Bearing the risk of reselling, at a profit, the securities purchased from an issuing corporation at an agreed-on price by an investment banker is called *

1 point

Overwriting

Processing

Underwriting

Indenting

Bonds issued by a corporation are *

1 point

equity instruments

long term debt instruments

Rate that creates equilibrium between the supply of savings and the demand for investment funds in a perfect world is called *

1 point

effective annual interest rate

real rate of interest

nominal interest rate

risk free rate of interest

Interest rate is the compensation paid by the lender of funds to the borrower. *

1 point

True

False

Any action taken by the financial manager that increases the risk shareholders must bear will also increase the risk premium required by shareholders, and hence the required return. *

1 point

False

True

Because equity holders are the last to receive any distributions, they expect greater returns to compensate them for the additional risk they bear. *

1 point

False

True

Option 3

Shares of common stock held by the firm which are repurchased are known as *

1 point

Authorised shares

Issued shares

Ordinary shares

Treasury shares

A portion of a security registration statement that describes the key aspects of the issue, the issuer, and its management and financial position is called the *

1 point

Prospectus

Red herring

Preliminary prospectus

None of the above

Factors that influence the equilibrium interest rate are *

1 point

Risk

Liquidity preference

Inflation

All of the above

Income bonds, subordinated debentures and debentures are examples of *

1 point

secured bonds

unsecured bonds

A bond that has a Par value greater than its price is called *

1 point

Discount bond

Premium bond

Par value bond

All of the above

The inflation premium, when the real interest rate is 2% and the risk-free rate and risk premium are 5% and 3% respectively, is *

1 point

10%

5%

8%

3%

A downward-sloping yield curve indicates that long-term interest rates are generally lower than short-term interest rates *

1 point

False

True

Debt holders claim on income and assets are *

1 point

Senior to equity holders

Subordinate to equity holders

None of the above

Funds provided by the firms owners (investors or stockholders) is called *

1 point

Equity financing

Debt financing

Borrowed financing

None of the above