AGEC 4040 Test 2 Questions and Answers Already Passed Latest Update 2025-2026
The rate of interest agreed upon contractually charged by a lender or promised by a borrower is
the ______ interest rate.________ rate of interest is the actual rate charged by the supplier and
paid by the demander of funds. - Answers nominal
_____ yield curve reflects higher expected future rates of interest. - Answers An upward-sloping
(nominal yield curve)
Generally, an increase in risk will result in ____ required return or interest rate. - Answers A higher
The _____ rate of interest is typically the required rate of return on a three-month U.S. Treasury
bill. - Answers risk-free
A yield curve that reflects relatively similar borrowing costs for both short-term and long-term
loans is called - Answers flat yield curve
The cost of long-term debt generally _____ that of short-term debt. - Answers is greater than
If a bond pays $1,000 plus interest at maturity, $1,000 is called the - Answers par value
______ is secured by real estate. - Answers A mortgage bond
The process that links risk and return in order to determine the worth of an asset is termed -
Answers valuation
Bonds are - Answers long-term debt instruments
The key inputs to the valuation process include - Answers cash flow, cash flow timing, and risk
The market price of outstanding issues varies from par because - Answers the market rate of
interest has changed
If the required return is greater than the coupon rate, a bond will sell at - Answers a discount
_____ are promised a fixed periodic dividend that must be paid prior to paying any common
stock dividends. - Answers preferred stockholders
The cost of preferred stock is - Answers higher than the cost of long term debt and lower than
the cost of common stock
Shares of stock currently owned by the firm's shareholders are called - Answers outstanding
Common stockholders expect to earn a return by receiving - Answers dividends
The attempt by a non-management group to gain control of the management of a firm by
soliciting a sufficient number of proxy voters is called - Answers proxy battle
, The investment banker does all of the following EXCEPT - Answers making long-term
investments for banking institutions
Preferred stock is valued as if it were a - Answers perpetuity
The ____ of an asset is the change in value plus any cash distributions expressed as a
percentage of the initial price or amount invested - Answers return
A common approach of estimating the variability of returns involving forecasting the
pessimistic, most likely, and optimistic returns associated with the asset is called - Answers
sensitivity analysis
The ____ of an event occurring is the percentage chance of a given outcome. - Answers
probability
______ probability distribution shows all possible outcomes and associated probabilities for a
given event. - Answers a continuous
The ____ is a measure of relative dispersion used in comparing the risk of assets with differing
expected returns. - Answers coefficient of variation
The ____ the coefficient of variation, the _____ the risk. - Answers lower, lower
A collection of assets is called a(n) - Answers portfolio
Perfectly ________ correlated series move exactly together and have a correlation coefficient of
________, while perfectly ________ correlated series move exactly in opposite directions and have
a correlation coefficient of ________. - Answers Positively, +1, negatively, -1
Combining negatively correlated assets having the same expected return results in a portfolio
with ________ level of expected return and _________ level of risk. - Answers the same, a lower
Combining two negatively correlated assets to reduce risk is known as - Answers diversification
Systematic risk is also referred to as - Answers nondiversifiable risk
The purpose of adding an asset with a negative or low positive beta is to - Answers reduce risk
_____ risk represents the portion of an asset's risk that can be eliminated by combining assets
with less than perfect positive correlation. - Answers diversifiable
Wat, inflation, and the condition of the foreign markets are all examples of - Answers
nondiversifiable risk
A beta coefficient of -1 represents an asset that - Answers has the same response as the
market portfolio but in opposite direction
The beta of a portfolio is - Answers the weighted average of the betas of the individual assets in
The rate of interest agreed upon contractually charged by a lender or promised by a borrower is
the ______ interest rate.________ rate of interest is the actual rate charged by the supplier and
paid by the demander of funds. - Answers nominal
_____ yield curve reflects higher expected future rates of interest. - Answers An upward-sloping
(nominal yield curve)
Generally, an increase in risk will result in ____ required return or interest rate. - Answers A higher
The _____ rate of interest is typically the required rate of return on a three-month U.S. Treasury
bill. - Answers risk-free
A yield curve that reflects relatively similar borrowing costs for both short-term and long-term
loans is called - Answers flat yield curve
The cost of long-term debt generally _____ that of short-term debt. - Answers is greater than
If a bond pays $1,000 plus interest at maturity, $1,000 is called the - Answers par value
______ is secured by real estate. - Answers A mortgage bond
The process that links risk and return in order to determine the worth of an asset is termed -
Answers valuation
Bonds are - Answers long-term debt instruments
The key inputs to the valuation process include - Answers cash flow, cash flow timing, and risk
The market price of outstanding issues varies from par because - Answers the market rate of
interest has changed
If the required return is greater than the coupon rate, a bond will sell at - Answers a discount
_____ are promised a fixed periodic dividend that must be paid prior to paying any common
stock dividends. - Answers preferred stockholders
The cost of preferred stock is - Answers higher than the cost of long term debt and lower than
the cost of common stock
Shares of stock currently owned by the firm's shareholders are called - Answers outstanding
Common stockholders expect to earn a return by receiving - Answers dividends
The attempt by a non-management group to gain control of the management of a firm by
soliciting a sufficient number of proxy voters is called - Answers proxy battle
, The investment banker does all of the following EXCEPT - Answers making long-term
investments for banking institutions
Preferred stock is valued as if it were a - Answers perpetuity
The ____ of an asset is the change in value plus any cash distributions expressed as a
percentage of the initial price or amount invested - Answers return
A common approach of estimating the variability of returns involving forecasting the
pessimistic, most likely, and optimistic returns associated with the asset is called - Answers
sensitivity analysis
The ____ of an event occurring is the percentage chance of a given outcome. - Answers
probability
______ probability distribution shows all possible outcomes and associated probabilities for a
given event. - Answers a continuous
The ____ is a measure of relative dispersion used in comparing the risk of assets with differing
expected returns. - Answers coefficient of variation
The ____ the coefficient of variation, the _____ the risk. - Answers lower, lower
A collection of assets is called a(n) - Answers portfolio
Perfectly ________ correlated series move exactly together and have a correlation coefficient of
________, while perfectly ________ correlated series move exactly in opposite directions and have
a correlation coefficient of ________. - Answers Positively, +1, negatively, -1
Combining negatively correlated assets having the same expected return results in a portfolio
with ________ level of expected return and _________ level of risk. - Answers the same, a lower
Combining two negatively correlated assets to reduce risk is known as - Answers diversification
Systematic risk is also referred to as - Answers nondiversifiable risk
The purpose of adding an asset with a negative or low positive beta is to - Answers reduce risk
_____ risk represents the portion of an asset's risk that can be eliminated by combining assets
with less than perfect positive correlation. - Answers diversifiable
Wat, inflation, and the condition of the foreign markets are all examples of - Answers
nondiversifiable risk
A beta coefficient of -1 represents an asset that - Answers has the same response as the
market portfolio but in opposite direction
The beta of a portfolio is - Answers the weighted average of the betas of the individual assets in
