CFIN Final Study Guide Exam with
complete solutions 2024/2025
The higher the expected rate of inflation, _. - ANSWER✓✓-The higher
is the required rate of return on investment
A corporate bond that yields 12% includes a risk-free rate of 7% and
a default premium of 3%. The Bond's maturity risk premium is _. -
ANSWER✓✓-2%
Which bond has the highest default risk for a given return? _. -
ANSWER✓✓-A CCC Corporate bond with a 10-year maturity
Other things held constant, if a bond indenture contains a call
provision, the yield to maturity (YTM) on the bond that would exist
without such a call provision will be _ the YTM with the call
provision. - ANSWER✓✓-lower than
A bond that only pays interest if the firm has sufficient earnings to
cover the interest payments is called a(n): _. - ANSWER✓✓-income
bond
Which event would make it less likely for a company to choose to
call its outstanding callable bonds? - ANSWER✓✓-an increase in
interest rates
Which statement is true about a zero coupon bond? - ANSWER✓✓-a
zero coupon bond is issued at a substantial discount below its par
value
, Which type of investor would be most likely to purchase zero
coupon bonds? _. - ANSWER✓✓-tax free investors such as pension
funds
The face value of a debt is _. - ANSWER✓✓-the principal value
written on the face, or outside cover of the bond
A debt is said to be selling at par, when the _ of the debt is equal to
the _. - ANSWER✓✓-Maturity value, par value of the debt
Commercial paper is a type of _. - ANSWER✓✓-Promissory note
If interest rates decline, bondholders will earn _. - ANSWER✓✓-a
lower rate of return on reinvested cash flows
The current market interest rate declines from 10% to 8%. Due to
interest rate reinvestment risk, the bondholders will _. -
ANSWER✓✓-earn a lower return on the reinvested cash flows
All else being equal, an increase in the yield to maturity of a bond
will result in _. - ANSWER✓✓-a greater interest rate price risk on a
long-term bond than on a short term bond.
The amount in excess of par value that a company must pay when it
repurchases a security is known as the _. - ANSWER✓✓-call premium
Which of the following provisions will call for the repurchase and
retirement of a given percentage of the preferred stock each year? -
ANSWER✓✓-sinking fund
The change of receiving an actual return that differs from the one
that is expected is called _. - ANSWER✓✓-risk
Diversification refers to the _. - ANSWER✓✓-reduction of the stand-
alone risk of an individual investment, measure returns, by combing
it with other investments in the portfolio
Which of the following is the only risk that is relevant to a rational,
diversified investor? - ANSWER✓✓-market risk
complete solutions 2024/2025
The higher the expected rate of inflation, _. - ANSWER✓✓-The higher
is the required rate of return on investment
A corporate bond that yields 12% includes a risk-free rate of 7% and
a default premium of 3%. The Bond's maturity risk premium is _. -
ANSWER✓✓-2%
Which bond has the highest default risk for a given return? _. -
ANSWER✓✓-A CCC Corporate bond with a 10-year maturity
Other things held constant, if a bond indenture contains a call
provision, the yield to maturity (YTM) on the bond that would exist
without such a call provision will be _ the YTM with the call
provision. - ANSWER✓✓-lower than
A bond that only pays interest if the firm has sufficient earnings to
cover the interest payments is called a(n): _. - ANSWER✓✓-income
bond
Which event would make it less likely for a company to choose to
call its outstanding callable bonds? - ANSWER✓✓-an increase in
interest rates
Which statement is true about a zero coupon bond? - ANSWER✓✓-a
zero coupon bond is issued at a substantial discount below its par
value
, Which type of investor would be most likely to purchase zero
coupon bonds? _. - ANSWER✓✓-tax free investors such as pension
funds
The face value of a debt is _. - ANSWER✓✓-the principal value
written on the face, or outside cover of the bond
A debt is said to be selling at par, when the _ of the debt is equal to
the _. - ANSWER✓✓-Maturity value, par value of the debt
Commercial paper is a type of _. - ANSWER✓✓-Promissory note
If interest rates decline, bondholders will earn _. - ANSWER✓✓-a
lower rate of return on reinvested cash flows
The current market interest rate declines from 10% to 8%. Due to
interest rate reinvestment risk, the bondholders will _. -
ANSWER✓✓-earn a lower return on the reinvested cash flows
All else being equal, an increase in the yield to maturity of a bond
will result in _. - ANSWER✓✓-a greater interest rate price risk on a
long-term bond than on a short term bond.
The amount in excess of par value that a company must pay when it
repurchases a security is known as the _. - ANSWER✓✓-call premium
Which of the following provisions will call for the repurchase and
retirement of a given percentage of the preferred stock each year? -
ANSWER✓✓-sinking fund
The change of receiving an actual return that differs from the one
that is expected is called _. - ANSWER✓✓-risk
Diversification refers to the _. - ANSWER✓✓-reduction of the stand-
alone risk of an individual investment, measure returns, by combing
it with other investments in the portfolio
Which of the following is the only risk that is relevant to a rational,
diversified investor? - ANSWER✓✓-market risk
