1. Which of the following statements about pension plans is correct?
A. A pension plan that grants mortgage loans is called a savings and loan association.
B. A pension plan that grants mortgage loans isn't an example of a financial intermediary.
C. A pension plan that grants mortgage loans can't suffer losses.
D. A pension plan that grants mortgage loans is an example of a financial intermediary.
2. The term structure of interest rates involves the relationship between
A. yields and bond ratings.
B. stock and bond yields.
C. term and yields.
D. risk and yields.
3. If an individual buys stock on margin and its price rises, the investor
A. must put up additional collateral.
B. must pay interest on the borrowed funds.
C. may take delivery of the stock.
D. must pay tax on the unrealized gain.
4. Which of the following is indicated by an upward-sloping yield curve?
A. Higher prices for long-term maturity
B. Higher interest rates for long-term maturity
C. Lower interest rates for long-term maturity
D. Lower prices for short-term maturity
5. Teresa buys 100 shares of XYZ stock on margin at $20 per share. If the margin
requirement is 45
percent, the interest rate is 10 percent, and she holds the security for 1 year, how much
interest must she
pay?
A. $2,000
B. $200
C. $90
D. $110
6. What is a nation's cash inflow or outflow on its current account given the following
information?
Imports $145
Direct investments abroad $72
Foreign purchase of domestic securities $86
Net income from foreign investments $37
Exports $211
Foreign investments in country $143
Purchase of foreign securities $29
Government spending abroad $22
A. Inflow of $128
B. Inflow of $81
C. Outflow of $128
D. Outflow of $81
7. The minimum margin requirement is established by
A. Congress.
B. the Federal Reserve.
C. brokerage firms.
D. the SEC.
8. The Securities and Exchange Commission regulates
A. the margin requirement.
B. trading in privately held securities.
C. trading in publicly held securities.
D. the amount a stock's price may change.
9. Money market mutual funds invest in
A. federal government treasury bills.
B. federal government bonds.
C. corporate stock.
D. corporate bonds.
10. If a nation exports fewer goods than it imports, it experiences
A. a surplus in current account.
B. an inflow of currency.
C. no change to currency.
D. an outflow of currency.
11. The value of common stock depends on the
A. present value of cash flows.
B. price of the stock.
C. retirement date.
D. coupon rate.
12. Which of the following is a correct statement about default?
A. Default is failure to make interest payments only.
B. Default is failure to meet any of the terms of the indenture.
C. Default is failure to make dividend payments.
D. Default is failure to maintain more assets than liabilities.
13. Investment in investment companies reduce _______ risk.
A. inte ...
1. Which of the following statements about pension plans is co.docx
1. 1. Which of the following statements about pension plans is
correct?
A. A pension plan that grants mortgage loans is called a savings
and loan association.
B. A pension plan that grants mortgage loans isn't an example
of a financial intermediary.
C. A pension plan that grants mortgage loans can't suffer losses.
D. A pension plan that grants mortgage loans is an example of a
financial intermediary.
2. The term structure of interest rates involves the relationship
between
A. yields and bond ratings.
B. stock and bond yields.
C. term and yields.
D. risk and yields.
3. If an individual buys stock on margin and its price rises, the
investor
A. must put up additional collateral.
B. must pay interest on the borrowed funds.
C. may take delivery of the stock.
D. must pay tax on the unrealized gain.
2. 4. Which of the following is indicated by an upward-sloping
yield curve?
A. Higher prices for long-term maturity
B. Higher interest rates for long-term maturity
C. Lower interest rates for long-term maturity
D. Lower prices for short-term maturity
5. Teresa buys 100 shares of XYZ stock on margin at $20 per
share. If the margin
requirement is 45
percent, the interest rate is 10 percent, and she holds the
security for 1 year, how much
interest must she
pay?
A. $2,000
B. $200
C. $90
D. $110
6. What is a nation's cash inflow or outflow on its current
account given the following
information?
Imports $145
3. Direct investments abroad $72
Foreign purchase of domestic securities $86
Net income from foreign investments $37
Exports $211
Foreign investments in country $143
Purchase of foreign securities $29
Government spending abroad $22
A. Inflow of $128
B. Inflow of $81
C. Outflow of $128
D. Outflow of $81
7. The minimum margin requirement is established by
A. Congress.
B. the Federal Reserve.
C. brokerage firms.
D. the SEC.
8. The Securities and Exchange Commission regulates
A. the margin requirement.
4. B. trading in privately held securities.
C. trading in publicly held securities.
D. the amount a stock's price may change.
9. Money market mutual funds invest in
A. federal government treasury bills.
B. federal government bonds.
C. corporate stock.
D. corporate bonds.
10. If a nation exports fewer goods than it imports, it
experiences
A. a surplus in current account.
B. an inflow of currency.
C. no change to currency.
D. an outflow of currency.
11. The value of common stock depends on the
A. present value of cash flows.
B. price of the stock.
C. retirement date.
D. coupon rate.
12. Which of the following is a correct statement about default?
5. A. Default is failure to make interest payments only.
B. Default is failure to meet any of the terms of the indenture.
C. Default is failure to make dividend payments.
D. Default is failure to maintain more assets than liabilities.
13. Investment in investment companies reduce _______ risk.
A. interest rate
B. unsystematic
C. market
D. systematic
14. Interest on _______ is exempt from federal income taxation.
A. federal bonds such as savings bonds
B. zero coupon bonds
C. state of Florida bonds
D. equipment trust certificates
15. Dividends come at the expense of
A. liabilities.
B. interest.
C. retained earnings.
D. stock.
16. A 10-year $1,000 bond has a coupon of 9 percent. What
6. would be the price if the
coupon is paid
annually and comparable bonds yield 10 percent?
A. $1,159
B. $938
C. $1,000
D. $1,900
17. What is the value of a preferred stock that pays an annual
dividend of $4 a share if
competitive yields
are 5 percent?
A. $20
B. $60
C. $80
D. $40
18. Which of the following preferred stock properties would
provide the best argument
favoring purchase of
preferred stock by an investor?
A. When long-term bond yields decline, the value of preferred
7. stock can potentially rise.
B. Because preferred stock trading volume is lower than
common stock trading volume, preferred
stock prices are less volatile
than common stock prices.
C. The yield differential between preferred stock and bonds is
smaller than would be expected on the
basis of risk differentials.
D. Preferred stockholders receive preferential treatment over
lower-class, common stockholders
when the corporation earns
sufficient profit to pay creditors and shareholders.
19. A 30-year $1,000 bond has an annual coupon of 6 percent.
What would be the current
yield if the bond
sells for $622?
A. 9.6 percent
B. 6 percent
C. 5.6 percent
D. 5 percent
20. If interest rates in general fall, the
8. A. prices of existing bonds fall.
B. coupon rate adjusts for the change in interest rates.
C. prices of existing bonds rise.
D. prices of existing bonds are unaffected.
21. Which of the following are supported by collateral?
A. Convertible bonds
B. Income bonds
C. Equipment trust certificates
D. Debentures
22. Preferred stock and bonds are similar because
A. neither interest nor dividends are tax deductible.
B. they both have voting power.
C. both may be subject to a call option.
D. interest and dividend payments are legal obligations.
23. If a perpetual preferred stock pays a dividend of $5 a year,
and yields rise from 10
percent to 12
percent, the price of the stock will
A. fall from $50 to $41.67.
9. B. fall from $60 to $50.
C. rise from $41.67 to $50.
D. rise from $50 to $60.
24. If interest rates rise, which of the following is false?
A. Prices of existing bonds fall.
B. The market price of a zero coupon bond falls.
C. The yield to maturity rises more than the current yield.
D. Existing bonds may be called.
25. Which of the following is a correct statement about a stock
split?
A. A stock split does not affect liabilities.
B. A stock split increases retained earnings.
C. A stock split generates capital gains.
D. A stock split increases equity.
26. What is the value of a common stock if the growth rate is 8
percent, the most recent
dividend was $2,
and investors require a 15 percent return on similar
investments?
A. $27.34
B. $25.78
10. C. $28.57
D. $30.85
27. The dividend paid by a preferred stock is usually
A. fixed.
B. paid in stock.
C. tax deductible.
D. variable.
28. The yield to maturity on a bond is the
A. interest plus price appreciation (or loss) achieved by holding
the bond to maturity.
B. interest paid divided by the price of the bond.
C. price appreciation earned by the bond.
D. bond's coupon divided by the principal amount.
29. Management may prefer not paying dividends in order to
A. increase the firm's liabilities.
B. finance growth and increase the value of their shares.
C. reduce corporate income taxes.
D. use money to reduce investments in assets.
30. An increase in investors' required return will cause the
value of a common stock to
A. rise.
11. B. fall.
C. remain unchanged.
D. remain stable or rise slightly.
FIN 540 – Homework Chapter
: Answer the following five questions on a separate document.
Explain how you reached the
answer or show your work if a mathematical calculation is
needed, or both. Submit your assignment using the assignment
link in the course shell. Each question is worth five points
apiece for a total of 25 points for this homework assignment.
1.Which of the following is generally NOT true and an
advantage of going public?
a. Increases the liquidity of the firm's stock.
b. Makes it easier to obtain new equity capital.
c. Establishes a market value for the firm.
d. Makes it easier for owner managers to engage in
profitable self dealings.
e. Facilitates stockholder diversification.
2. Which of the following statements about listing on a stock
exchange is most CORRECT?
a. Any firm can be listed on the NYSE as long as it pays
the listing fee.
b. Listing provides a company with some "free"
advertising, and it may enhance the firm's prestige and
help it do more business.
c. Listing reduces the reporting requirements for firms,
because listed firms file reports with the exchange rather
12. than with the SEC.
d. The OTC is the second largest market for listed stock,
and it is exceeded only by the
NYSE.
e. Listing is a decision of more significance to a firm than
going public.
3. Which of the following statements is most CORRECT?
a. Private placements occur most frequently with stocks,
but bonds can also be sold in a
private placement.
b. Private placements are convenient for issuers, but the
convenience is offset by higher
flotation costs.
c. The SEC requires that all private placements be handled
by a registered investment
banker.
d. Private placements can generally bring in funds faster
than is the case with public
offerings.
e.
Which of the following statements is most CORRECT?
a. The key benefits associated with refunding debt are the
reduction in the firm's debt ratio and the creation of more
reserve borrowing capacity.
b. The mechanics of finding the NPV of a refunding
decision are fairly straightforward.
However, the decision of when to refund is not always
clear because it requires a
forecast of future interest rates.
c. If a firm with a positive NPV refunding project delays
refunding and interest rates rise, the firm can still obtain the
entire NPV by locking in a low coupon rate when the rates are
low, even though it actually refunds the debt after rates
have risen.
d. Suppose a firm is considering refunding and interest
rates rise during time when the analysis is being done The
13. rise in rates would tend to lower the expected price of the
new bonds, which would make them cheaper to the firm
and thus increase the expected interest savings.
e. If new debt is used to refund old debt, the correct
discount rate to use in the refunding analysis is the before
tax cost of new debt.
5. Which of the following factors would increase the likelihood
that a company would call its outstanding bonds at this time?
a. A provision in the bond indenture lowers the call price
on specific dates, and yester
day was one of those dates.
b. The flotation costs associated with issuing new bonds
rise.
c. The firm's CFO believes that interest rates are likely to
decline in the future.
d. The firm's CFO believes that corporate tax rates are
likely to be increased in the future
. e. The yield to maturity on the company's outstanding
bonds increases due to a weakening of the firm's financial
situation.
Directions: Answer the following five questions on a separate
document. Explain how you reached the answer or show your
work if a mathematical calculation is needed, or both. Submit
your assignment using the assignment link in the course shell.
Each question is worth five points apiece for a total of 25 points
for this homework assignment.
1. Operating leases often have terms that include
a. full amortization over the life of the lease.
b. very high penalties if the lease is canceled.
14. c. restrictions on how much the leased property can be
used.
d. much longer lease periods than for most financial
leases.
e. maintenance of the equipment by the lessor.
2. Which of the following statements is most CORRECT?
a. Capitalizing a lease means that the firm issues equity
capital in proportion to its current capital structure, in an
amount sufficient to support the lease payment obligation.
b. The fixed charges associated with a lease can be as high
as, but never greater than, the
fixed payments associated with a loan.
c. Capital, or financial, leases generally provide for
maintenance by the lessor.
d. A key difference between a capital lease and an
operating lease is that with a capital
lease, the lease payments provide the lessor with a return
of the funds invested in the
asset plus a return on the invested funds, whereas with an
operating lease the lessor
depends on the residual value to realize a full return of and
on the investment.
e. Firms that use "off balance sheet" financing, such as
leasing, would show lower debt
ratios if the effects of their leases were reflected in their
financial statements.
3. Financial Accounting Standards Board (FASB) Statement #13
requires that for an unqualified
audit report, financial (or capital) leases must be included in the
balance sheet by reporting the
a. residual value as a liability.
b. present value of future lease payments as an asset and
also showing this same amount as an offsetting liability.
15. c. undiscounted sum of future lease payments as an asset
and as an offsetting liability.
d. undiscounted sum of future lease payments, less the
residual value, as an asset and as an offsetting liability.
e. residual value as a fixed asset.
4. Heavy use of off balance sheet lease financing will tend to
a. make a company appear less risky than it actually is
because its stated debt ratio will
appear lower.
b. affect a company's cash flows but not its degree of risk.
c. have no effect on either cash flows or risk because the
cash flows are already reflected in the income statement.
d. affect the lessee's cash flows but only due to tax effects.
e. make a company appear more risky than it actually is
because its stated debt ratio will be increased.
19 In the lease versus buy decision, leasing is often preferable
a. because, generally, no down payment is required, and
there are no indirect interest
costs.
b. because lease obligations do not affect the firm's risk as
seen by investors.
c. because the lessee owns the property at the end of the
least term. d. because the lessee may
have greater flexibility in abandoning the project in which the
leased property is used than if the lessee bought and owned
the asset.
e. because it has no effect on the firm's ability to borrow to
make other investments.