Chapter 4

Question 1

can take the form of debt securities (bonds) or equity securities (stocks)

Answer 1

securities

Question 2

indebtedness of private firms to bondholders

Answer 2

bonds

Question 3

ownership claims to the net assets of a company

Answer 3

stocks

Question 4

issued by private firms to finance corporate expansion and the company pays scheduled interest and principal at a specific time

Answer 4

bonds

Question 5

issued by private companies to finance corporate expansion

Answer 5

stocks

Question 6

Stockholders receive returns in the form of ___

Answer 6

dividends and capital gains

Question 7

are valued at present value of all the future cash flows that can be derived from the security.

Answer 7

securities

Question 8

cash flows are interest and principal payments

Answer 8

bonds

Question 9

dividends and the market price of the stock

Answer 9

stocks

Question 10

the interest rate used to calculate the annual cash flow the bond issuer promises to pay the bondholder.

Answer 10

coupon rate

Question 11

interest rate used to calculate the fair value of the security (present value)

Answer 11

required rate of return

Question 12

generally used to value preferred stocks because preferred stocks exhibit zero growth through time.

Answer 12

zero growth method

Question 13

is used to value common stock

Answer 13

constant growth method

Question 14

do not have a fixed rate of return.

Answer 14

common stock

Question 15

have a fixed rate of return

Answer 15

preferred stocks