Solomon Ch1 Deck 4

Question 1

The amount by which an assets expected rate of return exceeds the risk-free interest-rate

Answer 1

Risk premium

Question 2

The amount a expected return must exceed a risk-free return to induce an individual to hold the risky asset

Answer 2

Risk premium

Question 3

SARBOX Section 403 requires Beneficial Owners of more than 10% to file transactions with

Answer 3

SEC

AND national exchange if listed

Question 4

SARBOX Section 403 requires beneficial owners of 10% to report transactions within

Answer 4

2 business days

Question 5

Leverage Net Debt

Answer 5

Leverage Net Debt = Interest Bearing Liabilities - Cash

Same as Net Debt/EBITDA

Question 6

Yankee bonds have greater

Answer 6

regulatory requirement and thus cost more to issue than Eurobonds

Question 7

Bearer Bonds

Answer 7

The bearer receives the income, offering more privacy than Yankee bonds

Question 8

Eurobond interest income is

Answer 8

not reported, allowing them to be used to evade income tax

Question 9

Increase in net working capital causes

Answer 9

a decrease in estimated free cash flow

Question 10

Unsponsored ADR’s trade on

Answer 10

the OTC market

Question 11

ADR’s have voting rights if

Answer 11

they are sponsored (most)

Question 12

Bond indentures may protect bondholders during consideration of a merger or consolidation by

Answer 12

Granting bondholders right to redeem before maturity in the event of a combination

Restricting or prohibiting combinations while bond issue is outstanding

Question 13

TIPS stands for

Answer 13

Treasury Inflation-Protected Securities

Question 14

TIPS are issued by

Answer 14

The US Treasury only

Question 15

TIPS provide income through

Answer 15

Interest income and growth in principal

Question 16

TIPS are taxed at the

Answer 16

Federal level but are exempt from State and Local

Question 17

The Principal of a TIPS is adjusted according to

Answer 17

the movement of the CPI (Consumer Price Index)

Question 18

TIPS interest rates are

Answer 18

fixed but applied to a principal that has been inflation (or deflation) adjusted according to the CPI

Question 19

YTW

Answer 19

Yield to Worst

Question 20

Yield to Worst is

Answer 20

The lowest of the yield to call (YTC) and the yield to maturity (YTM)

Question 21

Preferred stock that does not carry the cumulative feature is called

Answer 21

Straight preferred or noncumulative preferred

Question 22

Preferred stock with a fixed dividend rate

Answer 22

Participating Preferred

Question 23

Preferred stock that pays dividends based on several factors stipulated by the company

Answer 23

ARPS or adjustable rate preferred stock

Question 24

ARPS is

Answer 24

Adjustable rate preferred stock

Question 25

Growth stocks have price ratios that are on average

Answer 25

higher (PE, Price to Book, price to sales)

Question 26

Growth stocks have dividend yields that are on average

Answer 26

lower because div per share/price per share and prices are high

Question 27

Value stocks have price ratios that are on average

Answer 27

lower (PE, Price to Book, price to sales)

Question 28

Value stocks have dividend yields that are on average

Answer 28

higher because div per share/price per share and prices are low