Quiz 3 & 4 Business Finance

This is course taken a Black Hills State University (BHSU) with Professor Cho. SOME OF THE ANSWERS ARE WRONG AND THEY ARE MARKED.

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.

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.

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.

Which one of the following is the quoted price of a bond?

Clean price.

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.

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

is selling at a discount. WRONG DONT USE. GOD LIED TO ME.

Which one of the following statements is true?

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

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

semiannual.

Which statement is true?

An indenture is a contract between a bond's issuer and its holders.

The purpose of a bond sinking fund is to:

repay bonds early either through purchases or calls.

Which one of the following statements is correct?

Preferred stock generally has a stated liquidation value of $1,000 per share. WRONNNGG.

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

the next expected annual dividend.

Which one of the following types of securities has the lowest priority in a bankruptcy proceeding?

Common stock.

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

Secondary.

The dividend yield is defined as:

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

Computing the present value of a growing perpetuity is most similar to computing the current value of which one of the following?

Stock with a constant-growth dividend.

The constant growth model can be used to value the stock of firms that have which type(s) of dividends?

Dividends that are either constant or change annually at a constant rate

Which statement is true?

From a legal perspective, preferred stock is a form of corporate equity.

The capital gains yield equals which one of the following?

Dividend growth rate.

Far West Trading expects to pay an annual dividend of $1.75 per share next year. What is the anticipated dividend for Year 3 if the firm increases its dividend by 3 percent annually?

$1.75 × (1.03)²