Solomon Ch1 Deck 6

Question 1

difference between nominal interest rate and inflation rate

Answer 1

real interest rate

Question 2

Real interest rate is usually

Answer 2

positive but can be negative

Question 3

Size of real interest rate depends on

Answer 3

interest rate you are measuring against
size of current nominal rates
inflationary expectations

Question 4

Asset with no market or systematic risk has a Beta of

Answer 4

zero

Question 5

Measures return per unit of risk

Answer 5

Sharpe Ratio

Question 6

A higher Sharpe Ratio means

Answer 6

the investment will provide better return per unit of risk

Question 7

Used to file a business combination registration statement with the SEC

Answer 7

S-4

Question 8

S-4 includes instructions and deadlines for

Answer 8

voting

Question 9

Includes information on executive comp, merger agreement, risk factors, Q&A, and financials on the merger

Answer 9

S-4

Question 10

An underwriting discount is included in

Answer 10

S-1 form

Question 11

amount investor will receive in stock of combined companies or cash for shares is included in

Answer 11

s-4

Question 12

Section 11 Rule 176 maximum penalty for a misleading registration statement

Answer 12

is the price the security was offered to the public

Question 13

Section 11 Rule 176 investors may sue these persons for material misrepresentation in registration

Answer 13

issuer
issuer executive officers
issuer principal accounting officer
expert
director sitting at registration
directors named as upcoming

Question 14

Central bank of FED holds

Answer 14

reserves of member banks

Question 15

Reports on Fed member banks are provided by

Answer 15

Fed Central bank

Question 16

Cash flow analysis showing priority of payments is part of

Answer 16

trust indenture

Question 17

FOB shipping means

Answer 17

Shipper pays shipping and it is shown as inventory on recipient’s records while in transit

Question 18

Senior debt expense equals

Answer 18

Total debt interest - subordinated debt interest

Question 19

Debt which ranks after other debts should a company fall into liquidation or bankruptcy is

Answer 19

Subordinated Debt

Question 20

Mezzanine debt, bank issued bonds, and lower tranches of asset backed securities are examples of

Answer 20

subordinated debt

Question 21

A set of promises that the issuer makes to the trustee who is representing the bond investors

Answer 21

Trust Indenture

Question 22

Registered Coupon Bonds pay

Answer 22

interest to the bearer and principal only to the registered owner

Question 23

Voting rights only apply to bonds that are

Answer 23

outstanding (not held by issuer or affiliate)

Question 24

Implementation of remedies available to the trustee, waiving past defaults, or postponing interest payments up to 3 years are examples of

Answer 24

issues on which bondholders with voting rights might vote

Question 25

the higher the discount rate, the lower the

Answer 25

present value

Question 26

When short term interest rates are greater than long term rates on the same investments

Answer 26

it shows that both short and long term interest rates are falling

Question 27

Duration is a measure in years of

Answer 27

how long it takes for the price of a bond to be repaid by its cash flows

Question 28

Duration of bonds with higher coupon rates are

Answer 28

lower because they reach the price of the bond sooner

Question 29

Duration with zero coupon bonds

Answer 29

is equal to the length of maturity since it pays no cash flows until then

Question 30

Duration measures sensitivity to interest rates or in other words

Answer 30

interest rate risk - the earlier money is paid in (less duration), the less risk exposure to changing interest rates

Question 31

ADR’s are exempt from

Answer 31

registration under Exchange Act

Question 32

monetary easing policy affects currency value by

Answer 32

lowering interest rates, which causes investors to invest in other countries lowering currency value

Question 33

To calculate enterprise value

Answer 33

market capitalization + PREFERRED STOCK + Minority Interests + Net Debt

Question 34

In research reports, member firms must disclose whether an analyst has received compensation

Answer 34

from subject company in past 12 months OR from firm’s investment banking revenues

Question 35

In research reports, member firms must disclose whether the firm or affiliate has been paid for investment banking services by subject company

Answer 35

over last 12 months

Question 36

In research reports, member firms must disclose whether the firm or affiliate expects to be paid for investment banking services by subject company

Answer 36

over the next three months

Question 37

In research reports, member firms must disclose whether the firm or affiliate has participated in

Answer 37

an IPO for subject company and also detail non-investment banking services for which it has been paid