treasury bond and a Treasury note? Bonds initially have more than 10 years until maturity; notes have few than 10 years initially
Many investors may be drawn to municipal bonds because of the bonds: exemption from federal taxes
Which of the following statements is correct for a 10% coupon bond that has a current yield of 7%? the bonds maturity value is lower than the bonds price
Which of the following is correct when a bond investors rate of return for a particular period equals the bonds coupon rate? the bond price remained unchanged during the period
If the coupon rate is lower than current rates, then the yield to maturity will be: higher than the coupon rate
The yield curve depicts the current relationship between: bond yields and maturity
When the yield curve is upward sloping, then: short maturity bonds yield less than long maturity bonds
If a bond is priced at par value, then: its coupon rate equals its yield to maturity
The existence of an upward sloping yield curve suggests that: interest rates will be increasing in the future
Which of the following is correct for a bond investor whose bond offers a 5% current yield and an 8% yield to maturity? the bond is selling at a discount to par value
In the calculation of rates of return on common stock, dividends are ____________ and capital gains are ___________ not guaranteed; not guaranteed
Which of the following is inconsistent with a firm that sells for very near book value? high future earning power
The expected return on a common stock is equal to: the capital appreciation rate + dividend yield
It is possible to ignore cash dividends that occur far into the future when using a dividend discount model because those dividends: have an insignificant present value
The value of common stock will likely decrease if: the discount rate increases
When valuing stock with the dividend discount model, the present value of future dividends will: remain constant regardless of the time horizon selected
A positive value for PVGO suggests that the firm has: investment opportunities with superior returns
Which of the following situations accurately describes a growth stock, assuming that each firm has a required return of 12%? a firm with investment opportunities yielding 15%
Other things equal, a firms sustainable growth rate would increase as a result of: increasing the plowback ratio
Investors are willing to purchase stocks having high P/E ratios because: they expect these shares to have greater growth opportunites
What can be expected to happen when stocks having the same expected risk do not have the same expected return? at least on of the stocks becomes temporarily mispriced
The terminal value of a share of stock: refers to the share value at the end of an investors holding period
The required return on an equity security is comprised of a: dividend yield and a capital gains yield
Which one of the following situations is most likely to occur today for a stock that went down in price yesterday? the stock has no predictable price-change pattern
If a firm unexpectedly raises its dividend permanently and by a substantial amount, the firms stock price: should rise, given dividend discount models

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