FIN 302 MIDTERM EXAM QUESTIONS WITH VERIFIED SOLUTIONS LATEST UPDATE 2026
Bond - Answers long term debt to the issuer
subject to interest rate risk
Coupon - Answers the stated interest payment made on a bond
tax-deductible
face value - Answers Amount of principal due at the maturity date of the bond
1,000 unless otherwise stated
maturity - Answers the specified date on which the principal amount of a bond is paid
yield to maturity - Answers the rate required in the market on a bond
current yield - Answers a bond's annual coupon divided by its price
indenture - Answers the written agreement between the corporation and the lender detailing the
terms of the debt issue
debenture - Answers an unsecured debt, usually with a maturity of 10 years or more
note - Answers an unsecured debt, usually with a maturity under 10 years
sinking fund - Answers an account managed by the bond trustee for early bond redemption
call provision - Answers an agreement giving the corporation the option to repurchase a bond at a
specified price prior to maturity
call premium - Answers the amount by which the call price exceeds the par value of a bond
deferred call provision - Answers a call provision prohibiting the company from redeeming a bond
prior to a certain date
call-protected bond - Answers bond during period in which it cannot be redeemed by the issuer
protective covenant - Answers a part of the indenture limiting certain actions that might be taken
during the term of the loan, usually to protect the lender's interest
negative covenant - Answers A bond covenant that prohibits the firm from doing something.
positive covenant - Answers specifies an action the company agrees to take or a condition the
company must abide by
triple rating - Answers safest bond
zero coupon bond - Answers a bond that makes no coupon payments and is thus initially priced at a
deep discount
floating rate bonds - Answers bonds whose interest rate fluctuates with shifts in the general level of
interest rates
cat bonds - Answers usually issued by the government to cover natural disasters
income bonds - Answers bonds whose interest is paid only if it is earned by the firm
convertible bonds - Answers bonds that are exchangeable at the option of the holder for the issuing
firm's common stock
put bonds - Answers allows the holder to force the issuer to buy back the bond at a stated price
bid price - Answers the price a dealer is willing to pay for a security
asking price - Answers Initial price set by the seller
bid-ask spread - Answers the difference between the bid price and the asked price
treasury yield curve - Answers a graph of treasury yields plotted against maturities
common stock - Answers Term used to describe the total amount paid in by stockholders for the
shares they purchase.
zero growth dividend - Answers Firm will pay a constant dividend forever
Like preferred stock
Price is computed using the perpetuity formula
annuity - Answers payment received every year with an end date
perpetuity - Answers start date payments are always the same forever
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 divided by its current price
capital gains yield - Answers dividend growth rate
cumulative voting - Answers 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
Bond - Answers long term debt to the issuer
subject to interest rate risk
Coupon - Answers the stated interest payment made on a bond
tax-deductible
face value - Answers Amount of principal due at the maturity date of the bond
1,000 unless otherwise stated
maturity - Answers the specified date on which the principal amount of a bond is paid
yield to maturity - Answers the rate required in the market on a bond
current yield - Answers a bond's annual coupon divided by its price
indenture - Answers the written agreement between the corporation and the lender detailing the
terms of the debt issue
debenture - Answers an unsecured debt, usually with a maturity of 10 years or more
note - Answers an unsecured debt, usually with a maturity under 10 years
sinking fund - Answers an account managed by the bond trustee for early bond redemption
call provision - Answers an agreement giving the corporation the option to repurchase a bond at a
specified price prior to maturity
call premium - Answers the amount by which the call price exceeds the par value of a bond
deferred call provision - Answers a call provision prohibiting the company from redeeming a bond
prior to a certain date
call-protected bond - Answers bond during period in which it cannot be redeemed by the issuer
protective covenant - Answers a part of the indenture limiting certain actions that might be taken
during the term of the loan, usually to protect the lender's interest
negative covenant - Answers A bond covenant that prohibits the firm from doing something.
positive covenant - Answers specifies an action the company agrees to take or a condition the
company must abide by
triple rating - Answers safest bond
zero coupon bond - Answers a bond that makes no coupon payments and is thus initially priced at a
deep discount
floating rate bonds - Answers bonds whose interest rate fluctuates with shifts in the general level of
interest rates
cat bonds - Answers usually issued by the government to cover natural disasters
income bonds - Answers bonds whose interest is paid only if it is earned by the firm
convertible bonds - Answers bonds that are exchangeable at the option of the holder for the issuing
firm's common stock
put bonds - Answers allows the holder to force the issuer to buy back the bond at a stated price
bid price - Answers the price a dealer is willing to pay for a security
asking price - Answers Initial price set by the seller
bid-ask spread - Answers the difference between the bid price and the asked price
treasury yield curve - Answers a graph of treasury yields plotted against maturities
common stock - Answers Term used to describe the total amount paid in by stockholders for the
shares they purchase.
zero growth dividend - Answers Firm will pay a constant dividend forever
Like preferred stock
Price is computed using the perpetuity formula
annuity - Answers payment received every year with an end date
perpetuity - Answers start date payments are always the same forever
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 divided by its current price
capital gains yield - Answers dividend growth rate
cumulative voting - Answers 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
