Term
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Definition
| 1. This is the interest rate that is actually observed in financial markets. |
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Term
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Definition
| This is the risk that a security issuer will miss an interest or principal payment or continue to miss such payments. |
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Term
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Definition
| This is the continual increase in the price level of a basket of goods and services. |
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Term
| Which of these statements is true? |
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Definition
*A. The higher the default risk, the higher the interest rate that security buyers will demand.
B. The lower the default risk, the higher the interest rate that security buyers will demand.
C. The higher the default risk, the lower the interest rate that security buyers will demand.
D. The default risk does not impact the interest rate that security buyers will demand. |
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Term
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Definition
| This is the risk that a security can be sold at a predictable price with low transaction costs on short notice. |
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Term
| Market Segmentation Theory |
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Definition
| This theory argues that individual investors and financial institutions have specific maturity preferences, and to encourage buyers to hold securities with maturities other than their most preferred requires a higher interest rate. |
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Term
| short-term structure of interest rates theory |
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Definition
| Which of these is NOT a theory that explains the shape of the term structure of interest rates? |
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Term
| Bonds are issued by which of the following? |
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Definition
A. corporations
B. federal government or its agencies
C. state and local governments
*D. All of these |
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Term
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Definition
| Regarding a bond's characteristics, which of the following is the principal loan amount that the borrower must repay? |
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Term
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Definition
| This determines the dollar amount of interest paid to bondholders |
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Term
| Which of the following statements is true? |
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Definition
A. Interest payments paid to U.S. Treasury bond holders are not taxed at the federal level.
B. Interest payments paid to corporate bond holders are not taxed at the federal level.
C. Interest payments paid to corporate bond holders are not taxed at the state level.
*D. Interest payments paid to municipal bond holders are not taxed at the federal level, or by the state for which the bond is issued. |
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Term
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Definition
| Which of the following is a bond selling for a price lower than its par value? |
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Term
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Definition
| Which of the following bonds makes no interest payments? |
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Term
| If interest rates fall, all bonds will enjoy rising values. |
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Definition
| Which of the following is a true statement? |
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Term
| The Dow Jones Industrial Average (DJIA) includes |
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Definition
| 30 of the largest (market capitalization) and most active companies in the U.S. economy. |
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Term
| The Standard & Poor's 500 Index includes |
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Definition
| 500 firms that are the largest in their respective economic sectors |
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Term
| Investors buy stock at the |
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Definition
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Term
| We can estimate a stock's value by |
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Definition
| discounting the future dividends and future stock price appreciation. |
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Term
| The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm's |
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Definition
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Term
| This provides a useful theoretical basis because it illustrates the importance of dividends as a fundamental stock price determinant. |
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Definition
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Term
| These are valued as a special zero-growth case of the constant growth rate model. |
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Definition
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Term
| Many companies grow very fast at first, but slower future growth can be expected. Such companies are called |
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Definition
| Variable Growth Rate firms |
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Term
| This includes any capital gain (or loss) that occurred as well as any income that you received from a specific investment. |
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Definition
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Term
| Which of these statements is true? |
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Definition
| When people purchase a stock, they do not know what their return is going to be – either short term or in the long run. |
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Term
| This is defined as the volatility of an investment, which includes firm specific risk as well as market risk. |
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Definition
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Term
| This is a measure of risk to reward earned by an investment over a specific period of time. |
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Definition
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Term
| This is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification |
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Definition
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Term
| This is the portion of total risk that is attributable to overall economic factors. |
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Definition
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Term
| This is a measurement of the co-movement between two variables that ranges between -1 and +1. |
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Definition
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Term
| To calculate the return of a portfolio, you will need which of the following: |
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Definition
A. the proportion of each stock in the portfolio,
B. the return of each stock in the portfolio
C. the coefficient of variation,
*D. All of these. E. only a and b above. |
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Term
| To find the percentage return of an investment, |
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Definition
| divide the dollar return by the investment's value at the beginning of the period. |
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Term
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Definition
| The larger the standard deviation, the higher the total risk. |
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