Which of the following is a disadvantage of bonds for a potential investor?

• a.)
• Bondholders risk falling prices if market interest rates rise.
• b.)
• They lack diversity and do not respond to the needs of investors very well.
• c.)
• They are less likely than stocks to be recovered if the issuer goes bankrupt.
• d.)
• They are generally riskier and more volatile than stocks.

Sylvia wants a bond that she can buy at a discount, so that she will make money when the bond matures.

If she is less concerned about receiving regular payments, what kind of bond should she buy?

• a.)
• Zero-coupon
• b.)
• Subordinated
• c.)
• Floating-rate
• d.)
• Government

Consider what you have learned about valuing bonds.

• A: Coupon rate = 5%, YTM = 6.33%
• B: Coupon rate = 5%, YTM = 4.75%
• C: Coupon rate = 5%, YTM = 5%
• D: Coupon rate = 5%, YTM = 3.8%

Which of thebonds is selling at a discount?

• a.)
• C
• b.)
• B
• c.)
• A
• d.)
• D

Select the true statement about reinvestment risk.

• a.)
• Only holders of callable bonds are subject to reinvestment risk.
• b.)
• A zero-coupon bond carries the greatest reinvestment risk.
• c.)
• Reinvestment risk is directly correlated to interest rate risk.
• d.)
• Reinvestment risk increases when market interest rates fall.

The purpose of preemption rights is to __________ the percentage of a stockholder's ownership in the company.

• a.)
• maintain
• b.)
• modify
• c.)
• increase
• d.)
• dilute

Select one way that common stock differs from preferred stock.

• a.)
• In the case of bankruptcy, common stockholders receive assets before bondholders, whereas preferred stockholders do not.
• b.)
• Common stockholders typically have the right to vote on matters related to corporate policy.
• c.)
• Common stock typically does not come with preemptive rights, whereas preferred stock does.
• d.)
• Common stockholders are more likely to receive dividends than preferred stockholders.

Select the pairing that is correctly matched.

• a.)
• Common stock: has a right to cumulative dividends
• b.)
• Common stock: is best understood as a form of debt
• c.)
• Preferred stock: may only be sold on the primary market
• d.)
• Preferred stock: may have a claim equal to its par value in the case of company liquidation

An investment fund that is created with the objective of mirroring the average performance of a segment of the market is a(n) __________.

• a.)
• mutual fund
• b.)
• hedge fund
• c.)
• index fund
• d.)
• pension fund

Determine the value of a stock with the following variables using the constant growth model:

• Current annual dividend: $2 per share
• Required return rate: 6%
• Constant growth rate: 4%
• a.)
• $53
• b.)
• $104
• c.)
• $106
• d.)
• $100

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

• a.)
• Calculates a company's cost of capital
• b.)
• Estimates the cost of replacing a company's resources
• c.)
• Considers the price of common stock shares
• d.)
• Determines the average cost of a unit of company income