Question 11

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Consider what you have learned about valuing bonds.

• A: Coupon rate = 3.5%, YTM = 4%
• B: Coupon rate = 3.2%, YTM = 3.2%
• C: Coupon rate = 2.8%, YTM = 3.5%
• D: Coupon rate = 4%, YTM = 3.7%

Which of the bonds is selling at a premium?

• D
• C
• B
• A

Question 12

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Preemptive rights allow stockholders to acquire __________ before the general public.

• new stock
• preexisting shares
• company assets
• dividends

Question 13

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Because a bond is a legal contract, what could happen if a borrower fails to meet their obligation?

• The lender could then own the bond outright.
• The bond could be reevaluated by a rating agency.
• The borrower could be required to issue an offering memorandum.
• The borrower could face bankruptcy proceedings.

Question 14

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Max is willing to take on a little risk when she buys a bond, but she wants to be compensated for her risk with an elevated interest rate.

What kind of bond should she buy?

• Convertible
• Inflation-linked
• Subordinated
• Zero-coupon

Question 15

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Select the true statement about reinvestment risk.

• A smart investor can eliminate reinvestment risk in addition to interest rate risk.
• Reinvestment risk is inversely related to interest rate risk.
• Callable bonds are less exposed to reinvestment risk.
• It is the risk that a bond's price will fall below its par value.

Question 16

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Select the best definition of an ordinary annuity.

• An annuity whose payments are made at the end of the period
• An annuity that makes payments forever
• An annuity whose payments can be made at any point during the period
• An annuity whose payments are made at the beginning of the period

Question 17

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Chen purchased a 30-year corporate bond in 2018 that promised to pay him 4% interest semi-annually for the life of the loan. The corporation reserved the right to redeem the bond in 2038.

Which of those numbers represents the bond's call feature?

• 30
• 2018
• 2038
• 4

Question 18

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Which descriptor relates to the asset-based approach for valuing corporations?

• Involves an analysis of risk
• Multiplies the share price by number of shares outstanding
• Analyzes what the company owns
• Considers the weighted average cost of capital

Question 19

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Select the statement that is true of preferred stock.

• Owners of preferred stock have a stronger claim to a company's assets than owners of common stock.
• Preferred stock is not considered equity.
• Owners of preferred stock have more voting rights than owners of common stock.
• Preferred stock is generally thought to be more risky than common stock.

Question 20

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Hunter is going to receive $3,000 in one year and he wants to know its equivalent value today.

The process of determining the answer is called ______.

• discounting
• compounding
• pricing
• rating