Exam 2

Question 1

What ratio do companies advertise for CD?

Answer 1

APY

Question 2

What ratio do companies advertise for mortgages?

Answer 2

APR

Question 3

the market for bonds?

Answer 3

Secondary Market to primary market to I-Bank to bonds, Secondary market reinvests ini itself.

Question 4

ytm and price relationship

Answer 4

inverse relationship

Question 5

Basis points

Answer 5

1/100%

Question 6

2 strateges for investing?

Answer 6

Buy low and sell high, timing the market; by and hold, seeking yield

Question 7

What is current yield an estimate of?

Answer 7

YTM, but no TVM

Question 8

What is intrinsic value?

Answer 8

Estimate of market price

Question 9

What are the three tipes of yield?

Answer 9

YTM, actual annual return if held to maturity; coupon rate, fixed pmt % by the firm; current yield, estimate YTM.

Question 10

What if firms default (go bankrupt)?

Answer 10

Reorganize of liquidate

Question 11

What score ranking is investment grade?

Answer 11

BBB or above

Question 12

What are companies with BB or below?

Answer 12

Junk bond, high yield, speculative

Question 13

What kind of income is debt and equity

Answer 13

debt - fixed, and equity - residual (or “upside” FCFE)

Question 14

What is the goal of the firm?

Answer 14

Maximize owner wealth

Question 15

What types of firms use preferred stock

Answer 15

90% don’t use PS, New ventures or utilities (legal monopolies)

Question 16

Another name for preferred stock?

Answer 16

Hybrid security

Question 17

What exchanges are trading floors vs computers?

Answer 17

NYSE and AMEX are trading floor, Nasdaq are computers