#5: T/F: One of the disadvantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer.
#6: T/F: The preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm. This right helps protect current stockholders against both dilution of control and dilution of value.
#7: T/F: All else equal, high-coupon bonds have higher reinvestment risk than low-coupon bonds.
#8: T/F: If the coupon rate is higher than yield of a bond, this bond is sold at a premium.
#9: T/F: Companies can issue different classes of common stock. Some class or classes of common stock are entitled to more votes per share than other classes.
#10: T/F: Portfolio A has but one stock, while portfolio B consists of all stocks that trade in the market, each held in proportion to its market value. Because of its diversification, Portfolio B will by definition be risk less.
#11: Shelley won a lottery and will receive $1,000 a year for the next ten years. The value of her winnings today discounted at her discount rate is called which one of the following:
#12: Mary just purchased a bond which pays $60 a year in interest and $1,000 when the bond matures after 10 years. What is this $60 called?
#13: Tom owns five different bonds valued at $66,000 and twelve different stocks valued at $82,500 total. Which one of the following terms most applies to his investments?
#14: The primary purpose of portfolio diversification is to:
#15: The cash distributions by a corporation to shareholders is called:
#16: A bond that can be paid off early by the issuing company is referred to as being which one of the following?
#17: The part of total risk that is irrelevant to a well-diversified investor is called:
#18: Which one of the following is the y-intercept of the security market line?
#19: FIN stock has a beta of 1.5. The risk-free rate of return is 2.5% and the market risk premium is 7.3%. What is the expected rate of return on this stock?
#20: FIN’s bonds have a 7.60% coupon and pay interest annually. The bonds mature in 20 years. The face value is $1,000. If the current market price is $1,062.50 per bond, what is the bond’s yield to maturity?
What is the risk as measured in standard deviation of returns on a stock given the following information:
STATE OF ECONOMY
PROBABILITY OF OCCURRENCE
RETURN IF STATE OCCURS
You have a chance to buy an annuity that pays $500 at the end of each year for 3 years. You could earn 4% on your money in other investments with equal risk. What is the most you should pay for the annuity?
What should be the share price of FIN inc. stock if the company just paid a $0.80 annual dividend, the dividends increase by 1.6% annually, and you require 8% rate of return.
You now have $500. How much would you have after 5 years if you leave it invested at 3.5% with annual compounding?
FIN inc. just paid a $2.80 annual dividend on its common stock. This dividend increases at an average rate of 4% per year. The stock is currently selling for $26.91 a share. What is the market rate of return?
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