Exam 2 Flashcards
Which of the following is true about loan amortization schedules?
The beginning balance minus the principal payment equals the ending balance
Stanley has computed the value of a certain stock to be $83.95. Stanley’s broker is on the line asking if he wants to buy 100 shares of this stock at $85.00. What should Stanley do?
Don’t buy the stock; it is not a good deal.
Which of the following would typically appear in a bond indenture?
The amount and timing of interest payments
Any collateral supporting the bond.
Which of the following statements is FALSE concerning amortization schedules?
The beginning balance of one year is equal to the ending balance of the following year
The relationship between nominal rates, real rates, and inflation is known as the:
Fisher Effect
Interest earned only on the original principal amount invested is called
simple interest
The bonds issued by Try It Inc. bear a 6% coupon, payable semiannually. The bond matures in 8 years and has a $1,000 face value. Currently, the bond sells at par. What is the yield to maturity?
6 %
ABC Corporation has decided to issue $1,000 bonds for 20 years with a coupon rate of 5% payable semiannually. At the last minute, ABC decides to add a call provision to the bond indenture. What other feature will probably also have to be adjusted?
The coupon rate will have to be increased to more than 5%
A certain bond can be turned in to the company any time during 2008 and the bondholder can get his $1,000 back. This is an example of
a put provision
As the discount rate increases, the present value of $50 to be received 10 years from now:
decreases
Which of the following is true about the supernormal or non-constant growth model?
It uses the dividend growth model in part of the calculation
All of the following are assumptions in using the dividend growth model EXCEPT one. Which one?
Next year’s dividend is always greater than last year’s dividend
A Series EE bond is a good example of
baby bond, zero coupon bond, government bond, floating rate bond
The process of accumulating interest on an investment over time to earn more interest is called
compounding
One of the assumptions of the dividend growth model is
r must be greater than g
Which of the following statements is true?
Compounding essentially means earning interest on interest.
Which of the following is true?
There is an inverse relationship between discount rates and present values.
As a depositor, I would prefer a deposit account
with daily compounding
Investors who are in a high tax bracket might be interested in which of the following ?
Zero Coupon Bond
Stock with a High Capital Gains Yield
Josie has a loan with an interest rate of 8% and annual payments. What is the Effective Annual Rate that Josie is paying?
8% because ear of an annual payment is the apr
If the general level of interest rates goes up and I am holding a bond with a fixed coupon rate, I would expect the value of my bond to
Decrease
The purpose of creating several classes of stock is:
To maintain control of the stock in the hands of a few shareholders
Banks are required to quote rates as ____ but the actual rate is the ____.
APR, EAR
The purpose of creating several classes of stock is
To maintain control of the company in the hands of a few stockholders
