1

Common stock ownership allows each investor to _____________.

1. receive priority over bondholders in the case of liquidation
2. be involved with management decisions on a day to day basis
3. vote directly on the dividend declaration decision each quarter
4. vote on the corporation's board of directors

10 points

QUESTION 2

What is the main advantage of owning bonds over stock in a firm?

1. priority claim on the firm's cash flows and assets
2. higher returns over time
3. voice in the management of the firm
4. guaranteed quarterly dividend payments over the life of the bond

10 points

QUESTION 3

Which of the following is not a common element of a preferred stock?

1. The par value is meaningful
2. No voting rights unless dividends are missed
3. Claim on assets and cash flow lies between the bondholders and common share holders
4. represents an ownership claim

10 points

QUESTION 4

What is the common term that is used when the firm distributes additional shares for every share owned?

1. stock dividend
2. special dividend
3. none of the options
4. stock split

10 points

QUESTION 5

A big advantage to the borrower of a 15-year mortgage loan compared to a 30-year mortgage loan is that

1. a.the monthly payments will be less over the life of the loan.
2. b.far less interest will be paid over the life of the loan.
3. c.it may be obtained with a smaller down payment.
4. d.the borrower will be eligible for an ARM.

10 points

QUESTION 6

A loan with real estate used as collateral and where the terms of the contract allow the lender to change the interest rate is known as a(n)

1. a.balloon mortgage.
2. b.ARM.
3. c.LIBOR.
4. d.fixed-rate mortgage.

10 points

QUESTION 7

An advantage to the borrower of an adjustable-rate mortgage is that they

1. a.require a smaller down payment.
2. b.are offered by more banks.
3. c.offer an initially lower interest rate.
4. d.require less time to complete.

10 points

QUESTION 8

Donna is in the business of buying houses, fixing them up, and then reselling them quickly (flipping). Donna might be interested in a

1. a.negative amortization home mortgage.
2. b.teaser-rate ARM.
3. c.zero-down home mortgage.
4. d.no documentation home mortgage.

10 points

QUESTION 9

Often as part of a mortgage payment, banks will allow borrowers to "escrow" funds to pay for

1. a.homeowners' insurance and property taxes.
2. b.home maintenance and homeowners' insurance.
3. c.electricity and heating expenses.
4. d.home repairs and property taxes.

10 points

QUESTION 10

Today, the typical amount of cash needed for a down payment on a home is _____ of the purchase price.

1. a.15%
2. b.25%
3. c.10%
4. d.20%