Finance Questions

According to the Fisher effect, a decrease in the rate of inflation willA) increase the real rate but not affect the nominal rate.B) decrease the nominal rate but not affect the real rate.C) not affect either the real or the nominal rate.D) decrease both the nominal and the real rate.E) increase the nominal rate but not affect the real rate.

The overall level of interest rates is primarily affected by theA) real rate.B) inflation rate.C) interest rate risk premium.D) liquidity premium.E) default risk premium.

Which one of these is included in the term structure of interest rates and remains constant over the term?A) Default risk premiumB) Interest rate risk premiumC) Liquidity premiumD) Real rate of interestE) Inflation premium

What does the spread between the bid and asked bond prices represent?A) Difference between the coupon rate and the current yieldB) Difference between the current yield and the yield to maturityC) Accrued interestD) Dealer's profitE) Bondholder's profit

Municipal bondsA) primarily appeal to high tax-bracket investors.B) generally pay a higher pretax rate of return than corporate bonds.C) are issued only by local municipalities, such as a city or a borough.D) are rarely callable.E) pay interest that is exempt from all income tax.

Assume a firm is operating at full capacity. Which one of these accounts is leastapt to vary directly with sales?A) InventoryB) CashC) Long-term debtD) Accounts payableE) Fixed assets

A convertible bond can be exchanged forA) cash equal to par value at any time.B) shares of company stock.C) any other outstanding bond.D) a newly issued bond if it carries a higher coupon rate.E) a new bond if the current bond's rating falls to low-grade.

Interest rate risk increases asA) the time to maturity decreases.B) the coupon rate increases.C) a bond matures.D) the coupon payment decreases.E) either the time to maturity or the coupon rate increases.

Bond prices are quoted as a percentage of theA) issue price.B) total interest and principal payments.C) face value.D) dirty value.E) clean value

The ________ premium is that portion of a nominal interest rate or bond yield that represents compensation for the possibility of nonpayment by the bond issuer.A) interest rate riskB) taxabilityC) liquidityD) inflationE) default risk

A bond has a coupon rate of 6 percent and matures in 10 years. The next semiannual interest payment will be paid 1 month from now. Which one of the following do you know with certainty concerning this bond?A) The bond sells at a discount.B) The bond sells at a premium.C) The dirty price is higher than the clean price.D) The clean price is higher than the dirty price.E) The market price exceeds the par value.

For a dividend paying firm, how is the projected addition to retained earnings calculated using the percentage of sales approach?A) Net income × (1 - Retention ratio)B) Net income × (1 - Dividend payout ratio)C) (Cash dividends / Net income) × (New sales / Old sales)D) (Retained earnings / Sales) × (New Sales / Old Sales)E) Net income × (New Sales / Old Sales)

An upward sloping yield curve indicatesA) interest rates are declining.B) lower quality bonds have higher yields.C) short-term rates will rise sharply in the near future.D) an inverse relationship between bond prices and yields.E) long-term rates are higher than medium-term rates.

Which formula computes the actual real rate of return on an investment?A) r= (1 + R) - (1 + h)B) r= (1 + R) / (1 + h)C) r= (1 + R) - (1 + h) - 1D) r= (1 + R) / (1 + h) - 1E) R= (1 + r) × (1 + h) - 1

All else constant, a coupon bond that is selling at a premium, must haveA) a yield to maturity that is less than the coupon rate.B) a coupon rate that is equal to the yield to maturity.C) a market price that is less than par value.D) semiannual interest payments.E) a coupon rate that is less than the yield to maturity.

______bonds pay interest that is taxed only at the federal level.A) MunicipalB) CorporateC) TreasuryD) MortgageE) Zero coupon

A "make-whole" call provision on a bond provides forA) call prices that vary with the funds available in a sinking fund.B) a call price equal to the bond's approximate market value at the time of call.C) decreasing call prices as interest rates decrease.D) a call price equal to the face value plus all accrued interest to date.E) a call price equal to the face value.

Floating-rate bonds generally haveA) an unlimited variable rate of interest.B) a fixed coupon rate and a variable principal balance.C) both a call and a put provision.D) both a put provision and a collar.E) a collar only on the bond's principal.

The U.S. corporate bond marketA) provides end-of-day values for all privately and publicly issued bonds.B) is the largest securities market in the world based on trading volume.C) is based on bond dealers who trade in a face-to-face market.D) is more transparent than it was in the 1990s.E) provides daily price quotes through BDEX, the bond dealers exchange.

DebenturesA) are a claim on assets not otherwise pledged as security.B) represent a mortgage claim on real estate.C) are a form of subordinated equity.D) is another term for trust deeds.E) are best defined as bearer bonds.