_____ allows a stock holder to purchase the same percentage of a new issue of st
ID: 2706325 • Letter: #
Question
_____ allows a stock holder to purchase the same percentage of a new issue of stock as currently held.
Answer
Majority voting
A proxy
Absentee voting
Preemptive right
The value of an asset that, in the mind of a specific investor, is justified by the facts is the ____ value.
Answer
intrinsic
takeover
market
terminal
Given: Intrinsic Value = IV; Market Price = MP. A profitable trading opportunity could exist if _____. [Video]
Answer
A. IV = MP
B. MP < IV
C. IV < MP
both B. and C.
The method of calculating the value of a share of stock used in this course is _____.
Answer
PV ( expected future dividends)
PV ( expected EPS )
FV ( expected future dividends )
As market interest rates ___, the value of a bond will ____.
Answer
a. rise, rise
b. rise; fall
c. fall; fall
d. fall; rise
Both b. and d.
Returns a firm earns in excess of the WACC would be expected to go to ______. [Video]
Answer
debt
preferred stock
common equity
The cost of debt calculation (used in the WACC) supports the ____. [Video]
Answer
independent corporation policy
ideal capital structure
discounted cash flow theory
The cost of debt money is ____.
Answer
dividends
interest
depreciation
the Liquidity Premium
The risk that a borrower will not repay part or all monies owed is a ____.
Answer
default premium
liquidity premium
maturity risk premium
reinvestment rate risk
When long-term interest rates are lower than short-term interest rates, the yield curve is said to be ______ .
Answer
inverted
humped
normal
rather strange
A graph of debt securities yields versus time to maturity for similar risk securities is called a(n) ____.
Answer
ugly plot
yield curve
annuity plot
none of the above
There are three components of the nominal interest rate; the component indicating the compensation an investor must receive for giving up immediate gratification of using money is the _____. [Video]
Answer
risk premium
expected inflation
real return
expected variance
The ___ is the price asked by an investor who owns the bond and wishes to sell it.
Answer
asked price
bid price
spread
par value
A(n) ___ bond can be exchanged for stock.
Answer
putable
convertible
indexed
income
Which of the following are characteristics of bonds?
Answer
A. Par Value
B. Dividends
C. Maturity
both A. and C.
Companies needing money for a short time usually _____ and needing to make long term investments usually _____.
Answer
issue stock; issue bonds
issue stock; borrow from banks
borrow from banks; borrow from credit unions
borrow from banks; issue bonds
[Extra Credit]
Two investors are evaluating GE's stock for possible purchase. They agree on: the value of D1; the expected growth of future dividends; and the riskiness of the stock. One investor normally holds a stock for 2 years; the other investor normally holds a stock for 10 years. Based upon the dividend valuation model, both investors ____ pay the same price for the stock because ____.
Answer
would; the present value of future dividends is the same.
would; the holding periods are not the same.
would not; prices do not usually change.
would not; time factors do not matter.
[Extra Credit] The reason an entity calculates its WACC is shown in which of the following?
Answer
Income Statement
Capital Structure
Statement of Cash Flows
Net Working Capital
Majority voting
A proxy
Absentee voting
Preemptive right
Explanation / Answer
1. Preemptive right
2. intrinsic
3. B. MP < IV
4. PV ( expected future dividends)
5. Both b. and d.
6. common equity
7. ideal capital structure --> doubtful
8. interest
9. default premium
10. inverted
11. yield curve
12. real return
13. asked price
14. convertible
15. both A. and C.
16. borrow from banks; issue bonds
17. would; the present value of future dividends is the same
18. Capital Structure
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