Question 1

2.5 / 2.5 points

Moody’s has developed a corporate bond default-risk rating system using capital and lowercase letters and numbers. Below are several examples of Moody’s ratings. Which answer choice lists a collection of ratings for “high credit investment grade” bonds?

Question options:

  

Baa1, A1, A3

 

Ba1, Baa2, Baa3

 

Aa2, Aa3, A1

 

Caa, Ca, C

 

Question 2

2.5 / 2.5 points

       

A bond is a __________ instrument by which a borrower of funds agrees to pay back the funds with interest on specific dates in the future.

Question options:

  

long-term equity

 

long-term debt

 

short-term debt

 

short-term equity

 

Question 3

2.5 / 2.5 points

       

When a company is in financial difficulty and cannot fully pay all of its creditors, the first lenders to be paid are the:

Question options:

  

stockholders.

 

sinking fund holders.

 

juniordebtholders.

 

seniordebtholders.

 

Question 4

2.5 / 2.5 points

       

The __________ is the regular interest payment of the bond.

Question options:

  

dividend

 

par

 

coupon rate

 

coupon

 

Question 5

2.5 / 2.5 points

       

As the rating of a bond increases (for example, from A, to AA, to AAA), it generally means that:

Question options:

  

the credit rating increases, the   default risk increases, and the required rate of return decreases.

 

the credit rating increases, the   default risk decreases, and the required rate of return increases.

 

the credit rating increases, the   default risk decreases, and the required rate of return decreases.

 

the credit rating decreases, the   default risk decreases, and the required rate of return decreases.

 

Question 6

2.5 / 2.5 points

       

The __________ is the interest rate printed on the bond.

Question options:

  

coupon rate

 

semiannual coupon rate

 

yield to maturity

 

compound rate

 

Question 7

2.5 / 2.5 points

       

The difference between the price and the par value of a zero-coupon bond represents:

Question options:

  

taxes payable by the bond buyer.

 

the accumulated principal over the   life of the bond.

 

the bond premium.

 

the accumulated interest over the   life of the bond.

 

Question 8

2.5 / 2.5 points

       

Bonds are sometimes called __________ securities because they pay set amounts on specific future dates.

Question options:

  

variable-income

 

fixed-income

 

bully

 

real

 

Question 9

2.5 / 2.5 points

       

From 1980 to 2006, the default risk premium differential between Aaa-rated bonds and Aa-rated bonds has averaged between:

Question options:

  

50 to 150 basis points.

 

90 to 190 basis points.

 

120 to 220 basis points.

 

250 to 350 basis points.

 

Question 10

2.5 / 2.5 points

       

“Junk” bonds are a street name for __________ grade bonds.

Question options:

  

investment

 

speculative

 

extremely speculative

 

speculative and investment

 

Question 11

2.5 / 2.5 points

       

When the __________ is less than the yield to maturity, the bond sells at a/the __________ the par value.

Question options:

  

coupon rate; premium over

 

coupon rate; discount to

 

time to maturity; discount to

 

time to maturity; same price as

 

Question 12

2.5 / 2.5 points

       

Delagold Corporation is issuing a zero-coupon bond that will have a maturity of 50 years. The bond’s par value is $1,000, and the current yield on similar bonds is 7.5%. What is the expected price of this bond, using the semiannual convention?

Question options:

  

$25.19

 

$250.19

 

$750

 

$1,000

 

Question 13

2.5 / 2.5 points

       

When real property is used as collateral for a bond, it is termed a/an:

Question options:

  

debenture.

 

mortgaged security.

 

indenture.

 

senior bond.

 

Question 14

2.5 / 2.5 points

       

Zero-coupon U.S. Government bonds are known as:

Question options:

  

STRIPS.

 

muni-bonds.

 

Uncle Sam’s Empty Pockets.

 

BLANKS.

 

Question 15

2.5 / 2.5 points

       

With a bearer bond, whoever held it was entitled to the __________ and the __________.

Question options:

  

interest payments; principal

 

dividend payments; principal

 

interest payments; dividend   payments

 

interest payments; voting rights

 

Question 16

2.5 / 2.5 points

       

Espresso Petroleum Inc. has a contractual option to buy back, prior to maturity, bonds the firm issued five years ago. This is an example of what type of bond?

Question options:

  

Putable bond

 

Callable bond

 

Convertible bond

 

Junior bond

 

Question 17

2.5 / 2.5 points

       

Which of the following is NOT an example of a bond that contains an option feature?

Question options:

  

Callable bond

 

Putable bond

 

Convertible bond

 

The above are all examples of   bonds with option features.

 

Question 18

2.5 / 2.5 points

       

The __________ is the expiration date of the bond.

Question options:

  

future value

 

yield to maturity

 

maturity date

 

coupon

 

Question 19

2.5 / 2.5 points

       

The __________ is the annual coupon payment divided by the current price of the bond, and is not always an accurate indicator.

Question options:

  

current yield

 

yield to maturity

 

bond discount rate

 

coupon rate

 

Question 20

2.5 / 2.5 points

       

Which of the following statements about the relationship between yield to maturity and bond prices is false?

Question options:

  

When the yield to maturity and   coupon rate are the same, the bond is called a par value bond.

 

A bond selling at a premium means   that the coupon rate is greater than the yield to maturity.

 

When interest rates go up, bond   prices go up.

 

A bond selling at a discount means   that the coupon rate is less than the yield to maturity.

 

Online Exam 7

   

Question 21

2.5 / 2.5 points

The __________ is the market of first sale in which companies first sell
their authorized shares to the public.

Question options:

  

primary market

 

secondary market

 

bull market

 

Nasdaq market

 

Question 22

2.5 / 2.5 points

       

Which of the statements below is true?

Question options:

  

The profits for common stock   owners come after payment to the employees, suppliers, government, and   creditors.

 

Shareholders elect the board of   directors, which ultimately selects the bondholder team that runs the   day-to-day operations of the company.

 

Stock is a minor financing source   for public companies.

 

Stockholders are paid before   debtholders (bondholders) if a company fails.

 

Question 23

2.5 / 2.5 points

       

__________ means that the percentage increase in the dividend is the same each year.

Question options:

  

Constant growth

 

Inconsistent growth

 

No growth

 

A constant cash flow

 

Question 24

2.5 / 2.5 points

       

Which of the statements below is true?

Question options:

  

A problem with using the dividend   growth model is that it appears to underestimate the expected return for all   stocks.

 

A problem with using the dividend   growth model is that it produces a negative expected return whenever a firm   cuts dividends.

 

A problem with using the dividend   growth model is that it produces a positive expected return whenever a firm   cuts dividends.

 

A problem with using the dividend   growth model is that it produces a negative expected return whenever a firm   increases its dividends.

 

Question 25

2.5 / 2.5 points

       

If we know the dividend stream, the future price of the stock, the future selling date of the stock, and the required return, we can price stocks just as we priced:

Question options:

  

annuities.

 

perpetuities.

 

bonds.

 

preferred stocks.

 

Question 26

2.5 / 2.5 points

       

Which of the statements below is FALSE? Answer:

Question options:

  

The dividend model requires that a   firm have a cash dividend history and that the dividend history shows a   constant dividend or a positive growth in dividends.

 

A problem with using the dividend   growth model is that it appears to underestimate the expected return for some   stocks.

 

A problem with using the dividend   growth model is that it produces a negative expected return whenever a firm   cuts its dividends.

 

A problem with using the dividend growth   model is that it appears to underestimate the expected return for all stocks.

 

Question 27

2.5 / 2.5 points

       

You can think of the __________ as the “used stock” market because these shares have been owned or “used” previously.

Question options:

  

secondary market

 

primary market

 

NYSE market

 

initial public offering market

 

Question 28

2.5 / 2.5 points

       

The hiring process for an investment banker can happen in two ways. Which of the below is one of these ways?

Question options:

  

Randomly choose an investment   banking firm from a list of underwriting firms.

 

Pick a desirable investment   banking firm, usually basing the choice on the reputation and history of the   banker in its particular industry.

 

Have the primary government   regulator of your industry choose the best investment banking firm for your   company.

 

Solicit advice from a government   agency and use it as your primary guide in choosing an investment banker.

 

Question 29

2.5 / 2.5 points

       

Strong-form efficient markets theory proclaims that:

Question options:

  

one can chart historical stock   prices to predict future stock prices such that you can identify mispriced   stocks and routinely outperform the market.

 

one can exploit publicly available   news or financial statement information to routinely outperform the market.

 

current prices reflect the price   and volume history of the stock, all publicly available information, and all   private information.

 

current prices reflect the price   and volume history of the stock, all publicly available information, but no   private information.

 

Question 30

2.5 / 2.5 points

       

You buy a stock for which you expect to receive an annual dividend of $2.10 for the 15 years that you plan on holding it. After 15 years, you expect to sell the stock for 32.25. What is the present value of a share for this company if you want a 10% return?

Question options:

  

$7.72

 

$15.97

 

$23.69

 

$31.41

 

Question 31

2.5 / 2.5 points

       

You want to invest in a stock that pays $6 annual cash dividends for the next five years. At the end of the five years, you will sell the stock for $30. If you want to earn 10% on this investment, what is a fair price for this stock if you buy it today?

Question options:

  

$41.37

 

$40.37

 

$22.75

 

$18.63

 

Question 32

2.5 / 2.5 points

       

A typical practice of many companies is to distribute part of the earnings to shareholders through:

Question options:

  

quarterly stock splits.

 

quarterly cash dividends.

 

semiannual cash dividends.

 

annual stock dividends.

 

Question 33

2.5 / 2.5 points

       

Shortcomings of the dividend pricing models suggest that we need a pricing model that is more inclusive than the dividend models and provides expected returns for companies based on aspects besides their historical dividend patterns. Which of the below is NOT one of these aspects?

Question options:

  

The company’s risk

 

The premium for taking on risk

 

The reward for waiting

 

Stable dividends

 

Question 34

0 / 2.5 points

       

__________ has to do with the speed and accuracy of processing a buy or sell order at the best available price.

Question options:

  

Market efficiency

 

Mechanical efficiency

 

Informational efficiency

 

Operational efficiency

 

Question 35

2.5 / 2.5 points

       

Which of the statements below is FALSE?

Question options:

  

In estimating the current price   using the constant growth dividend <br /> model, we let g be the growth   rate on the dividend stream and r be the <br /> rate of return required   by the potential buyer of the stock.

 

Constant growth means that the   percentage increase in the dividend is <br /> the same each year.

 

<p>Div₀   refers to the dividends that were just been paid to the current owner of the   stock.</p>

 

One unlikely dividend pattern is   to raise or grow dividends by a fixed <br /> amount at fixed intervals.

 

Question 36

2.5 / 2.5 points

       

In the United States, there are three well-known secondary stock markets. Which of the below is NOT one of these?

Question options:

  

The New York Stock Exchange (NYSE)

 

The Chicago Stock Exchange (CSE)

 

The National Association of   Securities Dealers and their trading system NASDAQ (National Association of   Securities Dealers Automated Quotation System)

 

The American Stock Exchange (AMEX)

 

Question 37

2.5 / 2.5 points

       

Stocks are different from bonds because:

Question options:

  

stocks, unlike bonds, are major   sources of funds.

 

stocks, unlike bonds, represent   residual ownership.

 

stocks, unlike bonds, give owners   legal claims to payments.

 

bonds, unlike stocks, represent   voting ownership.

 

Question 38

2.5 / 2.5 points

       

Which of the statements below is FALSE?

Question options:

  

The profits for common stock   owners come before payment to employees, suppliers, government, and   creditors.

 

Shareholders elect the board of   directors, which ultimately selects the management team that runs the   day-to-day operations of the company.

 

Stock is a major financing source   for public companies.

 

Common stock’s ownership claim on   the assets and cash flow of a company is often referred to as a residual   claim.

 

Question 39

0 / 2.5 points

       

Which of the statements below is true?

Question options:

  

Buying of shares is the selling of   ownership in the company.

 

A company is said to go   &quot;private&quot; when it opens up its ownership structure to the   general public through the sale of common stock.

 

Private companies choose to sell   stock to attract permanent financing through equity ownership of the company.

 

Most companies have the resident   expertise to complete an initial public offering (IPO), or first public   equity issue.

 

Question 40

2.5 / 2.5 points

       

Which of the statements below is FALSE?

Question options:

  

If an investor purchases 20% of   the initial issue of the company, the investor then owns 20% of the company,   given the one vote/one share norm.

 

After an initial offering, the   company can sell more shares to the public at a later date. If the investor   who originally purchased 20% does not purchase 20% of the subsequent issue,   his or her ownership is diluted below 20%.

 

A preemptive right enables one to   maintain one’s proportional level of ownership.

 

A preemptive right is never   particularly valuable to shareholders with large ownership percentages.