2) The higher an asset’s Beta,,,a. The more responsive it is to changing market returns,b. The less responsive it is to changing market returns ,c. The higher the expected return will be in a down market,d. The lower the expected return will be in an up market ,,,, 3) The _____________ is/are a graphic depiction of the term structure if interest rates.,,a. Yield curve,b. Supply and demand functions,c. Risk-return profile,d. Aggregate demand curve,,, ,, 4) ____________ yield curve reflects higher expected future rates of interest.,,a. An upward sloping,b. A flat,c. A downward sloping,d. A linear,,,,, 5) What is the nominal rate of return on an IBM bond if the real rate of interest is 3 percent, the inflation premium is 2 percent, the US T-Bill rate is 5 percent, the maturity risk premium on the IBM bond is 3 percent, the default risk premium on the IBM bond is 2 percent, and the liquidity risk premium on the bond is 1 percent? ,,a. 16%,b. 13%,c. 11%,d. 9%,,,,,, 6) The _________ feature permits the issuer to repurchase bonds at a stated price prior to maturity.,,a. Call,b. Conversion,c. Put,d. Capitalization,,,,,,, 7) The _______ feature allows the bondholder to change each bond into a stated number of shares of stock. ,,a. Call,b. Conversion,c. Put,d. Capitalization,,,, 8) ________ are debt rated Ba or lower by Moody’s or BB or lower by Standard & Poor’s, and are commonly used by rapidly growing firms to obtain growth capital, most often to finance mergers and takeovers of other firms, particularly during the 1980’s. ,,a. Subordinated debentures,b. Mortgage bonds,c. Junk bonds,d. Equipment trust certificates,,,, 9) A project that costs your company $585,000 today will generate cash inflows for the next 7 years of $142,000 per year. Your boss uses a discount rate of 15%. All other things equal, and using the “Net Present Value method,” you will advise the boss to:,,a. REJECT because the Net Present Value is ($219,960),b. REJECT because the Net Present Value is ($5,720),c. ACCEPT because the Net Present Value is $590,720,d. ACCEPT because the Net Present Value is $5,720,,,, 10) The less certain a cash flow, then the _______ the risk, and the _______ the present value of that cash flow,,a. Lower; higher,b. Lower; lower,c. Higher; lower,d. Higher; higher,,, ,, 11) Holders of equity capital,,a. Own the firm,b. Receive interest payments,c. Receive guaranteed income,d. Have loaned money to the firm,,,, , 12) If bankruptcy were to occur, common stockholders would have a prior (senior) claim on assets over:,,a. Preferred stockholders,b. Secured creditors,c. Unsecured creditors,d. No one,,, ,, 13) An 8% preferred stock with a market price of $110 per share and a $100 par value pays a cash dividend of ,,a. $4.00,b. $8.00,c. $8.80,d. $80.00,,, ,, 14) A firm has an outstanding issue of 1,000 shares of preferred stock with a $100 par value and an 8% annual dividend. The firm also has 5,000 shares of common stock outstanding. If the preferred stock is cumulative and the Board of Directors has not paid a dividend for the past two years, then in the current year how much must the preferred stockholders be paid prior to paying any dividends to the common shareholders?,,a. $8,000,b. $16,000,c. $24,000,d. $25,000,,,, 15) Treasury stock results from the,,a. Firm selling stock for greater than its par value,b. Cumulative feature on preferred stock,c. Repurchase of outstanding stock by the company,d. Authorization of additional shares by the Board of Directors,,,,
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