Financial Instruments MCQs

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A curve on a graph with the rate of return on the vertical axis and time on the horizontal axis depicts






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A downward-sloping yield curve depicting the term structure of interest rates implies that






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Short-term interest rates are






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Which of the following scenarios would encourage a company to use short-term loans to retire its 10-year bonds that have 5 years until maturity?






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The term underwriting spread refers to the






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Which one of the following characteristics distinguishes income bonds from other bonds?






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From an investor’s viewpoint, the least risky type of bond in which to invest is a(n)






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Serial bonds are attractive to investors because






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If Brewer Corporation’s bonds are currently yielding 8% in the marketplace, why is the firm’s cost of debt lower?






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Debentures are






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The best advantage of a zero-coupon bond to the issuer is that the






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Junk bonds are






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Which one of the following statements is true when comparing bond financing alternatives?






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Randolf Castell opened a small general store in 1964. A cousin, Alfred Bedford, served as bookkeeper and office manager while Castell concentrated on ...






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If a $1,000 bond sells for $1,125, which of the following statements are true? I. The market rate of interest is greater than the coupon rate on the ...






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All of the following may reduce the coupon rate on a bond issued at par except a






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If a bond sells at a premium, the






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A company issued a 15-year, $1,000 par value bond. The coupon rate on this bond is 9% annually, with interest being paid each 6 months. The investor w...






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What is the price of a 10-year, 10% coupon bond with a $1,000 face value if investors require a 12% return? Assume annual coupon payments.






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In calculating the total value of a bond, how much does the $1,000 to be received upon a bonds maturity in 4 years add to the bonds price if the dis...






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A firm is planning to issue a callable bond with an 8% coupon rate and 10 years to maturity. A straight bond with a similar rate is priced at 1,000. I...






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Which one of the following is a debt instrument that generally has a maturity of 10 years or more?






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The call provision in some bond indentures allows






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Protective clauses set forth in an indenture are known as






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A requirement specified in an indenture agreement that states that a company cannot acquire or sell major assets without prior creditor approval is kn...






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Dorsy Manufacturing plans to issue mortgage bonds subject to an indenture. Which of the following restrictions or requirements are likely to be contai...






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Which one of the following statements concerning debt instruments is correct?






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Which one of the following provides the best measure of interest rate risk for a corporate bond?






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






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Which one of the following would be the most appropriate discount rate for an investment deemed to have moderate risk?






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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%, Bo...






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






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






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iWidget Corporation issued convertible bonds with a par value of 1,000. The corporations stock is selling at $38.00 per share, and the current market...






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The par value of a common stock represents






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






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The equity section of Smith Corporations Statement of Financial Position is presented below. Preferred stock, $100 par $12,000,000 Common stock, $5...






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






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






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The following excerpt was taken from a companys financial statements: . . . 10% convertible participating . . . 10,000,000. What is most likely be...






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Preferred and common stock differ in that






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Unless the shares are specifically restricted, a holder of common stock with a preemptive right may share proportionately in all of the following exce...






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Which of the following is usually not a feature of cumulative preferred stock?






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Which one of the following statements is correct regarding the effect preferred stock has on a company?






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Preferred stock may be retired through the use of any one of the following except a






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All of the following are characteristics of preferred stock except that






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Which one of the following describes a disadvantage to a firm that issues preferred stock?






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Which one of the following situations would prompt a firm to issue debt, as opposed to equity, the next time it raises external capital?






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A company had 150,000 shares outstanding on January 1. On March 1, 75,000 additional shares were issued through a stock dividend. Then on November 1,...






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Everything else being equal, a highly leveraged firm will have earnings per share. List A List B






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The Dawson Corporation projects the following for the year: Earnings before interest and taxes $35 million Interest expense $5 million Preferred st...






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The Dawson Corporation projects the following for the year: Earnings before interest and taxes $35 million Interest expense $5 million Preferred st...






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The equity section of Smith Corporations Statement of Financial Position is presented below. Preferred stock, $100 par $12,000,000 Common stock, $5...






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In calculating diluted earnings per share when a company has convertible bonds outstanding, the number of common shares outstanding must be to adjust...






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All else being equal, a company with a higher dividend-payout ratio will have a debt-to-assets ratio and a current ratio. List A List B






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A company has 100,000 outstanding common shares with a market value of $20 per share. Dividends of $2 per share were paid in the current year and the ...






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During the most recent fiscal year, Dongata Industries earned net income after tax of $3,288,000. The company paid preferred share dividends of $488,...






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Which one of the following events will most likely result in a higher price-earnings ratio for a companys common shares?






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The Hatch Sausage Company is projecting an annual growth rate for the foreseeable future of 9%. The most recent dividend paid was $3.00 per share. New...






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Vega, Inc., needs to raise $50,000,000 for expansion. The two available options are to sell 7%, 10-year bonds at face value or to sell 5% preferred st...






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An analyst is in the process of determining what the current share price should be for PaperToy, Inc. In early January, the analyst collected the foll...






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A publicly traded corporation in an industry with an average price-earnings ratio of 20 has the following summary financial results. Sales 1,000,000 ...






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How would a 5% stock dividend affect a companys additional paid-in capital and retained earnings when declared? Additional Paid-in Capital Retained...






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A corporation paid a dividend of $3 per share last year. If investors expected the dividend per share to grow by 5% per year forever, what required re...






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Wallace Corporation just paid a dividend of $2.00 per common share. Historical data indicate Wallaces dividends grow at a steady rate of 5% per year....






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The CFO of ChemGen Ltd., a publicly traded chemical manufacturer, is in the process of evaluating the company’s dividend policy in relation to share...






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A stock began the month with a stock price of $50 per share, paid a dividend of $2 per share during the month, and ended the month with a price of $52...






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A financial analyst is using the two-stage model of dividend growth to value a corporation that paid an annual dividend last year of $4 per share. The...






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Buying a wheat futures contract to protect against price fluctuation of wheat would be classified as a






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An automobile company that uses the futures market to set the price of steel to protect a profit against price increases is an example of






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A contractual arrangement that gives the owner the right to buy or sell an asset at a fixed price at any moment in time before or on a specified date ...






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Which of the following is exercisable only at the expiration date?






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If a corporation holds a forward contract for the delivery of U.S. Treasury bonds in 6 months and, during those 6 months, interest rates decline, at ...






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The use of derivatives to either hedge or speculate results in






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If a call option is out of the money,






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You are currently holding a call option on a stock with an exercise price of $100. If the current stock price is $90, your net proceeds by exercising ...






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The type of option that does not have the backing of stock is called a(n)






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How much must the stock be worth at expiration in order for a call holder to break even if the exercise price is $60 and the call premium was $3?






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Which one of the following is not a determinant in valuing a call option?






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A forward contract involves a commitment today to purchase a product






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A company has recently purchased some stock of a competitor as part of a long-term plan to acquire the competitor. However, it is somewhat concerned t...






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When a firm finances each asset with a financial instrument of the same approximate maturity as the life of the asset, it is applying






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A distinguishing feature of a futures contract is that






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The owner of a call option wants to know the respective effects on the calls price of a decrease in stock-return volatility and a decrease in time t...






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An investor wrote a $45 call option and bought a $50 put option, both of which had the same time to expiration. On the transaction date, the stock pri...






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A major homebuilder will use lumber to build a large development of homes next year. If the homebuilder plans to buy the lumber next year, it can hedg...






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If a corporations stock price experiences increased volatility, what would happen to the value of the call options and the put options on the corpora...






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Which one of the following is not a characteristic of a negotiable certificate of deposit? Negotiable certificates of deposit






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In smaller businesses in which the management of cash is but one of numerous functions performed by the treasurer, various cost incentives and diversi...






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When managing cash and short-term investments, a corporate treasurer is primarily concerned with






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All of the following are alternative marketable securities suitable for investment except






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Which security is most often held as a substitute for cash?






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Obligations issued by federal agencies other than the U.S. Treasury Department are






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Assuming a 360-day year, the current price of a $100 U.S. Treasury bill due in 180 days on a 6% discount basis is






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Short-term securities issued by the Federal Housing Administration are known as






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Which one of the following instruments would be least appropriate for a corporate treasurer to utilize for temporary investment of cash?






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Which one of the following statements best characterizes U.S. Treasury bills?






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The Duoplan Company is determining the most appropriate source of short-term funding. Trade credit terms from suppliers are 2/30, net 90. The rate for...






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Which of the following financial instruments can be traded in international money markets?






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Which of the following statements regarding negotiable instruments is not correct?