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27 Cards in this Set

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For a 10% coupon bond that has a current yield of 7%?
The bond's maturity value is lower than the bond's price.
The discount rate that makes the present value of a bond's payments equal to its price is termed the?
Yield to maturity
The yield curve depicts the current relationship between?
bond yields and maturity
Where does a "convertible bond" get its name?
The option of converting into shares of common stock
Investors who own bonds having lower credit ratings should expect
higher default possibilities
Many investors may be drawn to municipal bonds because of the bonds
exemption from federal taxes
If a bond offers an investor 11% in nominal return during a year in which the rate of inflation was 4%, then the investor's real return was:
6.73%

1 + real return = 1.11/1.04
How much would an investor need to receive in nominal return if she desires a real return of 4% and the rate of inflation is 5%?
9.20%

1.04 = 1 + nominal return / 1.05
9.2% = nominal return
In the calculation of rates of return on common stock, dividends are _______ and capital gains are ______.
not guaranteed; not guaranteed
What dividend yield would be reported in the financial press for a stock that currently pays a $1 dividend per quarter and the most recent stock price was $40?
10.0%

$1 dividend per quarter = $4 annually.
$4/$40 = 10% dividend yield
The expected return on a common stock is composed of?
both dividend yield and capital appreciation
Common stock can be valued using the perpetuity valuation formula if the:
dividends are not expected to grow
What should be the price for a common stock paying $3.50 annually in dividends if the growth rate is zero and the discount rate is 8%?
$43.75

P= 3.40/.08 = $43.75
If next year's dividend is forecast to be $5.00, the constant growth rate is 4%, and the discount rate is 16%, then the current stock price should be?
$43.33

P = 5.00/(.16-.04)
= 5.00/.12
A securities market primarily comprised of dealers who buy and sell for their own inventories is generally referred to as a(n) ______ market.
over-the-counter
The stream of customer buy and sell orders for securities is referred to as the:
order flow
A member of the New York Stock Exchange who trades for his or her own account, trying to anticipate temporary price fluctuations, is called a(n):
floor trader
The owner of a seat on the New York Stock Exchange is called a(n) _____ of the exchange.
member
Common stock shareholders are generally granted rights which include the right to:
1. Share in company profits
2. Vote for company directors
3. Vote on proposed mergers
4. Residual assets in liquidation
1, 2, 3, and 4
How much are you willing to pay for one share of stock if the company just paid an $.80 annual dividend, the dividends increase by 4% annually and you require an 8% rate of return?
$20.80
The common stock of Energizer's pays an annual dividend that is expected to increase by 10 percent annually. The stock commands a market rate of return of 12 percent and sells for $60.50 a share. What is the expected amount of the next dividend to be paid on Energizer's common stock?
$1.21
What should occur when a project's net present value is determined to be negative?
The project should be rejected.
A project's opportunity cost of capital is:
the forgone return from investing in the project.
Which of the following changes will increase the NPV of a project?
a decrease in the discount rate
If the opportunity cost of capital for a project exceeds the project's IRR, then the project has a(n):
negative NPV
Modified internal rate of return:
Handles the multiple IRR problem by combining cash flows until on one change in sign change remains.

requires the use of a discount rate
Modified internal rate of return does not require
the use of a discount rate.