Finance 402 Final Guaranteed Success
1) The value of a financial asset is:
A. the sum of all future cash flows it will generate
B. the present value of all future cash flows
C. the future value of all cash flows
D. none of the above B. the present value of all future cash flows
2) A dec...
A. the sum of all future cash flows it will generate
B. the present value of all future cash flows
C. the future value of all cash flows
D. none of the above ✅B. the present value of all future cash flows
2) A decision to invest 20% of savings in corporate bonds is:
A. security selection
B. leveraged investing
C. asset allocation
D. market neutral investing ✅C. asset allocation
3) Asset allocation:
A. involves the broad choice of asset classes for investing
B. involves the specific choice of individual stocks and bonds for a portfolio
C. involves the use of charts for analysis
D. none of the above ✅A. involves the broad choice of asset classes for investing
4) In a primary market:
A. investors trade with other investors
B. companies issue IPOs or SEOs
C. both A and B
D. none of the above ✅B. companies issue IPOs or SEOs
,5) An advantage of buying a company's stock instead of its bonds is:
A. stock has higher priority with regards to cash flows
B. the cash flows from stocks are more predictable and reliable than those from bonds.
C. the potential for gain is greater with stocks than bonds.
D. none of the above ✅C. the potential for gain is greater with stocks than bonds.
6) A difference between preferred stock and bonds is:
A. preferred stock typically includes voting rights, bonds do not
B. preferred stock has no maturity date, bonds do have a maturity date.
C. both (A) and (B) are correct
D. none of the above. ✅B. preferred stock has no maturity date, bonds do have a maturity date.
7)In a secondary market:
A. investors trade with other investors
B. companies issue IPOs or SEOs
C. both A and B
D. none of the above ✅A. investors trade with other investors
8) An advantage of buying a company's bonds instead of its common stock is:
A. bonds have higher priority with regards to cash flows
B. bonds include voting rights, while common stock does not.
C. the potential for gain is greater with bonds than stocks.
D. none of the above ✅A. bonds have higher priority with regards to cash flows
,9) The primary role of derivatives markets in the economy is:
A. to allow corporations to raise new capital
B. to provide liquidity for the trading of stocks and bonds
C. to share or transfer risk in the economy.
D. none of the above. ✅C. to share or transfer risk in the economy.
10) If a financial asset that was perceived as low risk becomes viewed as higher risk:
A. the expected return will increase and the price will increase.
B. the expected return will increase and the price will decrease.
C. the expected return will decrease and the price will increase.
D. the expected return will decrease and the price will decrease. ✅B. the expected return will increase
and the price will decrease.
1) You observe that a corporate bond has a yield-to-maturity of 50% in the market.
A. 50% is the rate of return you will earn on investing in this bond
B. the issuer of the bonds is most likely already in default, or has a high probability of defaulting on the
bonds
C. A and B
D. none of the above ✅B. the issuer of the bonds is most likely already in default, or has a high
probability of defaulting on the bonds
2) The relationship between bond price and yield-to-maturity is:
A. inverse
B. convex
C. A and B
, D. none of the above ✅C. A and B
3) Consider a 7-year bond with a 9% coupon and a current yield to maturity of 12%. If YTM remains
constant, the holding period return of this bond over the next year will be:
A. less than 9%
B. 9%
C. higher than 12%
D. 12% ✅D. 12%
4) The yield to maturity on a bond is __________.
A. above the coupon rate when the bond sells at a discount, and below the coupon rate when the bond
sells at a premium
B. the discount rate that will set the present value of the payments equal to the bond price
C. equal to the actual return on investment only if all coupon payments are received and re-invested at
the yield to maturity
D. all of the above ✅D. all of the above
5) A bond will sell at a price greater than face value when __________.
A. its coupon rate is greater than its yield to maturity
B. its coupon rate is less than its yield to maturity
C. the market level of interest rates rises
D. all of the above ✅A. its coupon rate is greater than its yield to maturity
6) A bond has a 6% annual coupon rate paid out semi-annually, a face value of $1,000 and 3 years to
maturity. If the current price of the bond is $1,045 then the annualizedYTM is:
A. 2.19%
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