Exam 3: CHAPTER 8, 9 &10

Which best measures the risk of holding asset in isolation

Standard deviation

What is the practical measure used to quantify risk of a single investment?

Standard deviation

Which of the following is NOT an example of factors that affect systematic risk?

A firm wins a lawsuit dealing with patent infringement

Which of the following statements is true?

Unsystematic, or company, risk can be reduced through diversification

Which of the following is generally used to measure the market when calculating betas?

The Standard & Poors 500

The risk-return relationship for each financial asset is shown on:

The security market line

The par value of a bond

Generally is $1,000

The interest on corporate bonds is typically paid:

Semiannually

On any given day, a bond can be issued at

A discount, a premium, & par

Mortgage bonds:

Are secured by a lien on real property

Which type of value is shown on the firm's balance sheet?

Book value

Which of the following is generally NOT a characteristic of a bond?

Voting rights

A(n) ___ is used to outline the issuing company's contractual obligations to bondholders.

Indenture

Which of the following investors incurs the least risk?

Bondholders

Bond ratings are usually not affected by:

The company's fiscal year end

The discount rate used to value a bond is:

The market rate of interest

Which of the following is true?

A bond will sell at a premium if the prevailing required rate of return is less than the bond's coupon rate.

Which of the following statements is FALSE?

Interest rates and bond prices usually move in the same direction

Eurobonds are:

Issued in a country different from the one whose currency the bond is denominated.

Which of the following statements about zero coupon bonds is FALSE?

When the bonds mature, the issuing firm is faced with small cash outflow relative to the cash inflow the firm receives when the bonds are initially issued.

Which of the following bonds is sold by a corporation at a discount and pays no interest?

A zero coupon bond

Government bonds have lower yield to maturity than do corporate bonds of the same maturity because the ___ premium is lower for government bonds

Default

Common stockholders are essentially:

Owners of the firm

_____ gives minority shareholders more power to elect board of directors

Cumulative voting

CEO naming friends to the board of directors and paying them more than the norm is an example of the:

Agency problem

Which investor incurs the greatest risk?

Common stockholder

Which allows common stockholders the right to cast a number of votes equal to the number of directors being elected?

The cumulative voting provision

The shareholder can cast all votes for a single candidate or split them among various candidates through:

Cumulative voting

Common stockholders expect greater returns than bondholders because:

-they have no legal right to receive dividends-they bear greater risk-in the event of liquidation, they are only entitled to receive any chase that is left after all creditors are paid

Answer= All of the above

If a stock has a much higher than normal P/E ratio, investors probably expect:

Rapid growth in earnings

Which of the following factors will influence a firm's P/E ratio?

-the investors' required rate of return-firm investment opportunities -general market conditions 

Answer= All of the above

The P/E ratio is calculated by dividing:

The current stock price by earnings per share

Which of the following statements is true? (Chapter 10)

-Preferred stockholders are entitled to dividends before common stockholders can receive dividends-Preferred stock, like common stock, usually has no maturity, i.e., the corporation does not pay back the investment-The market value of preferred stock, like bonds, will usually fluctuate in value primarily as the result of market rates of interest

Answer= All of the above

Which of the following statements concerning preferred stock is correct?

Most issues of preferred stock have a cumulative feature

Preferred stock is similar to a bond in the following way

Both investment provide a fixed income

Which of the following formulas is appropriate to find the value of preferred stock with a fixed dividend?

Value of preferred stock= Annual Preferred Stock Dividend/Market's Required Yield on Preferred Stock

An example of a primary market transaction is:

A new issue of stock by Evergreen solar

The largest market for bond trading is:

NYSE

Which of the following companies is most likely to trade on the New York Stock Exchange?

Coca Cola

Which of the following exchanges has the strictest listing requirements?

NYSE

A small, newly listed technology company is most likely to be listed on:

NASDAQ Capital Markets

Listing requirements for the New York Stock Exchange include:

-Profitability-market value-breadth of ownership

Answer= All of the above