If the yield to maturity (the market rate of return) of a bond is less than its coupon rate, the bond should be

selling at a premium; i.e., the bond's market price should be greater than

Which of the following would be considered a Euro stock?

A German company selling stock in Japan

A call provision for the redemption of a bond

allows the firm to refinance debt

Because a bond's rating serves as an indicator of its default risk, the rating has a direct, measurable influence on the

cost of using such debt and thus the bond's interest rate

Which of the following is true about the payment of dividends by a firm?

Growth stocks pay little or no dividends; rather, the firms retain most of

Which of the following is true of common stock?

Dividends must be paid on preferred stock before they can be paid on common

Federal funds represent

loans from one bank to another bank

The risk that income from a bond portfolio will vary because cash flows must be reinvested at current market rates is ca

interest rate reinvestment risk

Common stockholders have the right to

vote for the changes in a firm's charter

Which of the following is true about the price-earnings (P/E) ratio of a firm?

The appropriate value of P/E ratio is multiplied by the earnings per share

In the economic value added (EVA) equation, the is subtracted from the after-tax operating income to determine the EVA.

average cost of invested capital

The interest rate on a 10 percent, 10-year zero-coupon bond with a $1,000 face value falls from 8 percent to 7 percent.

The value of the bond at 7 percent is $508.34.

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Finance Test 3

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Questions 30

Answers

1
If the yield to maturity (the market rate of return) of a bond is less than its coupon rate, the bond should be
selling at a premium; i.e., the bond's market price should be greater than
selling at a discount; i.e., the bond's market price should be less than it
a floating-rate bond yielding market adjusted interest
an indexed bond that adjusts interest payments on the basis of an inflation
selling at par; i.e., the bond's market price should be the same as its fac
2
Two years ago, Synergy Inc. issued a 15-year callable bond with a $1,000 face value and a 12 percent coupon rate of inte
7.88%
12.56%
12.45%
15.76%
. 12.17%
3
Certificates that represent ownership in stocks of foreign companies and are held in trusts at banks located in the coun
Euro stocks
Samurai mutual funds
American depository receipts
foreign stock funds
certificates of ownership
4
Banks generally use the federal funds market to
repay loans to investors
make interest payments on loans
make security deposits with other banks
repay loans to the federal government
adjust their reserves
5
Which of the following would be considered a Euro stock?
A German company selling stock in Japan
A U.S. company selling stock in U.S.
A Japanese company selling stock in Japan
A Japanese company selling stock in the United States
A German company selling stock in the United States
6
A bond that can be redeemed for cash at the bondholder's option when certain circumstances exist is called a(n)
putable bond
callable bond
debenture
income bond
convertible bond
7
As junk bonds are high-risk instruments, the returns on such bonds are not very high.
False
True
8
A bond with a $100 annual interest payment and $1,000 face value with five years to maturity (not expected to default) w
False
True
9
A call provision for the redemption of a bond
requires bondholdersto convert their bondsinto lower coupon rate bonds
allows the firm to refinance debt
requires the redemption of the bonds at their market price
requires an advance payment of all of the interest that would be paid from
allows the firm to call the bonds for redemption at any time after the bond
10
Because a bond's rating serves as an indicator of its default risk, the rating has a direct, measurable influence on the
ability to procure raw material for production
cost of using such debt and thus the bond's interest rate
earnings per share and thus the dividends it pays each year
tax liability to the federal government
current assets and the bond's maturity value
11
In general, long-term unsecured debts have lower interest rates (costs) than long-term secured debts for a particular fi
True
False
12
Which of the following is true about the payment of dividends by a firm?
Growth stocks pay little or no dividends; rather, the firms retain most of
Preferred stocks pay accumulated dividends only once i.e. at the time of ma
Dividends are paid only to the bondholders of the firm.
Common stockholders have priority over preferred stockholders with regard t
Common stockholders generally receive a fixed amount of dividend every year
13
A(n) is a provision that facilitates the orderly retirement of a bond issue.
redemption fund
conversion fund
sinking fund
. amortization fund
depreciation fund
14
Which of the following is true of common stock?
Most common stock traditionally pays a constant income called interest.
A firm can be forced into bankruptcy if it misses common stock dividend pay
Common stock often contains some of the same characteristics as bonds
Dividends must be paid on preferred stock before they can be paid on common
Common stock is often referred to as a hybrid security.
15
Federal funds represent
funds held at banks for the repayment of loans to the federal government
loans from the federal government to banks
loans from one bank to another bank
funds collected from investors for investment in federal securities
funds collected from federal tax payment by banks
16
A firm’s is determined by subtracting the costs associated with both the debt and the equity that the firm uses from its
economic value added (EVA)
intrinsic value of stock
nonconstant growth of stock
expected capital gains yield
. price earnings ratio (P/E)
17
Eurocredits are bank loans that are denominated in the currency of a country other than where the lending bank is locate
False
True
18
The risk that income from a bond portfolio will vary because cash flows must be reinvested at current market rates is ca
interest rate reinvestment risk
capital gain yield risk
yield to maturity risk
market yield risk
interest rate price risk
19
Common stockholders have the right to
receive the cash distributions before preferred stockholders
. convert theirstock into bonds
receive cumulative dividends
receive the par value of shares on liquidation
vote for the changes in a firm's charter
20
American depository receipts (ADRs) are foreign stocks listed on stock exchanges located outside the country where the f
False
True
21
Which of the following is true about the price-earnings (P/E) ratio of a firm?
The higher the P/E ratio, the less investors are willing to pay for each do
If a firm's P/E ratio is 8, then, it would take 8 years for an investor to
. If the firm's P/E ratio is too low relative to that of similar firms, it
If a company's P/E ratio is too high relative to that of similar firms, its
The appropriate value of P/E ratio is multiplied by the earnings per share
22
A bond differs from a term loan in that a bond
. is always offered to the public at a variable coupon rate
is always negotiated between a financial institution and an investor
has a higher issuance cost
. is sold to a financial institution only
involves minimal formal documentation
23
In the economic value added (EVA) equation, the is subtracted from the after-tax operating income to determine the EVA.
current intrinsic value
operating cash flows
average cost of invested capital
marginal tax
total capital invested
24
Other things held constant, if a bond indenture contains a call provision, the yield to maturity (YTM) on the bond that
moving with
. the same as
lower than
unrelated to
higher than
25
On January 1 of the current year, the price of a stock is $42.50, whereas on December 31 of the current year, the price
16.33%
17.49%
14.78%
. 13.25%
15.14%
26
The interest rate on a 10 percent, 10-year zero-coupon bond with a $1,000 face value falls from 8 percent to 7 percent.
The value of the bond at 7 percent is $508.34.
The maturity value of the bond at 7 percent is $508.34.
The value of the bond at 8 percent is $385.54.
The value of the bond at 10 percent is $463.19
The maturity value of the bond at 8 percent is $508.34
27
If a bond is selling for less than its face, or maturity, value and the market interest rate remains unchanged during th
False
True
28
Which of the following stocks is a nonvoting stock and is referred to as hybrid stock?
Growth stock
Common stock
Preferred stock
Founders' shares
Preemptive stock
29
A bond backed by tangible (real) assets is known as a
debenture
U.S. government bond
subordinated debenture
mortgage bond
general obligation municipal bond
30
If a preferred stock issue has a conversion feature, the stock can be converted into
common stock
cumulative stock
founders stock
bonds with voting rights
corporate bonds

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