BFIN 300 midterm exam

Interest earned on both the initial principal and the interest reinvested from the prior periods is called

Compound interest

Don Lemon invested $2,000 six years ago at 4.5%. He spends his earnings as soon as he earns any interest so he only receives interest on his initial investment. Which type of interest is Mr. Lemon earning?

Simple interest

Alan Fishman just computed the present value of a $10,000 bonus he will receive in the future. The interest rate he used in this process is referred to as which one of the following?

Discount rate

The process of determining the present value of future cash flows in order to know their worth today is referred to as

Discounted cash flow valuation

Interest earned on interest is referred to as the __________ of interest

compounding

Which is the best example of a perpetuity?

Pension plan with TIAA

Capital One is charging you 1.5% per month on your credit card. What is your Annual Percentage Rate (APR)?

18.0%

During the Global Financial Crisis, Interest Only financial products were a significant problem. Which is the best example of an I/O security?

Corporate bond

Which is the best definition of an annuity?

A cash flow stream where a fixed amount is received every year

A bonds coupon rate is equal to the annual interest divided by which one of the following?

Face Value

The bond principal is repaid on which one of these dates?

Maturity date

Protective covenants:

Are primarily designed to protect bondholders.

The items included in an indenture that can limit actions of the issuer in order to protect bondholders interests are referred to as the:

Protective covenants

What is the average life of common equity?

Forever. It doesn't mature

How is the Dividend Discount Model get calculated?

A model which determines the current price of a stock as its dividend next period divided by the discount rate less the dividend growth rate

What are the relevant cash flows for valuing a share of common stock?

Dividends

Which is not a feature of common stock?

Protective covenant; or Interest

What is a financial security?

A claim against assets of cash flows of a company

Who is the primary regulator of the US securities markets?

Securities and Exchange Commission

The Securities and Exchange Commission does all of the following except:

Regulates all national banks in the US

Which of the following is a security traded in the US money market?

Treasury Bills

What is the best definition of a derivative in the context of securities markets?

A security where the value is based on the value of another security