Finance Midterm

Which of the following is the correct equation for the present value of an annuity with regular payment C for t periods at interest rate r?

PV = C[(1/r)-(1/r(1+r)^t)]

An amortization schedule includes ______.

total payment

principal paid

closing balance

year

interest paid

opening balance

The annual percentage rate (APR) on a loan or investment is properly defined as:

the interest rate per period multiplied by the number of compounding periods per year

If the interest rate is greater than zero, the present value of an annuity due is always ______ an ordinary annuity.

greater

The future value of an annuity that lasts n years is equal to ______.

the present value allowed to grow n years

The present value of an annuity due is equal to the ______.

present value of an ordinary annuity × (1 + r)

An annuity due is a series of level payments that begin ______.

immediately

______ dollars refer to the actual number of dollars of the day, whereas ______ dollars refer to the amount of purchasing power.

Current, Constant

Nominal, Real

Which type of interest rate is generally quoted for loans and by banks and other financial institutions?

nominal

When the coupon rate of a bond is equal to the current interest rate, the bond will sell for ______.

Face Value

When interest rates fall, bond prices ______.

rise

The return on a bond that sells at a premium is _____________ than the current yield.

less

The discount rate that makes the present value of the bond's payments equal to its price is known as the

Yield to Maturity

When the bond coupon rate and the interest rate are the same...

the bond will sell for face value

A measure of return that takes account of both coupon payments and change in a bond's value over its life is a standard measure known as

Yield to Maturity

If interest rates rise, the rate of return on a bond will be ______ the yield to maturity.

less than

Corporate debt depends on the value and the risk of the firm's ______.

Assets

A graph of the yield curve shows the bond yield to maturity on the ______ axis and the time to maturity on the ______ axis.

vertical, horizontal

Which debt is paid first in the event of bankruptcy?

Senior debt

Which of the following are steps bondholders can take to minimize default risk?

- protective covenants

- seniority

- security

Because the ______ rate is uncertain, so is the ______ rate of interest offered on bonds.

inflation, real

Which type of bond links coupon payments to inflation?

indexed bonds

The banking crisis of 2007-2009 shows that investors prefer ______ in bonds; therefore, heavily traded bonds offer ______ yields.

higher liquidity, lower

Stock repurchases are an attractive alternative to dividends because ______.

investors interpret dividends as repeated cash distributions

To determine a firm's sustainable growth rate, which three figures must remain constant?

return on equity

long-term debt ratio

plowback ratio

The field of behavioral finance shows that ______ caused investors to pile more and more money into tech companies, causing the dot-com bubble.

attitudes towards risk

The random walk of stock prices dictates that a stock's price on any given day ______.

do not depend on previous stock price movement

In addition to paying a dividend, a firm can return cash to its equity investors through a ______.

stock repurchase

A stock's price is increasing in which of the following variables?

dividend

growth rate

The bid price quoted by an exchange for a stock is ______.

the price at which investors are willing to buy

If ROE and the plowback ratio are held constant, then which of the following figures will increase at the sustainable growth rate?

dividends

book equity

earnings

Which of the factors listed below contribute to the market value of a going concern?

value of future investments

extra earning power

intangible assets

Investors who agree about a firm's ______ and ______ will also agree about its ______ implies the dividend discount model.

future dividends, risk

current share price

An initial public offering is also referred to as a(n) ______.

unseasoned new issue

Which of the following correctly describes the horizon year?

The last year of non-constant growth describes the horizon year.

The year after which constant dividend growth is achieved.

A high P/E ratio generally means that a firm has ______.

good growth opportunities

The expected return on a stock can be calculated as the sum of the ______ and the ______.

dividend yield, capital gain

A low P/E ratio generally means that a firm has ______.

high dividend payouts

In a market order, the _____.

order is executed immediately at the best available price

True or false: A constant growth can never exceed the required return.

True