Online Exam 6
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>Div<sub>0</sub> 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 "private" 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.
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>Div<sub>0</sub> 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 "private" 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.
