FINC 3610- Exam 2 Questions and Answers Fully Solved Latest Update 2025-2026
annuity - Answers finite series of equal payments that occur at regular intervals
ordinary annuity - Answers first payment occurs at the end of the period
annuity due - Answers first payment occurs at the beginning of the period
perpetuity - Answers infinite series of equal payments
effective annual rate (EAR) - Answers actual rate paid (or received) after accounting for
compounding that occurs during the year
used for comparisons between different compounding periods
APR - Answers annual rate quoted by law
period rate times the number of periods per year
APR/ number periods per yr
coupon - Answers the stated interest payment made on a bond
face value - Answers the principal amount of a bond that is repaid at the end of the term. also
called par value
coupon rate - Answers the annual coupon divided by the face value of a bond
maturity - Answers the specified date on which the principal amount of a bond is paid
yield to maturity (YTM) - Answers the rate required in the market on a bond
coupon > YTM - Answers price > par
premium
coupon< YTM - Answers price < par
discount
indenture - Answers the written agreement between the corporation and the lender detailing the
terms of the debt issue
registered form - Answers the form of bond issue in which the registrar of the company records
ownership of each bond; payment is made directly to the owner of record
bearer form - Answers the form of bond issue in which the bond is issued without record of the
owner's name; payment is made to whomever holds the bond
, debenture - Answers an unsecured debt, usually with maturity of 10 years or more
note - Answers unsecured debt, usually with a maturity under 10 years
sinking fund - Answers an account managed by the bond trustee for early bond redemption
zero coupon bonds - Answers a bond that makes no coupon payments and is thus initially
priced at a deep discount
real rates - Answers interest rates or rates of return that have been adjusted for inflation
nominal rates - Answers interest rates or rates of return that have not been adjusted for inflation
inflation premium - Answers the portion of a nominal interest rate that represents compensation
for expected future inflation
interest rate risk premium - Answers the compensation investors demand for bearing interest
rate risk
default risk premium - Answers the portion of a nominal interest rate or bond yield that
represents compensation for the possibility of default
taxability premium - Answers the portion of.a nominal interest rate or bond yield that represents
compensation for unfavorable tax status
liquidity premium - Answers the portion of a nominal interest rate or bond yield that represents
compensation for lack of liquidity
dividend growth model - Answers a model that determines the current price of a stock as its
dividend next period divided by the discount rate less the dividend growth rate
dividend yield - Answers a stock's expected cash dividend divided by its current price
capital gains yield - Answers the dividend growth rate, or the rate at which the value of an
investment grows
common stock - Answers equity without priority for dividends or in bankruptcy
cumulative voting - Answers a procedure in which a shareholder may cast all votes for one
member of the board of directors
straight voting - Answers a procedure in which a shareholder may cast all votes for each
member of the board of directors
proxy - Answers a grant of authority by a shareholder allowing another individual to vote his or
her shares
dividends - Answers payments by a corporation to shareholders, made in either cash or stock
annuity - Answers finite series of equal payments that occur at regular intervals
ordinary annuity - Answers first payment occurs at the end of the period
annuity due - Answers first payment occurs at the beginning of the period
perpetuity - Answers infinite series of equal payments
effective annual rate (EAR) - Answers actual rate paid (or received) after accounting for
compounding that occurs during the year
used for comparisons between different compounding periods
APR - Answers annual rate quoted by law
period rate times the number of periods per year
APR/ number periods per yr
coupon - Answers the stated interest payment made on a bond
face value - Answers the principal amount of a bond that is repaid at the end of the term. also
called par value
coupon rate - Answers the annual coupon divided by the face value of a bond
maturity - Answers the specified date on which the principal amount of a bond is paid
yield to maturity (YTM) - Answers the rate required in the market on a bond
coupon > YTM - Answers price > par
premium
coupon< YTM - Answers price < par
discount
indenture - Answers the written agreement between the corporation and the lender detailing the
terms of the debt issue
registered form - Answers the form of bond issue in which the registrar of the company records
ownership of each bond; payment is made directly to the owner of record
bearer form - Answers the form of bond issue in which the bond is issued without record of the
owner's name; payment is made to whomever holds the bond
, debenture - Answers an unsecured debt, usually with maturity of 10 years or more
note - Answers unsecured debt, usually with a maturity under 10 years
sinking fund - Answers an account managed by the bond trustee for early bond redemption
zero coupon bonds - Answers a bond that makes no coupon payments and is thus initially
priced at a deep discount
real rates - Answers interest rates or rates of return that have been adjusted for inflation
nominal rates - Answers interest rates or rates of return that have not been adjusted for inflation
inflation premium - Answers the portion of a nominal interest rate that represents compensation
for expected future inflation
interest rate risk premium - Answers the compensation investors demand for bearing interest
rate risk
default risk premium - Answers the portion of a nominal interest rate or bond yield that
represents compensation for the possibility of default
taxability premium - Answers the portion of.a nominal interest rate or bond yield that represents
compensation for unfavorable tax status
liquidity premium - Answers the portion of a nominal interest rate or bond yield that represents
compensation for lack of liquidity
dividend growth model - Answers a model that determines the current price of a stock as its
dividend next period divided by the discount rate less the dividend growth rate
dividend yield - Answers a stock's expected cash dividend divided by its current price
capital gains yield - Answers the dividend growth rate, or the rate at which the value of an
investment grows
common stock - Answers equity without priority for dividends or in bankruptcy
cumulative voting - Answers a procedure in which a shareholder may cast all votes for one
member of the board of directors
straight voting - Answers a procedure in which a shareholder may cast all votes for each
member of the board of directors
proxy - Answers a grant of authority by a shareholder allowing another individual to vote his or
her shares
dividends - Answers payments by a corporation to shareholders, made in either cash or stock
