The importance of bond covenants is accurately characteriazed by which statement?A.Bond covenants help to alleviate agency conflict between managers and bondholders.

B.Corporations always have a limited life as specified in their charter.

C.Legislation that restricted hostile takeovers would improve manager's attitude toward shareholders and eliminate the need for many covenants.

D.Bond covenants are illegal in many states.

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Question 2 of 50

8.0 PointsWhich of the following work to reduce agency conflicts between stockholders and bondholders?A.Including restrictive covenants in the company's bond contract.

B.Providing managers with a large number of stock options.

C.The passage of laws that make it easier for companies to resist hostile takeovers.

D.It is impossible to reduce acency conflicst between stockholders and bondholders.

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Question 3 of 50

8.0 PointsOwnership of which business form is most easily transferred?A.proprietorship

B.partnership

C.corporation

D.actually ownership transfer is equally easy for all business forms

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Part 2 of 16 -

Question 4 of 50

8.0 PointsThe New York Stock Exchange is best described asA.A secondary market.

B.A market for penny stocks.

C.An over-the-counter market.

D.An open market where any security can be traded

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Question 5 of 50

8.0 PointsA purchase order delivered to a broker with instructions to purchase shares of a stock at the best price immediately available is known as a/anorder.

Question 6 of 50

8.0 PointsWhich of the following accurately reflects capital market activities?A.The NYSE does not exist as a physical location; rather it represents a loose collection of dealers who trade stock electronically.

B.An example of a primary market transaction is buying 100 shares of Wal-Mart stock from your uncle.

C.Capital market instruments include long-term debt and common stock.

D.All of these statements are correct.

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Part 3 of 16 -

Question 7 of 50

8.0 PointsThe corporate tax laws in the U.S. favor which kind of financing?

A.equity financing

B.long-term financing

C.debt financing

D.short-term financing

E.actually, no alternate form of financing is favored by U.S. tax laws

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Question 8 of 50

8.0 PointsHow might a company typically report depreciation differently for tax purposes than for shareholder reporting purposes?A.accelerated depreciation is typically used for shareholder reports and straight line depreciation is typically used for tax calculations.

B.accelerated depreciation is typically used for tax calculations and straight line depreciation is typically used for shareholder reports.

C.companies are required to use identical reporting techniques for both these reports.

D.actually depreciation does not enter into either of these reports

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Question 9 of 50

8.0 PointsIf a plant with a useful life of 10 years is being depreciated over 40 years, depreciationA.its cost on the income statement may be understated

B.its cost on the income statement will still be accurate

C.its cost on the income statement will be overstated

D.its cost on the income statement bears no relationship to

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Part 4 of 16 -

Question 10 of 50

8.0 PointsA firm's financial statements show cash of $1427, annual sales of $4400, accounts receivable of $1437, inventory of $1811, fixed assets of $3933, accounts payable of $1000, bonds due in five years of $7000 and the firm's net income is $2399. What is the firm's return on total assets?% (Give your answer in percentage terms with one decimal place accuracy.) Recall this is abbreviated as ROA.

Question 11 of 50

8.0 PointsNet income is $49,000. Shares outstanding total 3,000. The company's stock sells for $28.06, then P/E ratio calculated to two decimal places is.

Question 12 of 50

8.0 PointsComparing a particular company with a group of companies to better understand how that particular company compares is known as:A.abstracting

B.benchmarking

C.contemplating

D.defeasing

E.elaborating

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Question 13 of 50

8.0 PointsCompany A and Company B have the same total assets, return on assets (ROA), and net profit margin. However, Company A has a higher debt ratio (debt to assets) and higher interest expense than Company B. Which of the following statements fits with this logic?A.Company A has a higher ROE (return on equity) than Company B.

B.Company A has a higher total assets turnover than Company B.

C.Company A has a lower operating income (EBIT) than Company B.

D.None of these statements is correct.

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Part 5 of 16 -

Question 14 of 50

8.0 PointsThe interest rate typically quoted by banks or other lenders for a loan is known as:A.effective rate

B.nominal rate

C.equivalent rate

D.economic rate

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Question 15 of 50

8.0 PointsDo any perpetuities exist?A.no they are a purely theoretical concept

B.yes they are issued as bonds by most American companies

C.yes some consols issued by the British government long ago are perpetuities

D.yes, all Treasury bills issued by the U.S. government are perpetuities

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Question 16 of 50

8.0 PointsInvestment's nominal rate is 8% and it is compounded 4 times a year. The effective annual rate is%. Give your answer in percentage terms to one decimal place.

Part 6 of 16 -

Question 17 of 50

8.0 PointsA debt instrument that might be difficult to convert into cash quickly will likely have what kind of premium associated with its interest rates?A.interest rate risk

B.maturity risk

C.default risk

D.inflation risk

E.liquidity risk

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Question 18 of 50

8.0 PointsIf you plot interest rates increasing as you go up the vertical axis and dollar amount of loans increasing from left to right on the horizontal axis, the demand curve for funds will follow what pattern?A.It will be horizontal

B.It will be vertical

C.It will slope upward from left as you move toward the right

D.It will slope downward from left as you move toward the right

E.It will have a hump in the middle, that is sloping upward at first and downward later as you move from left toward the right

F.It will have a valley in the middle, that is sloping downward at first and upward later as you move from left toward the right

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Question 19 of 50

8.0 PointsWhat instrument is sometimes known as an almost riskless Treasury bond?A.The so called long-bond, that is Treasuries with 30 years till maturity.

B.Treasury debentures

C.Treasury inflation protected securities (TIPS)

D.Actually, there is no such notion of an almost riskless bond, they all have considerable risk, it is just that some have more than others.

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Part 7 of 16 -

Question 20 of 50

8.0 PointsA company has bonds outstanding with 19 years left to maturity. The bonds have a $1,000 par value, the coupon interest rate is 10%, interest is paid annually and the yield to maturity is 11%. The current price of the bond to the nearest dollar is $.

Question 21 of 50

8.0 PointsFor which of the following, can you be certain it is an original issue discount bond?A.a callable bond

B.a putable bond

C.a debenture bond

D.a zero coupon bond

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Question 22 of 50

8.0 PointsBonds that can be exchanged for shares of stock in the issuing company are known as:A.indentures

B.debentures

C.mortgages

D.trusts

E.convertibles

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Part 8 of 16 -

Question 23 of 50

8.0 PointsThe model based on the proposition that a stock's required rate of return equals the risk-free rate of return plus a risk premium for the risk remaining after diversification is:A.diversifiable asset model

B.greater probability model

C.capital asset pricing model

D.arbitrage pricing model