yo mama exam 2

What is the principal amount of a bond that is repaid at the end of the loan term called?

Face value

A bond's annual interest divided by its face value is referred to as the:

coupon rate

On which one of the following dates is the principal amount of a semiannual coupon bond repaid?

The entire bond is repaid on the maturity date.

The market-required rate of return on a bond that is held for its entire life is called the:

yield to maturity.

The current yield on a bond is equal to the annual interest divided by the:

current market price.

The written agreement that contains the specific details related to a bond issue is called the bond:

indenture

A registered-form bond is defined as a bond that:

pays coupon payments directly to the owner of record.

This morning, Jeff found an aged bond certificate lying on the street. He picked it up and noticed that it was a 50-year bond that matured today. He presented the bond to the bank teller at his local bank and received payment for both the entire principal and the final interest payment. The bond that Jeff found must have been which one of the following?

Bearer-form bond

Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt can be described as a:

debenture.

What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming bonds early?

Sinking fund

A call provision grants the bond issuer the:

option of repurchasing the bonds prior to maturity at a prespecified price.

The call premium is the amount by which the:

call price exceeds the par value.

Russell's has a bond issue outstanding. The issue's indenture provision prohibits the firm from redeeming the bonds during the first five years following issuance. This provision is referred to as the \_____ provision.

deferred call

A protective covenant:

limits the actions of the borrower

A company originally issued bonds that were rated investment grade. These bonds have now been downgraded to junk status. These bonds are referred to as:

fallen angels.

Which one of the following terms applies to a bond that initially sells at a deep discount and only makes one payment to bondholders?

Zero coupon

The price at which a dealer will purchase a bond is referred to as the \_____ price.

bid

The price at which an investor can purchase in the bond market is called the \_____ price.

asked

A bond trader just purchased and resold a bond. The amount of profit earned by the trader from this purchase and resale is referred to as the:

bid-ask spread.

A real rate of return is defined as a rate that has been adjusted for which one of the following?

Inflation

The rate of return an investor earns on a bond prior to adjusting for inflation is called the:

nominal rate.

The relationship between nominal returns, real returns, and inflation is referred to as the:

Fisher effect.

The term structure of interest rates represents the relationship between which of the following?

Nominal rates on default-free, pure discount bonds and time to maturity

The inflation premium:

compensates investors for expected price increases.

Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk?

Interest rate risk premium

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the \____ of those securities.

maturity

Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected?

Default risk premium

Which one of the following premiums is paid on a corporate bond due to its tax status?

Taxability premium

When a bond's yield to maturity is less than the bond's coupon rate, the bond:

is selling at a premium.

Which one of the following statements is true?

The current yield on a par value bond will exceed the bond's yield to maturity.

The yield to maturity on a premium bond exceeds the bond's coupon rate.

The current yield on a premium bond is equal to the bond's coupon rate.

A premium bond has a current yield that exceeds the bond's coupon rate.

A discount bond has a coupon rate that is less than the bond's yield to maturity.

A discount bond has a coupon rate that is less than the bond's yield to maturity.

All else held constant, the present value of a bond increases when the:

yield to maturity decreases

Generally speaking, bonds issued in the U.S. pay interest on a(n) \_____ basis.

semiannual

Which one of the following bonds is the most sensitive to changes in market interest rates?

10-year, zero coupon

When valuing a stock using the constant-growth model, D1 represents the:

the next expected annual dividend.

The dividend yield is defined as:

next year's expected dividend divided by the current market price per share.

The capital gains yield equals which one of the following?

Dividend growth rate

Kate could not attend the last shareholders' meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which term applies to this granting of authority?

Proxy

Dividends are best defined as:

cash or stock payments to shareholders

Which type of stock pays a fixed dividend, receives first priority in dividend payment, and maintains the right to a dividend payment, even if that payment is deferred?

Cumulative preferred

Newly issued securities are sold to investors in which one of the following markets?

Primary

What is the market called that facilitates the sale of shares between individual investors?

Secondary

An agent who buys and sells securities from inventory is called a:

dealer.

A broker is an agent who:

brings buyers and sellers together.

The stream of customer instructions to buy and sell securities is called the:

order flow.

Which one of the following will increase the current value of a stock?

ncrease in the capital gains yield

On a particular risky investment, investors require an excess return of 7 percent in addition to the risk-free rate of 4 percent. What is this excess return called?

Risk premium

Which one of the following is the positive square root of the variance?

Standard deviation

Which one of the following is defined as a bell-shaped frequency distribution that is defined by its average and its standard deviation?

Normal distribution

Which one of the following is defined as the average compound return earned per year over a multiyear period?

Geometric average return

An efficient capital market is best defined as a market in which security prices reflect which one of the following?

Current inflation

-A risk premium

-All available information

-The historical arithmetic rate of return

-The historical geometric rate of return

All available information

Which one of the following is the hypothesis that securities markets are efficient?

Efficient markets hypothesis

Which one of the following combinations will always result in an increased dividend yield?

Decrease in the stock price combined with a higher dividend amount

Which one of the following could cause the total return on an investment to be a negative rate?

Stock price that declines over the investment period

One year ago, you purchased 600 shares of a stock. This morning you sold those shares and realized a total return of 3.1 percent. Given this information, you know for sure the:

sum of the dividend yield and the capital gains yield is 3.1 percent.

The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield and reported in your textbook, are based on the:

stocks of the 500 companies included in the S&P 500 index.

Over the period of 1926-2014, which one of the following investment classes had the highest volatility of returns?

Small-company stocks

The rate of return on which one of the following has a risk premium of 0%?

U.S. Treasury bills

For the period 1926-2014, which one of the following had the smallest risk premium?

U.S. Treasury bills

Which one of the following statements is correct?

-The risk-free rate of return has a risk premium of 1.0.

-The reward for bearing risk is called the standard deviation.

-Risks and expected return are inversely related.

-The higher the expected rate of return, the wider the distribution of returns.

-Risk premiums are inversely related to the standard deviation of returns.

The higher the expected rate of return, the wider the distribution of returns.

The standard deviation measures the \_____ of a security's returns over time.

volatility

The lower the standard deviation of returns on a security, the \_____ the expected rate of return and the \_____ the risk.

lower; lower

lower; higher

higher; lower

higher; higher

lower; lower

New Labs just announced that it has received a patent for a product that will eliminate all flu viruses. This news is totally unexpected and viewed as a major medical advancement. Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient?

The price of New Labs stock increases rapidly to a higher price and then remains at that price.

Semistrong form market efficiency states that the value of a security is based on:

all publicly available information.

Dan is a chemist for ABC, a major drug manufacturer. Dan cannot earn excess profits on ABC stock based on the knowledge he has related to his experiments if the financial markets are:

strong form efficient.

If the financial markets are semistrong form efficient, then:

only individuals with private information have a marketplace advantage.

Mary owns a risky stock and anticipates earning 16.5 percent on her investment in that stock. Which one of the following best describes the 16.5 percent rate?

Expected return

A portfolio is:

Group of assets held by an investor

Stock A comprises 28 percent of Susan's portfolio. Which one of the following terms applies to the 28 percent?

-Portfolio variance

-Portfolio standard deviation

-Portfolio weight

-Portfolio expected return

Portfolio weight

Systematic risk is defined as:

any risk that affects a large number of assets.

Unsystematic risk can be defined by all of the following except:

-unrewarded risk.

-diversifiable risk.

-market risk.

-unique risk.

-asset-specific risk.

market risk.

Which term best refers to the practice of investing in a variety of diverse assets as a means of reducing risk?

Diversification