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27 Cards in this Set
- Front
- Back
For a 10% coupon bond that has a current yield of 7%?
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The bond's maturity value is lower than the bond's price.
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The discount rate that makes the present value of a bond's payments equal to its price is termed the?
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Yield to maturity
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The yield curve depicts the current relationship between?
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bond yields and maturity
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Where does a "convertible bond" get its name?
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The option of converting into shares of common stock
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Investors who own bonds having lower credit ratings should expect
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higher default possibilities
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Many investors may be drawn to municipal bonds because of the bonds
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exemption from federal taxes
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If a bond offers an investor 11% in nominal return during a year in which the rate of inflation was 4%, then the investor's real return was:
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6.73%
1 + real return = 1.11/1.04 |
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How much would an investor need to receive in nominal return if she desires a real return of 4% and the rate of inflation is 5%?
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9.20%
1.04 = 1 + nominal return / 1.05 9.2% = nominal return |
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In the calculation of rates of return on common stock, dividends are _______ and capital gains are ______.
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not guaranteed; not guaranteed
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What dividend yield would be reported in the financial press for a stock that currently pays a $1 dividend per quarter and the most recent stock price was $40?
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10.0%
$1 dividend per quarter = $4 annually. $4/$40 = 10% dividend yield |
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The expected return on a common stock is composed of?
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both dividend yield and capital appreciation
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Common stock can be valued using the perpetuity valuation formula if the:
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dividends are not expected to grow
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What should be the price for a common stock paying $3.50 annually in dividends if the growth rate is zero and the discount rate is 8%?
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$43.75
P= 3.40/.08 = $43.75 |
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If next year's dividend is forecast to be $5.00, the constant growth rate is 4%, and the discount rate is 16%, then the current stock price should be?
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$43.33
P = 5.00/(.16-.04) = 5.00/.12 |
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A securities market primarily comprised of dealers who buy and sell for their own inventories is generally referred to as a(n) ______ market.
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over-the-counter
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The stream of customer buy and sell orders for securities is referred to as the:
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order flow
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A member of the New York Stock Exchange who trades for his or her own account, trying to anticipate temporary price fluctuations, is called a(n):
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floor trader
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The owner of a seat on the New York Stock Exchange is called a(n) _____ of the exchange.
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member
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Common stock shareholders are generally granted rights which include the right to:
1. Share in company profits 2. Vote for company directors 3. Vote on proposed mergers 4. Residual assets in liquidation |
1, 2, 3, and 4
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How much are you willing to pay for one share of stock if the company just paid an $.80 annual dividend, the dividends increase by 4% annually and you require an 8% rate of return?
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$20.80
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The common stock of Energizer's pays an annual dividend that is expected to increase by 10 percent annually. The stock commands a market rate of return of 12 percent and sells for $60.50 a share. What is the expected amount of the next dividend to be paid on Energizer's common stock?
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$1.21
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What should occur when a project's net present value is determined to be negative?
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The project should be rejected.
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A project's opportunity cost of capital is:
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the forgone return from investing in the project.
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Which of the following changes will increase the NPV of a project?
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a decrease in the discount rate
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If the opportunity cost of capital for a project exceeds the project's IRR, then the project has a(n):
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negative NPV
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Modified internal rate of return:
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Handles the multiple IRR problem by combining cash flows until on one change in sign change remains.
requires the use of a discount rate |
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Modified internal rate of return does not require
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the use of a discount rate.
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