Finance 425 Exam Questions with
Verified Solutions
investments - correct Answer-is defined as the commitment of funds to one or more
assets to be held over some future time period.
security analysis - correct Answer-involves the analysis and valuation of individual
securities; that is, estimating value
portfolio management - correct Answer-utilizes the results of security analysis to
construct portfolios, taken as a whole is not equal to the sum of its parts
financial asset - correct Answer-a piece of paper evidencing some type of financial
claim on an issuer, whether private (corporations) or public (governments)
real asset - correct Answer-is a tangible asset such as gold coins, diamonds, or land
risk averse - correct Answer-investor will assume risk if they expect to be adequately
compensated for it
expected return - correct Answer-is the anticipated return for some future time period
realized return - correct Answer-is the actual return that occurred over some past period
risk - correct Answer-refers to adverse circumstances affecting the investor's position
the chance that the actual return on an investment will differ from its expected return
debt - correct Answer-preferred stock is like long-term ____ in that it typically promises
a fixed payment each year. It also does not give the holder voting rights in the firm.
equity - correct Answer-preferred stock is like long-term _____ in that the firm is under
no contractual obligation to make the preferred stock dividend payments. Failure to
make payments does not set off corporate bankruptcy. With respect to the priority
claims to the assets of the firm in the event of corporate bankruptcy, preferred stock has
a higher priority than common equity but a lower priority than bonds.
money market securities - correct Answer-are called cash equivalents because of their
high level of liquidity. The prices are very stable, and they can be converted to cash on
very short notice and with low transaction cost.
, Examples include: T-bills, commercial paper, and banker's acceptances
common stock - correct Answer-voting rights (typically)
Bonds, PS, or CS
bonds - correct Answer-contractual obligations
Bonds, PS, or CS
preferred stock and common stock - correct Answer-perpetual payments
preferred stock - correct Answer-accumulated dividends
bonds and preferred stock - correct Answer-fixed payments (typically)
Bonds, PS, or CS
revenue bonds - correct Answer-issued to finance particular projects; backed by
revenues from project or municipal agency operating project
water/sewer, hospitals, schools, and toll roads/bridges - correct Answer-most popular
items for revenue bonds
before tax interest rate - correct Answer-taxable equivalent yield makes return on munis
comparable to those of taxable bonds, as it shows the _______ on a bond that is
equivalent to the stated (after tax) interest rate on the municipal bond
Dow Jones - correct Answer-oldest, most well known measure
composed of 30 "blue chip" stocks
price weighted index (each stock makes up a fraction of the index that is proportional to
its price)
S&P 500 - correct Answer-Composed of 500 large firm stocks from NYSE or NASDAQ
S&P 500 - correct Answer-represents 3/4 of all U.S. stocks
S&P 500 - correct Answer-largest 10 companies make up about 1/4 of it's total value
S&P 500 - correct Answer-value weighted index
volatility index - correct Answer-also known as the fear index
vix - correct Answer-computed index that is based on options prices, not stock prices
Verified Solutions
investments - correct Answer-is defined as the commitment of funds to one or more
assets to be held over some future time period.
security analysis - correct Answer-involves the analysis and valuation of individual
securities; that is, estimating value
portfolio management - correct Answer-utilizes the results of security analysis to
construct portfolios, taken as a whole is not equal to the sum of its parts
financial asset - correct Answer-a piece of paper evidencing some type of financial
claim on an issuer, whether private (corporations) or public (governments)
real asset - correct Answer-is a tangible asset such as gold coins, diamonds, or land
risk averse - correct Answer-investor will assume risk if they expect to be adequately
compensated for it
expected return - correct Answer-is the anticipated return for some future time period
realized return - correct Answer-is the actual return that occurred over some past period
risk - correct Answer-refers to adverse circumstances affecting the investor's position
the chance that the actual return on an investment will differ from its expected return
debt - correct Answer-preferred stock is like long-term ____ in that it typically promises
a fixed payment each year. It also does not give the holder voting rights in the firm.
equity - correct Answer-preferred stock is like long-term _____ in that the firm is under
no contractual obligation to make the preferred stock dividend payments. Failure to
make payments does not set off corporate bankruptcy. With respect to the priority
claims to the assets of the firm in the event of corporate bankruptcy, preferred stock has
a higher priority than common equity but a lower priority than bonds.
money market securities - correct Answer-are called cash equivalents because of their
high level of liquidity. The prices are very stable, and they can be converted to cash on
very short notice and with low transaction cost.
, Examples include: T-bills, commercial paper, and banker's acceptances
common stock - correct Answer-voting rights (typically)
Bonds, PS, or CS
bonds - correct Answer-contractual obligations
Bonds, PS, or CS
preferred stock and common stock - correct Answer-perpetual payments
preferred stock - correct Answer-accumulated dividends
bonds and preferred stock - correct Answer-fixed payments (typically)
Bonds, PS, or CS
revenue bonds - correct Answer-issued to finance particular projects; backed by
revenues from project or municipal agency operating project
water/sewer, hospitals, schools, and toll roads/bridges - correct Answer-most popular
items for revenue bonds
before tax interest rate - correct Answer-taxable equivalent yield makes return on munis
comparable to those of taxable bonds, as it shows the _______ on a bond that is
equivalent to the stated (after tax) interest rate on the municipal bond
Dow Jones - correct Answer-oldest, most well known measure
composed of 30 "blue chip" stocks
price weighted index (each stock makes up a fraction of the index that is proportional to
its price)
S&P 500 - correct Answer-Composed of 500 large firm stocks from NYSE or NASDAQ
S&P 500 - correct Answer-represents 3/4 of all U.S. stocks
S&P 500 - correct Answer-largest 10 companies make up about 1/4 of it's total value
S&P 500 - correct Answer-value weighted index
volatility index - correct Answer-also known as the fear index
vix - correct Answer-computed index that is based on options prices, not stock prices
