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Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called?
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A bond's coupon rate is equal to the annual interest divided by which one of the following?
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fin mgt test 3
| Question | Answer |
|---|---|
| Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called? | face value |
| A bond's coupon rate is equal to the annual interest divided by which one of the following? | face value |
| The current yield is defined as the annual interest on a bond divided by which one of the following? | market price |
| Which one of these is most apt to be included in a bond’s indenture one year after the bond has been issued? | List of collateral used as bond security. |
| A bond that is payable to whomever has physical possession of the bond is said to be in: | bearer form |
| Jason’s Paints just issued 20-year, 7.25 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms? | debenture |
| A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond? | callable |
| A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called the: | call premium |
| Real rates are defined as nominal rates that have been adjusted for which of the following? | inflation |
| The interest rate risk premium is the: | Compensation investors demand for accepting interest rate risk. |
| A Treasury yield curve plots Treasury interest rates relative to which one of the following? | maturity |
| Which bond would you generally expect to have the highest yield? | Long-term, taxable junk bond |
| Which one of the following applies to a premium bond? | Coupon rate > current yield > yield to maturity. |
| The price sensitivity of a bond increases in response to a change in the market rate of interest as the: | Coupon rate decreases and the time to maturity increases. |
| You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change. Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur? | Long-term; zero coupon. |
| Last year, Lexington Homes issued $1 million in unsecured, noncallable debt. This debt pays an annual interest payment of $55 and matures six years from now. The face value is $1,000 and the market price is $1,020. Which term is this | note |
| Are primarily designed to protect bondholders. | protected covenants |
| A "fallen angel" is a bond that has moved from: | Investment grade to speculative grade. |
| Bonds issued by the U.S. government: | Are considered to be free of default risk. |
| Generally issued as semi-annual coupon bonds. | treasury bonds |
| What is the model called that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate? | dividend growth |
| Which one of the following is computed by dividing next year's annual dividend by the current stock price? | dividend yield |
| Which one of following is the rate at which a stock's price is expected to appreciate? | capital gains yield |
| Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings? | common |
| You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called? | voting by proxy |
| What are the distributions of either cash or stock to shareholders by a corporation called? | dividends |
| Emst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets? | primary |
| The secondary market is best defined by which one of the following? | Market where outstanding shares of stock are resold. |
| An agent who maintains an inventory from which he or she buys and sells securities is called a: | dealer |
| An agent who arranges a transaction between a buyer and a seller of equity securities is called a: | broker |
| National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm's stock is: | Priced the same as a $1 perpetuity |
| A decrease in which of the following will increase the current value of a stock according to the dividend growth model? | discount rate |
| Requires the growth rate to be less than the required return. | the dividend growth model |
| Which one of the following applies to the dividend growth model? | Even if the dividend amount and growth rate remain constant, the value of a stock can vary |
| Which one of the following statements is correct? | Stocks can have negative growth rates. |
| Supernormal growth is a growth rate that: | Is unsustainable over the long term. |
| First, the company announced that the next annual dividend will be $1.94 a share. Secondly, all dividends after that will decrease by 1.25 percent annually. What is the value of this stock at a discount rate of 14.5 percent? | $12.32 |
| How much are you willing to pay for one share of LBM stock if the company just paid a $1.23 annual dividend, the dividends increase by 3.1 percent annually, and you require a return of 16 percent? | $9.83 |
| Future Motors is expected to pay a $3.30 a share annual dividend next year. Dividends are expected to increase by 2.75 percent annually. What is one share of this stock worth to you today if your required rate of return is 15 percent? | $26.94 |
| The common stock of Water Town Mills pays an annual dividend of $1.84 a share. The company has promised to maintain a constant dividend even . How much are you willing to pay for one share of this stock if you want to earn a 13.6 percent annual return? | $13.53 |
| A project has an initial cost of $27,400 and a market value of $32,600. What is the difference between these two values called? | net present value |
| Which one of the following methods of project analysis is defined as computing the value of a project based on the present value of the project's anticipated cash flows? | Discounted cash flow valuation |
| The length of time a firm must wait to recoup the money it has invested in a project is called the: | payback period |
| Discount rate which causes the net present value of a project to equal zero | internal rate of return |
| If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be: | mutually exclusive |
| A project has a net present value of zero. Which one of the following best describes this project? | The project's cash inflows equal its cash outflows in current dollar terms. |
| Which one of the following will decrease the net present value of a project? | Increasing the project's initial cost at time zero. |
| Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm? | net present value |
| analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project? | Cash inflow in the final year of the project |
| Which one of the following increases the net present value of a project? | An increase in the aftertax salvage value of the fixed assets. |
| Net present value: | Is the best method of analyzing mutually exclusive projects. |
| Which of the following are advantages of the payback method of project analysis? | Liquidity bias, ease of use. |
| Which one of the following statements related to the internal rate of return (IRR) is correct? | he IRR is equal to the required return when the net present value is equal to zero. |
| The internal rate of return is: | Tedious to compute without the use of either a financial calculator or a computer. |
| The IRR that causes the net present value of the differences between two project's cash flows to equal zero is called the: | crossover rate |
| Swenson’s is considering two mutually exclusive projects, Projects A and B, and has determined that the crossover rate for these projects is 11.7 percent. Given this you know that: | The project that is preferred at a discount rate of 11 percent will be the opposite project of that preferred at a discount rate of 12 percent. |
| Project A creating an outdoor eating area on the unused portion of the restaurant's property. Project B would use space for creating a drive-thru window which project to accept, the firm should rely most heavily on which one of the following methods? | Net present value. |
| Mutually exclusive projects are best defined as competing projects that: | Both require the total use of the same limited resource. |
| Project A has an NPV of $81,406, a payback period of 2.48 years, and an AAR of 9.31 percent. Project B has an NPV of $82,909, a payback period of 2.57 years, and an AAR of 9.22 percent. The required return for Project A is 11.5 percent while it is 12 p | Accept Project B and reject Project A based on the NPVs. |
| A project has an initial cash outflow of $39,800 and produces cash inflows of $18,304, $19,516, and $14,280 for years 1 through 3, respectively. What is the NPV at a discount rate of 11 percent? | $2,971.13 |
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