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# HW-1306 Finance MCQ Set-6

Preferred stock __________.

A. reflects residual ownership of a company

B. represents a preferential claim on dividends

C. will be "paid" before the bondholders

D. always has a legal and specific claim to a fixed amount (listed as a liability

The practice of not putting all of your eggs in one basket is an illustration of ___________.

A. variance

B. diversification

C. portion control

D. expected return

The correlation coefficient, a measurement of the comovement between two variables, has what range?

A. From 0.0 to +10.0

B. From 0.0 to +1.0

C. From -1.0 to +10.0

D. From =1.0 to -1.0

A more risky stock has a higher __________.

A. expected return

B. standard deviation

C. variance

D. B and C

__________ may be defined as a measure of uncertainty in a set of potential outcomes for an event in which there is a chance for some loss.

A. Diversification

B. Risk

C. Uncertainty

D. Collaboration

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

A. current yield

B. yield to maturity

C. bond discount rate

D. coupon rate

The four steps to determining the price of a bond are: __________.

A. determine the amount and timing of the present cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and add the PVs of the principal and coupons.

B. determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the future value of the lump-sum principal and the annuity stream of coupons, and add the FVs of the principal and coupons.

C. determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and multiply the PVs of the principal and coupons.

D. determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and add the PVs of the principal and coupons

Which of the following are issued with the shortest time to maturity?

A. Treasury bills

B. Treasury notes

C. Treasury bonds

D. Treasury stocks

MicroMedia Inc. $1,000 par value bonds are selling for $832. Which of the following statements is TRUE?

A. The bonds must have more than six years to maturity.

B. The bonds are selling at a premium to the par value.

C. The coupon rate is greater than the yield to maturity.

D. None of the above are true

Joe bought a share of stock for $47.50 that paid a dividend of $0.72 and sold one year later for $51.38. What was Joe's dollar profit or loss and holding period return?

A. $0.72, 7.55%

B. $3.88, 8.95%

C. $4.60, 9.68%

D. $3.88, 9.68%

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

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

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

C. When interest rates go up, bond prices go up.

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

Which of the statements below is TRUE?

A. Investors want to maximize return and maximize risk.

B. Investors want to maximize return and minimize risk.

C. Investors want to minimize return and maximize risk.

D. Investors want to minimize return and minimize risk

Which of the following investments is considered to be default risk-free?

A. currency options

B. AAA rated corporate bonds

C. common stock

D. Treasury bills

The Security Market Line has __________ .

A. a positive slope

B. a negative slope

C. no slope

D. a beta of 1.0

Stocks are different from bonds because __________.

A. stocks, unlike bonds, are major sources of funds

B. stocks, unlike bonds, represent residual ownership

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

D. bonds, unlike stocks, represent voting ownership

The ___________ is the yield an individual would receive if the individual purchased the bond today and held the bond to the end of its life.

A. current yield

B. yield to maturity

C. prime rate

D. coupon rate

MicroMedia Inc. $1,000 par value bonds are selling for $1,265. Which of the following statements is TRUE?

A. The bond market currently requires a rate (yield. less than the coupon rate.

B. The bonds are selling at a premium to the par value.

C. The coupon rate is greater than the yield to maturity.

D. All of the above are true

Stocks differ from bonds because __________ .

A. bond cash flows are known while stock cash flows are uncertain

B. firms pay bond cash flows prior to paying taxes while stock cash flows are after tax

C. the ending par value of a bond is known at purchase while the ending value of a share of stock is unknown at purchase

D. all of all of the above

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

A. coupon rate, premium over

B. coupon rate, discount to

C. time to maturity, discount to

D. time to maturity, same price as

Which of the choices below is FALSE?

A. When issuing a puttable bond, the firm anticipates that interest rates will rise over the life of the bond.

B. When issuing a callable bond, the firm anticipates that interest rates will fall over the life of the bond.

C. When issuing a callable bond, the firm anticipates that interest rates will rise over the life of the bond.

D. A puttable bond is essentially the reverse of a callable bond

Answer will be sent on email.

A. reflects residual ownership of a company

B. represents a preferential claim on dividends

C. will be "paid" before the bondholders

D. always has a legal and specific claim to a fixed amount (listed as a liability

The practice of not putting all of your eggs in one basket is an illustration of ___________.

A. variance

B. diversification

C. portion control

D. expected return

The correlation coefficient, a measurement of the comovement between two variables, has what range?

A. From 0.0 to +10.0

B. From 0.0 to +1.0

C. From -1.0 to +10.0

D. From =1.0 to -1.0

A more risky stock has a higher __________.

A. expected return

B. standard deviation

C. variance

D. B and C

__________ may be defined as a measure of uncertainty in a set of potential outcomes for an event in which there is a chance for some loss.

A. Diversification

B. Risk

C. Uncertainty

D. Collaboration

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

A. current yield

B. yield to maturity

C. bond discount rate

D. coupon rate

The four steps to determining the price of a bond are: __________.

A. determine the amount and timing of the present cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and add the PVs of the principal and coupons.

B. determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the future value of the lump-sum principal and the annuity stream of coupons, and add the FVs of the principal and coupons.

C. determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and multiply the PVs of the principal and coupons.

D. determine the amount and timing of the future cash flows, determine the appropriate discount rate, find the present value of the lump-sum principal and the annuity stream of coupons, and add the PVs of the principal and coupons

Which of the following are issued with the shortest time to maturity?

A. Treasury bills

B. Treasury notes

C. Treasury bonds

D. Treasury stocks

MicroMedia Inc. $1,000 par value bonds are selling for $832. Which of the following statements is TRUE?

A. The bonds must have more than six years to maturity.

B. The bonds are selling at a premium to the par value.

C. The coupon rate is greater than the yield to maturity.

D. None of the above are true

Joe bought a share of stock for $47.50 that paid a dividend of $0.72 and sold one year later for $51.38. What was Joe's dollar profit or loss and holding period return?

A. $0.72, 7.55%

B. $3.88, 8.95%

C. $4.60, 9.68%

D. $3.88, 9.68%

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

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

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

C. When interest rates go up, bond prices go up.

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

Which of the statements below is TRUE?

A. Investors want to maximize return and maximize risk.

B. Investors want to maximize return and minimize risk.

C. Investors want to minimize return and maximize risk.

D. Investors want to minimize return and minimize risk

Which of the following investments is considered to be default risk-free?

A. currency options

B. AAA rated corporate bonds

C. common stock

D. Treasury bills

The Security Market Line has __________ .

A. a positive slope

B. a negative slope

C. no slope

D. a beta of 1.0

Stocks are different from bonds because __________.

A. stocks, unlike bonds, are major sources of funds

B. stocks, unlike bonds, represent residual ownership

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

D. bonds, unlike stocks, represent voting ownership

The ___________ is the yield an individual would receive if the individual purchased the bond today and held the bond to the end of its life.

A. current yield

B. yield to maturity

C. prime rate

D. coupon rate

MicroMedia Inc. $1,000 par value bonds are selling for $1,265. Which of the following statements is TRUE?

A. The bond market currently requires a rate (yield. less than the coupon rate.

B. The bonds are selling at a premium to the par value.

C. The coupon rate is greater than the yield to maturity.

D. All of the above are true

Stocks differ from bonds because __________ .

A. bond cash flows are known while stock cash flows are uncertain

B. firms pay bond cash flows prior to paying taxes while stock cash flows are after tax

C. the ending par value of a bond is known at purchase while the ending value of a share of stock is unknown at purchase

D. all of all of the above

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

A. coupon rate, premium over

B. coupon rate, discount to

C. time to maturity, discount to

D. time to maturity, same price as

Which of the choices below is FALSE?

A. When issuing a puttable bond, the firm anticipates that interest rates will rise over the life of the bond.

B. When issuing a callable bond, the firm anticipates that interest rates will fall over the life of the bond.

C. When issuing a callable bond, the firm anticipates that interest rates will rise over the life of the bond.

D. A puttable bond is essentially the reverse of a callable bond

Answer will be sent on email.