Q1: In valuing a financial asset, you use these variables:
(A) present value of future cash flows
(B) discount rate
(C) required rate of return
(D) all of the above
Answer: (D) all of the above
Q2: The principal amount of a bond at issue is called:
(A) par value
(B) coupon value
(C) present value of an annuity
(D) present value of a lump sum
Answer: (A) par value
Q3: If a bond’s value rises above its par value during its life, interest rates have:
(A) gone up
(B) gone down
(C) stayed the same
(D) there is no correlation with interest rates
Answer: (B) gone down
Q4: The basic “rent” that you are charged when you borrow money is called:
(A) inflation premium
(B) risk premium
(C) real rate of return
(D) none of the above
Answer: (C) real rate of return
Q5: As time to maturity draws near, a bond’s value approaches:
(A) zero
(B) par
(C) the coupon payment
(D) none of the above
Answer: (B) par
Q6: One characteristic of preferred stock is that:
(A) it has no maturity date
(B) it is a hybrid security with characteristics of both common stock and debt
(C) it pays a fixed dividend payment
(D) all of the above
Answer: (D) all of the above
Q7: Common stock that has no growth in dividends is valued as if it were:
(A) preferred stock
(B) a bond
(C) an option
(D) none of the above
Answer: (A) preferred stock
Q8: A high price/earnings ratio usually indicates that a firm is a:
(A) value stock
(B) growth stock
(C) convertible security
(D) constant security
Answer: (B) growth stock
Q9: A low price/earnings ratio usually means that a firm:
(A) is a growth stock
(B) has positive expectations for the future
(C) is a mature firm
(D) is doomed in the marketplace
Answer: (C) is a mature firm
Q10: The premium to compensate an investor for the eroding effect of rising prices is called the:
(A) risk premium
(B) inflation premium
(C) real rate of return
(D) none of the above
Answer: (B) inflation premium