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Part 1 of 2 – Lesson 6 Questions 37.5/ 50.0 Points

Question 1 of 40
2.5/ 2.5 Points
As the rating of a bond increases (for example, from A, to
AA, to AAA), it generally means that:
A. the credit rating
increases, the default risk increases, and the required rate of return
decreases.
B. the credit rating
increases, the default risk decreases, and the required rate of return
increases.
C. the credit rating
increases, the default risk decreases, and the required rate of return
decreases.
D. the credit rating
decreases, the default risk decreases, and the required rate of return
decreases.

Question 2 of 40
2.5/ 2.5 Points
The four steps to determining the price of a bond are:
A. determine the
amount and timing of the present cash flows, determine the appropriate discount
rate, find the present value of the lump-sum principal and the annuity stream
of coupons, and add the PVs of the principal and coupons.
B. determine the
amount and timing of the future cash flows, determine the appropriate discount
rate, find the future value of the lump-sum principal and the annuity stream of
coupons, and add the FVs of the principal and coupons.
C. determine the
amount and timing of the future cash flows, determine the appropriate discount
rate, find the present value of the lump-sum principal and the annuity stream
of coupons, and multiply the PVs of the principal and coupons.
D. determine the
amount and timing of the future cash flows, determine the appropriate discount
rate, find the present value of the lump-sum principal and the annuity stream
of coupons, and add the PVs of the principal and coupons.

Question 3 of 40
0.0/ 2.5 Points
Most U.S. corporate and government bonds choose to make
__________ coupon payments.
A. annual
B. semiannual
C. quarterly
D. monthly

Question 4 of 40
2.5/ 2.5 Points
The __________ is the return the bondholder receives on the bond
if held to maturity.
A. coupon
B. coupon rate
C. yield to maturity

D. par rate

Question 5 of 40
2.5/ 2.5 Points
__________ are always unsecured bonds.
A. Mortgage bonds
B. Debentures
C. Callable bonds
D. Junior debt bonds

Question 6 of 40
0.0/ 2.5 Points
When the __________ is less than the yield to maturity, the
bond sells at a/the __________ the par value.
A. coupon rate;
premium over
B. coupon rate;
discount to
C. time to maturity;
discount to
D. time to maturity;
same price as

Question 7 of 40
2.5/ 2.5 Points
Which of the following types of bonds, as characterized by a
feature, by definition has two coupon payments per year?
A. Consol
B. Semiannual
C. Zero-coupon
D. Putable

Question 8 of 40
2.5/ 2.5 Points
The difference between the price and the par value of a
zero-coupon bond represents:
A. taxes payable by
the bond buyer.
B. the accumulated
principal over the life of the bond.
C. the bond premium.

D. the accumulated
interest over the life of the bond.

Question 9 of 40
2.5/ 2.5 Points
The __________ is the interest rate printed on the bond.
A. coupon rate
B. semiannual coupon
rate
C. yield to maturity

D. compound rate

Question 10 of 40
2.5/ 2.5 Points
When real property is used as collateral for a bond, it is
termed a/an:
A. debenture.
B. mortgaged
security.
C. indenture.
D. senior bond.

Question 11 of 40
0.0/ 2.5 Points
Blackburn Inc. has issued 30-year, $1,000 face value, 10%
annual coupon bonds, with a yield to maturity of 9%. The annual interest
payment for the bond is:
A. $100.
B. $90.
C. $50.
D. $45.

Question 12 of 40
2.5/ 2.5 Points
With a bearer bond, whoever held it was entitled to the
__________ and the __________.
A. interest
payments; principal
B. dividend
payments; principal
C. interest
payments; dividend payments
D. interest
payments; voting rights

Question 13 of 40
2.5/ 2.5 Points
The __________ is the expiration date of the bond.
A. future value
B. yield to maturity

C. maturity date
D. coupon

Question 14 of 40
2.5/ 2.5 Points
Which of the following statements about the relationship
between yield to maturity and bond prices is false?
A. When the yield to
maturity and coupon rate are the same, the bond is called a par value bond.
B. A bond selling at
a premium means that the coupon rate is greater than the yield to maturity.
C. When interest
rates go up, bond prices go up.
D. A bond selling at
a discount means that the coupon rate is less than the yield to maturity.

Question 15 of 40
2.5/ 2.5 Points
Which of the following is NOT a category for rating
classifications of bonds?
A. Investment grade
bonds
B. American grade
bonds
C. Extremely
speculative grade bonds
D. Speculative grade
bonds

Question 16 of 40
2.5/ 2.5 Points
When a company is in financial difficulty and cannot fully
pay all of its creditors, the first lenders to be paid are the:
A. stockholders.
B. sinking fund
holders.
C. junior
debtholders.
D. senior
debtholders.

Question 17 of 40
0.0/ 2.5 Points
Moody’s has developed a corporate bond default-risk rating
system using capital and lowercase letters and numbers. Below are several
examples of Moody’s ratings. Which answer choice lists a collection of ratings
for “high credit investment grade” bonds?
A. Baa1, A1, A3
B. Ba1, Baa2, Baa3
C. Aa2, Aa3, A1
D. Caa, Ca, C

Question 18 of 40
0.0/ 2.5 Points
Which of the following types of bonds may the issuer buy
back before maturity?
A. Callable bond
B. Putable bond
C. Convertible bond
D. Zero-coupon bond

Question 19 of 40
2.5/ 2.5 Points
The __________ is the annual coupon payment divided by the
current price of the bond, and is not always an accurate indicator.
A. current yield
B. yield to maturity

C. bond discount rate

D. coupon rate

Question 20 of 40
2.5/ 2.5 Points
A bond is a __________ instrument by which a borrower of
funds agrees to pay back the funds with interest on specific dates in the
future.
A. long-term equity
B. long-term debt
C. short-term debt
D. short-term equity

Part 2 of 2 – Lesson 7 Questions 37.5/ 50.0 Points

Question 21 of 40
0.0/ 2.5 Points
Which of the statements below is true?
A. The profits for
common stock owners come after payment to the employees, suppliers, government,
and creditors.
B. Shareholders
elect the board of directors, which ultimately selects the bondholder team that
runs the day-to-day operations of the company.
C. Stock is a minor
financing source for public companies.
D. Stockholders are
paid before debtholders (bondholders) if a company fails.

Question 22 of 40
2.5/ 2.5 Points
You want to invest in a stock that pays $3.50 annual cash
dividends for the next six years. At the end of the six years, you will sell
the stock for $22.50. If you want to earn 12.5% on this investment, what is a
fair price for this stock if you buy it today?
A. About $25.94
B. About $25.29
C. About $12.45
D. About $14.25

Question 23 of 40
2.5/ 2.5 Points
Which of the statements below is FALSE? Answer: D
A. The dividend
model requires that a firm have a cash dividend history and that the dividend
history shows a constant dividend or a positive growth in dividends.
B. A problem with
using the dividend growth model is that it appears to underestimate the
expected return for some stocks.
C. A problem with
using the dividend growth model is that it produces a negative expected return
whenever a firm cuts its dividends.
D. A problem with
using the dividend growth model is that it appears to underestimate the
expected return for all stocks.

Question 24 of 40
0.0/ 2.5 Points
__________ refers to how quickly information is reflected in
the available prices for trading.
A. Market efficiency

B. Mechanical
efficiency
C. Informational
efficiency
D. Operational
efficiency

Question 25 of 40
2.5/ 2.5 Points
Dividend models suggest that the value of a financial asset
is determined by future cash flows. A problem arises, however, in that future
cash flows may be difficult to predict as to __________ of these cash flows.
A. both the timing
and the amount
B. the timing but
not the amount
C. the amount but
not the timing
D. neither the
timing nor the amount

Question 26 of 40
2.5/ 2.5 Points
Stocks are different from bonds because:
A. stocks, unlike
bonds, are major sources of funds.
B. stocks, unlike
bonds, represent residual ownership.
C. stocks, unlike
bonds, give owners legal claims to payments.
D. bonds, unlike
stocks, represent voting ownership.

Question 27 of 40
0.0/ 2.5 Points
Which of the statements below is FALSE?
A. In estimating the
current price using the constant growth dividend
model, we let g be the growth rate on the dividend stream
and r be the
rate of return required by the potential buyer of the stock.

B. Constant growth
means that the percentage increase in the dividend is
the same each year.
C.
Div0 refers to the dividends that were just been paid to the
current owner of the stock.

D. One unlikely
dividend pattern is to raise or grow dividends by a fixed
amount at fixed intervals.

Question 28 of 40
2.5/ 2.5 Points
__________ means that the percentage increase in the
dividend is the same each year.
A. Constant growth
B. Inconsistent
growth
C. No growth
D. A constant cash
flow

Question 29 of 40
0.0/ 2.5 Points
In the United States, there are three well-known secondary
stock markets. Which of the below is NOT one of these?
A. The New York
Stock Exchange (NYSE)
B. The Chicago Stock
Exchange (CSE)
C. The National
Association of Securities Dealers and their trading system NASDAQ (National
Association of Securities Dealers Automated Quotation System)
D. The American
Stock Exchange (AMEX)

Question 30 of 40
0.0/ 2.5 Points
Shortcomings of the dividend pricing models suggest that we
need a pricing model that is more inclusive than the dividend models and
provides expected returns for companies based on aspects besides their
historical dividend patterns. Which of the below is NOT one of these aspects?
A. The company’s
risk
B. The premium for
taking on risk
C. The reward for
waiting
D. Stable dividends

Question 31 of 40
2.5/ 2.5 Points
You want to invest in a stock that pays $6 annual cash
dividends for the next five years. At the end of the five years, you will sell
the stock for $30. If you want to earn 10% on this investment, what is a fair
price for this stock if you buy it today?
A. $41.37
B. $40.37
C. $22.75
D. $18.63

Question 32 of 40
2.5/ 2.5 Points
The dividend model requires that a firm has a cash dividend
history and that the dividend history shows a:
A. constant dividend
or a constant growth in price where constant growth can be either positive or
negative.
B. positive dividend
or a negative growth in dividends.
C. constant dividend
or a positive growth in dividends.
D. constant price or
a positive growth in dividends.

Question 33 of 40
2.5/ 2.5 Points
A typical practice of many companies is to distribute part
of the earnings to shareholders through:
A. quarterly stock
splits.
B. quarterly cash
dividends.
C. semiannual cash
dividends.
D. annual stock
dividends.

Question 34 of 40
2.5/ 2.5 Points
What if the company goes out of business in 15 years and
thus pays an annual dividend of $2.10 for only those 15 years? What is the
present value of a share for this company if we want a 10% return on the stock?
A. $15.97
B. $16.97
C. $17.97
D. $18.97

Question 35 of 40
2.5/ 2.5 Points
Which of the statements below is true?
A. A problem with
using the dividend growth model is that it appears to underestimate the
expected return for all stocks.
B. A problem with
using the dividend growth model is that it produces a negative expected return
whenever a firm cuts dividends.
C. A problem with
using the dividend growth model is that it produces a positive expected return
whenever a firm cuts dividends.
D. A problem with
using the dividend growth model is that it produces a negative expected return
whenever a firm increases its dividends.

Question 36 of 40
2.5/ 2.5 Points
Which of the statements below is FALSE?
A. The profits for
common stock owners come before payment to employees, suppliers, government,
and creditors.
B. Shareholders
elect the board of directors, which ultimately selects the management team that
runs the day-to-day operations of the company.
C. Stock is a major
financing source for public companies.
D. Common stock’s
ownership claim on the assets and cash flow of a company is often referred to
as a residual claim.

Question 37 of 40
2.5/ 2.5 Points
Which of the statements below is true?
A. Buying of shares
is the selling of ownership in the company.
B. A company is said
to go “private” when it opens up its ownership structure to the
general public through the sale of common stock.
C. Private companies
choose to sell stock to attract permanent financing through equity ownership of
the company.
D. Most companies
have the resident expertise to complete an initial public offering (IPO), or
first public equity issue.

Question 38 of 40
2.5/ 2.5 Points
The __________ is the market of first sale in which
companies first sell
their authorized shares to the public.
A. primary market
B. secondary market
C. bull market
D. Nasdaq market

Question 39 of 40
2.5/ 2.5 Points
You buy a stock for which you expect to receive an annual
dividend of $2.10 for the 15 years that you plan on holding it. After 15 years,
you expect to sell the stock for 32.25. What is the present value of a share
for this company if you want a 10% return?
A. $7.72
B. $15.97
C. $23.69
D. $31.41

Question 40 of 40
2.5/ 2.5 Points
The __________ are quite dynamic in terms of processing
trades and incorporating information in prices and thus are considered very
efficient markets.
A. domestic bond
markets
B. equity markets
C. fixed income
markets
D. foreign bond
markets