FINC 341 Exam 2 Theory Guyton UPDATED ACTUAL Questions And Correct
Answers
Terms in this set (62)
The yield spread between corporate bonds and treasury True
bonds increases as the bonds have longer lengths to
maturity. This is because the DRP and LP on corporate
bonds increase with longer length to maturity, but they
don't exist on a Treasury bond regardless of length to
maturity
The price of a 10% coupon bond trading at par of $1,000 True
will remain at $1,000 if the market interest rate remains at
10%. Therefore, its current yield will remain at 10% and its
capital gains yield will be zero each year
You could own three different bonds with 5 years left to True
maturity (but different original maturities) equal credit
risk, and thus the same going rate of return, but different
current prices
Since income bonds cannot bankrupt the issuing False
company, they carry a lower coupon rate
Bonds with call protection pay a lower coupon rate than True
similar bonds without call protection
The risk of a decline in bond values due to an increase in True
rates is called interest rate risk
If a default risk on a bond increases, the bond's price will True
fall and the yield to maturity will increase
Under a mortgage bond, the corporation pledges True
specific assets as security for the bond
BBB bonds and below are considered "high-yield" ( junk) False
bonds
The United States was downgraded during the financial True
crisis recovery period
The fluctuation of a company's stock price caused by one True
of the company's products failing is known as company-
specific risk (also known as unsystematic risk) and can be
completely eliminated in a well-diversified portfolio
, The Security Market Line would probably become True
steeper if the U.S. had another financial crisis
A negative beta of 0.7 means that a stock has only 70% of True
the movement of the market, but that movement is in the
opposite direction than the movement of the market
Market risk stems from factors such as war, recessions False
and other macro factors, and can be diminished through
diversification
The best measure of a stock's risk to a nondiversified True
investor is the stock's coefficient of variation
If the expected rate of return is less than the required True
rate of return, stockholders will want to sell the stock and
there will be a tendency for the stock price to decrease
(thus making the expected rate of return increase toward
the required rate of return)
The value of a stock is dependent on how long the buyer False
plans to keep the stock and receive the dividends
The preemptive right has two primary goals- to prevent True
management from issuing a large number of additional
shares and purchasing those shares itself, and to protect
stockholders from the dilution of value of their stock
Different classes of stock can have different numbers of True
votes per share
If the current Kd for bonds stays constant from now until True
a particular bond matures, and that bond is currently
selling at a premium on the secondary market, that
particular bond will have a current yield that is greater
than its yield to maturity
A putable bond is riskier to the buyer than a callable False
bond
All else equal, for a given change in the going rate of True
return return on bonds, the shorter the time to maturity,
the smaller the change in bond price
As the Fed continues to increase rates, bond owners will True
lose value on their existing bonds since the price of
bonds will have to decrease in order to yield higher rates
of return
The P/E Multiple Approach to valuing stock was used by True
Goldman Sachs during the Tech Bubble
Answers
Terms in this set (62)
The yield spread between corporate bonds and treasury True
bonds increases as the bonds have longer lengths to
maturity. This is because the DRP and LP on corporate
bonds increase with longer length to maturity, but they
don't exist on a Treasury bond regardless of length to
maturity
The price of a 10% coupon bond trading at par of $1,000 True
will remain at $1,000 if the market interest rate remains at
10%. Therefore, its current yield will remain at 10% and its
capital gains yield will be zero each year
You could own three different bonds with 5 years left to True
maturity (but different original maturities) equal credit
risk, and thus the same going rate of return, but different
current prices
Since income bonds cannot bankrupt the issuing False
company, they carry a lower coupon rate
Bonds with call protection pay a lower coupon rate than True
similar bonds without call protection
The risk of a decline in bond values due to an increase in True
rates is called interest rate risk
If a default risk on a bond increases, the bond's price will True
fall and the yield to maturity will increase
Under a mortgage bond, the corporation pledges True
specific assets as security for the bond
BBB bonds and below are considered "high-yield" ( junk) False
bonds
The United States was downgraded during the financial True
crisis recovery period
The fluctuation of a company's stock price caused by one True
of the company's products failing is known as company-
specific risk (also known as unsystematic risk) and can be
completely eliminated in a well-diversified portfolio
, The Security Market Line would probably become True
steeper if the U.S. had another financial crisis
A negative beta of 0.7 means that a stock has only 70% of True
the movement of the market, but that movement is in the
opposite direction than the movement of the market
Market risk stems from factors such as war, recessions False
and other macro factors, and can be diminished through
diversification
The best measure of a stock's risk to a nondiversified True
investor is the stock's coefficient of variation
If the expected rate of return is less than the required True
rate of return, stockholders will want to sell the stock and
there will be a tendency for the stock price to decrease
(thus making the expected rate of return increase toward
the required rate of return)
The value of a stock is dependent on how long the buyer False
plans to keep the stock and receive the dividends
The preemptive right has two primary goals- to prevent True
management from issuing a large number of additional
shares and purchasing those shares itself, and to protect
stockholders from the dilution of value of their stock
Different classes of stock can have different numbers of True
votes per share
If the current Kd for bonds stays constant from now until True
a particular bond matures, and that bond is currently
selling at a premium on the secondary market, that
particular bond will have a current yield that is greater
than its yield to maturity
A putable bond is riskier to the buyer than a callable False
bond
All else equal, for a given change in the going rate of True
return return on bonds, the shorter the time to maturity,
the smaller the change in bond price
As the Fed continues to increase rates, bond owners will True
lose value on their existing bonds since the price of
bonds will have to decrease in order to yield higher rates
of return
The P/E Multiple Approach to valuing stock was used by True
Goldman Sachs during the Tech Bubble
