Chapter 7

Question 0

What determines the cost of long term financing?

Answer 0

Capital market

Question 1

Market where short term securities are traded.

Answer 1

Money market

Question 2

Market where new securities are sold

Answer 2

Primary market

Question 3

Primary market where participants find their own trading partners .

Answer 3

Direct search

Question 4

Primary market where participants use agents to find partners

Answer 4

Broker

Question 5

Primary market where participants trad weigh dealers who are buyers and sellers

Answer 5

Dealer

Question 6

Primary market where participants compete against other investors through an intermediary

Answer 6

Auction

Question 7

Markets where previously-issued securities are purchased and sold

Answer 7

Secondary market

Question 8

What must a secondary market have to provide liquidity?

Answer 8

Depth and breadth

Question 9

Ability to handle large volume of securities without a large effect on prices.

Answer 9

Depth

Question 10

Analyzes the number of companies advancing relative to the number declining.

Answer 10

Breadth

Question 11

Federal government bonds are/are not subject to state tax

Answer 11

Are not

Question 12

Government bond that matures in a year or less. They are issued at a discount and mature at par.

Answer 12

Treasury bills

Question 13

Government bond that mature between 1 and 10 years and pay interest semi-annually.

Answer 13

Treasury notes

Question 14

Government bond that matures in 30 years and pays interest semi-annually.

Answer 14

Treasury bonds

Question 15

Government bond where the coupon rate is a fixed percentage of the principle and the par value of the bond is adjusted by CPI.

Answer 15

Treasury Inflation Protected Securities

Question 16

Why do municipal bonds usually have lower interest?

Answer 16

Because interest income is tax-exempt

Question 17

Municipal bond backed by revenues from a designated project

Answer 17

Revenue bond

Question 18

Municipal bond backed by the taxes collected by the government body.

Answer 18

General obligation bond

Question 19

Long-term debt offered outside issuers country. They have a 3-7 year maturity and typically are usually unsecured and lay interest annually.

Answer 19

Eurobond

Question 20

Similar to Eurobonds but more regulated

Answer 20

Foreign bonds

Question 21

The bond contract which lists the principal and maturity date, coupon rate and rights/duties of buyer and seller.

Answer 21

Indenture agreement

Question 22

Bond thy can be converted to common stock at a fixed price in the future

Answer 22

Convertible bonds

Question 23

Bond that could be paid off by the issuer before the maturity date. May have higher initial interest rates.

Answer 23

Callable bonds

Question 24

A bond guaranteed by an entity other than the issuer.

Answer 24

Guaranteed bond

Question 25

A bond where portions of principal mature on different dates

Answer 25

Serial bond

Question 26

A bond where interest is tied to the issuer's financial results

Answer 26

Participating bond

Question 27

A bond with adjusting interest rates

Answer 27

Floating-rate bond

Question 28

A bond where money is set aside each year to repay principal

Answer 28

Sinking fund

Question 29

Bond backed by collateral

Answer 29

Secured bond

Question 30

Unsecured bond. These have highest risk to holder.

Answer 30

Debenture

Question 31

What do PC insurers usually purchase?

Answer 31

Asset-backed securities (auto loans, credit cards, etc) | Mortgage-backed securities

Question 32

A bond's yield to maturity is also know as its _____ ____

Answer 32

Discount rate

Question 33

Which factors affect yield to maturity?

Answer 33

Real rate of return Inflation premium Risk premium

Question 34

Tia compensates bond holder for credit risk and liquidity risk

Answer 34

Risk premium

Question 35

Shorter maturity bonds have a greater/lower rate of return?

Answer 35

Lower

Question 36

Type of stock where there are no voting rights and past unpaid dividends must be paid before dividends are paid on common stock

Answer 36

Cumulative preferred stock exchange

Question 37

What is the benefit to having preferred stock vs. common?

Answer 37

Liquidator rights prior to common shareholders. Some have redemption value and some can be convertible.

Question 38

What does economic stock theory suggest?

Answer 38

Stock prices are a result of supply and demand. Investors think price moves due to economy.

Question 39

What does financial volatility theory suggest?

Answer 39

Stock price is the discounted present value of future dividends. I'm

Question 40

This type of analysis involves analysis of financial data and macroeconomics to determine stock price. It looks to see it the following factors exceed s&p average: expected earnings growth, stability of sales, dividend payout, leverage, institutional ownership of stock.

Answer 40

Fundamental analysis

Question 41

This hypothesis contends that the mark this efficient at pricing securities and that individual investors can't really beat the market. There is no point looking for undervalued stock.

Answer 41

Efficient market hypothesis

Question 42

What are the two components of return?

Answer 42

Income generated by the investment (yield) Capital gain or loss on the disposition

Question 43

What is the annual rate of return.

Answer 43

Sum of yield and capital gain or loss expressed in percentage terms.

Question 44

What is the formula for annual return rate of a bond?

Answer 44

(Interest + Capital Gain) / beginning price

Question 45

What is the formula for annual rate of return of a stock?

Answer 45

(Dividend + Capital Gain) / beginning price

Question 46

Under FASB what does fair value equal?

Answer 46

The asset's exit price.

Question 47

What is the purpose of amortization of the value of a bond?

Answer 47

To stabilize value over time.

Question 48

What does SFAS 115 do?

Answer 48

Provide guidance on reporting of assets held as investments.

Question 49

How does an impairment affect financial reporting? GAAP

Answer 49

Results in a reduction of shareholders equity (or surplus)

Question 50

How are bonds held to maturity valued on the balance sheet?GAAP

Answer 50

Amortized cost

Question 51

How are investments available for sale valued on the balance sheet? GAAP

Answer 51

Fair value

Question 52

How are trading securities valued on the balance sheet? GAAP

Answer 52

Fair value

Question 53

How are unrealized gains in bonds held to maturity treated? GAAP

Answer 53

Disclosed in notes

Question 54

How are unrealized gains in securities available for sale treated? GAAP

Answer 54

Reported as comprehensive income

Question 55

How are unrealized gains in trading securities treated? GAAP

Answer 55

Included in income

Question 56

How are the highest quality bonds reported on the SAP annual statement?

Answer 56

Amortized cost

Question 57

How are the low quality bonds reported on the SAP annual statement?

Answer 57

Lower of amortized cost or fair value

Question 58

How are stocks reported on the SAP annual statement?

Answer 58

Fair value

Question 59

How are unrealized gains or losses reported on the SAP annual statement?

Answer 59

Adjustment to capital and surplus account

Question 60

Who determines the quality of bonds under SAP?

Answer 60

Securities Valuation Office