Financial Instruments Paper 4

1

An analyst is comparing two bonds, each with a 2-year maturity and a face amount of $100,000. Although both bonds have a yield to maturity of 7.0%, Bond A has a coupon of 6% and Bond B has a coupon of 8%. Assuming that both bonds have annual interest payments, the prices of both Bond A and Bond B are closest to






2

If the interest rate on newly issued bonds increases due to expected inflation, which one of the following will most likely occur?






3

What variable is measured on the vertical axis of the yield curve?






4

iWidget Corporation issued convertible bonds with a par value of 1,000. The corporation’s stock is selling at $38.00 per share, and the current market price of the convertible bonds is $1,050. If the conversion ratio is 25, what will be the conversion price?






5

The par value of a common stock represents






6

In general, it is more expensive for a company to finance with equity capital than with debt capital because






7

The equity section of Smith Corporation’s Statement of Financial Position is presented below.
Preferred stock, $100 par $12,000,000
Common stock, $5 par 10,000,000
Paid-in capital in excess of par 18,000,000
Retained earnings 9,000,000
Net worth $49,000,000
The common shareholders of Smith Corporation have preemptive rights. If Smith Corporation issues 400,000 additional shares of common stock at $6 per share, a current holder of 20,000 shares of Smith Corporation’s common stock must be given the option to buy






8

Each share of nonparticipating, 8%, cumulative preferred stock in a company that meets its dividend obligations has all of the following characteristics except






9

A financial manager usually prefers to issue preferred stock rather than debt because






10

The following excerpt was taken from a company’s financial statements: “ . . . 10% convertible participating . . . 10,000,000.” What is most likely being referred to?






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