uestion 1(0.2 points)

Upward-sloping yield curves often occur before the beginning of recession.

Question 1 options:

TrueFalse

Question 2(0.2 points)

Jeremy Kohn is planning to invest in a 10-year bond that pays a 12 percent coupon. The current market rate for similar bonds is 9 percent. Assume semiannual coupon payments. What is the maximum price that should be paid for this bond? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

Question 2 options:

$951

$882

$1,195

$1,033

Question 3(0.2 points)

Vanilla bonds have coupon payments that are fixed for the life of the bond, with the principal being repaid at maturity.

Question 3 options:

TrueFalse

Question 4(0.2 points)

The capital appreciation component of a stock's return considers the change in price of a stock divided by the initial price of the stock.

Question 4 options:

TrueFalse

Question 5(0.2 points)

The best measure of assessing a risk within an investment is its variance.

Question 5 options:

TrueFalse

Question 6(0.2 points)

Five years ago, Shirley Harper bought a 10-year bond that pays 8 percent semiannually for $981.10. Today, she sold it for $1,067.22. What is the realized yield on her investment? (Round to the nearest percent.)

Question 6 options:

11%

10%

8%

7%

Question 7(0.2 points)

John Wong purchased a five-year bond today at $1,034.66. The bond pays 6.5 percent semiannually. What will be his yield to maturity? (Round to the closest answer.)

Question 7 options:

5.7%

3.25%

6.7%

6.2%

Question 8(0.2 points)

Sayers purchased a stock with a coefficient of variation equal to 0.125. The expected return on the stock is 20 percent. What is the variance of the stock?

Question 8 options:

0.000625

0.025000

0.790500

0.625000

Question 9(0.2 points)

The expected return on Mike's Seafood stock is 17.9 percent. If the expected return on the market is 13 percent and the beta for Kiwi is 1.7, then what is the risk-free rate?

Question 9 options:

5.5%

4.5%

6.0%

5.0%

Question 10(0.2 points)

Which of the following statements is correct?

Question 10 options:

When choosing between two investments that have the same level of risk, investors prefer the investment with the lower return.

When choosing between two investments that have the same level of risk, investors prefer the investment with the higher return.

The greater the risk associated with an investment, the lower the return investors expect from it.

If two investments have the same expected return, investors prefer the riskiest alternative.

Question 11(0.2 points)

The income component of return for a common stock comes from the cash dividend a firm pays.

Question 11 options:

TrueFalse

Question 12(0.2 points)

The covariance of the returns between Wildcat Stock and Sun Devil Stock is 0.09875. The variance of Wildcat is 0.2116, and the variance of Sun Devil is 0.1369. What is the correlation coefficient between the returns of the two stocks?

Question 12 options:

0.170200

0.580199

0.340823

0.293347

Question 13(0.2 points)

Which one of the following statements about zero coupon bonds is NOT true?

Question 13 options:

All of these statements are true.

Zero coupon bonds make coupon payments but no principal payment at maturity.

Zero coupon bonds must sell for less than similar bonds that make periodic coupon payments.

Zero coupon bonds have no coupon payments but promise a single payment at maturity.

Question 14(0.2 points)

If you are trying to determine whether to purchase Security A or Security B as the only holding in your portfolio, then you can consider the coefficient of variation in order to understand the risk-return relationship of the individual securities.

Question 14 options:

TrueFalse

Question 15(0.2 points)

If a random variable follows a normal distribution, what is the probability that the random variable is larger than 1.96 standard deviations below the mean?

Question 15 options:

98.75%

96.25%

95.00%

97.50%

Question 16(0.2 points)

If investors believe inflation will be increasing in the future, the prevailing yield will be downward sloping.

Question 16 options:

TrueFalse

Question 17(0.2 points)

Complete diversification means that the portfolio is no longer subject to market risk.

Question 17 options:

TrueFalse

Question 18(0.2 points)

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments:

Question 18 options:

equal to the price of the bond.

exceed the price of the bond.

equal to zero.

less than the price of the bond.

Question 19(0.2 points)

Robert paid $100 for a stock one year ago. The total return on the stock was 10 percent. Therefore, the stock must be selling for $110 today.

Question 19 options:

TrueFalse

Question 20(0.2 points)

Marketability is the ability of an investor

Question 20 options:

None of these.

to sell at a profit under all circumstances.

to sell a security quickly, at a low transaction cost, and at a price close to its fair market value.

to sell the security above its par value.

Question 21(0.2 points)

Ahmet purchased a stock for $45 one year ago. The stock is now worth $65. During the year, the stock paid a dividend of $2.50. What is the total return to Ahmet from owning the stock?

Question 21 options:

50%

44%

5%

35%

Question 22(0.2 points)

Given the returns for two stocks with the following information, calculate the covariance of the returns for the two stocks. Assume the expected return is 10.8 percent for Stock 1 and 9.7 percent for Stock 2.

ProbStock 1Stock 2

0.40.090.11

0.50.110.08

0.10.170.13

Question 22 options:

0.717507

0.000321

0.000516

0.000094

Question 23(0.2 points)

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.

Question 23 options:

TrueFalse

Question 24(0.2 points)

Which of the following investors should be willing to pay the highest price for an asset?

Question 24 options:

An investor who is not completely diversified.

An investor with a single-asset portfolio.

An investor who is so risk-averse that he does not recognize the benefits of diversification.

An investor with a diversified portfolio.

Question 25(0.2 points)

The expected return for the asset shown in the following table is 18.75 percent. If the return distribution for the asset is described as below, what is the standard deviation for the asset's returns? Round intermediate computations and final answer to 6 decimal places.

ReturnProbability

0.100.25

0.200.50

0.250.25

Question 25 options:

0.015195

0.054486

0.000613

0.002969

Question 26(0.2 points)

The real rate of interest varies with the business cycle, with the highest rates seen at the end of a period of business expansion and the lowest at the bottom of a recession.

Question 26 options:

TrueFalse

Question 27(0.2 points)

If a bond's coupon rate is equal to the market rate of interest, then the bond will sell:

Question 27 options:

at a price greater than its face value.

at a price equal to its face value.

None of these is true.

at a price less than its face value.

Question 28(0.2 points)

Triumph Corp. issued five-year bonds that pay a coupon of 6.375 percent annually. The current market rate for similar bonds is 8.5 percent. How much will you be willing to pay for Triumph's bond today? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

Question 28 options:

$916

$1,137

$1,023

$897

Question 29(0.2 points)

You have invested 40 percent of your portfolio in an investment with an expected return of 12 percent and 60 percent of your portfolio in an investment with an expected return of 20 percent. What is the expected return of your portfolio?

Question 29 options:

17.6%

16.0%

16.8%

15.2%

Question 30(0.2 points)

Your friend recommends that you invest in a three-year bond issued by Trimer, Inc., that will pay annual coupons of 10 percent. Similar investments today will yield 6 percent. How much should you pay for the bond? (Do not round intermediate computations. Round your final answer to the nearest dollar.)

Question 30 options:

$1,024

$979

$886

$1,107

Question 31(0.2 points)

Which one of the following statements is NOT true of realized yield?

Question 31 options:

The realized yield is the return earned on a bond given the cash flows actually received by the investor.

The realized yield is equal to the yield to maturity even if the bond is sold prior to maturity.

It is the interest rate at which the present value of the actual cash flows generated by the investment equals the bond's price at the time of sale of the bond.

All of the above are true.

Question 32(0.2 points)

As interest rates fall, the prices of bonds decline.

Question 32 options:

TrueFalse

Question 33(0.2 points)

You know that the average college student eats 0.75 pounds of food at lunch. If the standard deviation is 0.2 pounds of food, then what is the total amount of food that a cafeteria should have on hand to be 90 percent confident that it will not run out of food when feeding 50 college students?

Question 33 options:

53.95 pounds

57.10 pounds

17.90 pounds

21.05 pounds

Question 34(0.2 points)

The preferred stock of Acme International is selling currently at $110.35. If your required rate of return is 9.75 percent, what is the dividend paid by this stock? (Round off to the two decimal places.)

Question 34 options:

$11.32

$8.53

$10.76

$9.75

Question 35(0.2 points)

Prior, Inc., is expected to grow at a constant rate of 9 percent. If the company's next dividend is $2.75 and its current price is $37.35, what is the required rate of return on this stock?(Do not round intermediate calculations. Round final answer to the nearest percent.)

Question 35 options:

16%

13%

20%

21%

Question 36(0.2 points)

The constant growth dividend model would be useful to determine the value of all, but which of the following firms?

Question 36 options:

A firm whose earnings and dividends are declining at a fairly steady rate.

A firm whose expected sales, profits, and dividends are flat.

A firm whose earnings and dividends are growing at a fairly steady rate.

A firm whose sales, profits, and dividends are growing at an annual average compound rate of 5 percent.

Question 37(0.2 points)

Which of the following statements is true about secondary markets?

Question 37 options:

All of these statements are true

Most secondary market transactions directly affect the capital of the firm that issues the securities.

An active secondary market causes firms to sell their new debt or equity issues at a higher transaction cost of funds.

In secondary markets, outstanding shares of stock are bought and sold among investors.

Question 38(0.2 points)

Each quarter, Transam, Inc., pays a dividend on its perpetual preferred stock. Today, the stock is selling at $83.45. If the required rate of return for such stocks is 10.5 percent, what is the quarterly dividend paid by the firm? (Do not round intermediate calculations. Round final answer to two decimal places.)

Question 38 options:

$2.63

$2.19

$8.76

$10.50

Question 39(0.2 points)

Which of the following statements is true?

Question 39 options:

Preferred stock can never be converted to common stock.

Preferred stockholders are considered to be the true owners of public corporations.

Dividends paid to preferred stockholders are not fixed.

Preferred stockholders do not typically have voting rights.

Question 40(0.2 points)

Givens, Inc., is a fast growing technology company that paid a $1.25 dividend last week. The company's expected dividend growth rates over the next four years are as follows: 25 percent, 30 percent 35 percent, and 30 percent. The company then expects to settle down to a constant-growth rate of 8 percent annually. If the required rate of return is 12 percent, what is the present value of the dividends over the fast growth phase? (Do not round intermediate calculations. Round final answer to two decimal places.)

Question 40 options:

$1.25

$6.46

$8.37

$7.23

Question 41(0.2 points)

Secondary market transactions in the United States mostly take place over the counter and not in exchanges.

Question 41 options:

TrueFalse

Question 42(0.2 points)

Which of the following statements is NOT true about common stock?

Question 42 options:

Owners of common stock are guaranteed dividend payments by the firm.

Common-stock holders have the right to vote on the election of the board of directors of their company.

Common-stock holders have limited liability toward the obligations of the corporation.

Common stock is considered to have no fixed maturity.

Question 43(0.2 points)

Whenever the constant-growth rate for dividends exceeds the required rate of return on the common stock, the constant-growth model provides invalid solutions.

Question 43 options:

TrueFalse

Question 44(0.2 points)

The stocks owned by households represent about 35% of the total value of all corporate equity.

Question 44 options:

TrueFalse

Question 45(0.2 points)

Stag Corp. will pay dividends of $4.75, $5.25, $5.75, and $7 for the next four years. Thereafter, the company expects its growth rate to be at a constant rate of 7 percent. If the required rate of return is 15 percent, what is the current market price of the stock? (Do not round intermediate calculations. Round final answer to two decimal places.)

Question 45 options:

$57.54

$80.29

$93.63

$69.41

Question 46(0.2 points)

Ryder Supplies has its stock currently selling at $63.25. The company is expected to grow at a constant rate of 7 percent. If the appropriate discount rate is 17 percent, what is the expected dividend, a year from now? (Round the answer to two decimal places.)

Question 46 options:

$4.43

$6.33

$10.75

$3.25

Question 47(0.2 points)

For a company that has no growth, dividends stay constant over time.

Question 47 options:

TrueFalse

Question 48(0.2 points)

Preferred stock is sometimes treated like a debt security because:

Question 48 options:

preferred stock holders receive a residual value and not a stated value.

preferred dividends are deductible from taxable income just like interest payments on bonds.

preferred dividend payments are similar to bond interest payments and are fixed in nature regardless of the firm's earnings.

legally preferred stock is a debt security.

Question 49(0.2 points)

Direct search markets are characterized by:

Question 49 options:

private placement transactions and sale of common stock of small private companies.

a high level of efficiency.

extensive broker and dealer participation.

complete price information.

Question 50(0.2 points)

Which of the following is the most typical example of a zero-growth dividend stock?

Question 50 options:

The common stock of a firm in the health care industry.

The common stock of a firm in the biotechnology industry.

The preferred stock of a utility company.

The common stock of a firm in the information technology industry.