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