Question 1

All of the following are characteristics of a bond except

Accepted Answer

Bonds do not generally pay dividends. Dividends are payments made to shareholders of a company, while bondholders receive interest payments (coupon payments) on their investment.

Question 2

Yolanda wants to expand her microbrewery business by buying out a competitor and is going to sell newly-issued corporate bonds to do so.This is an example of using ________ for her expansion plans.

Accepted Answer

Yolanda is selling newly-issued corporate bonds to finance her expansion plans, which is an example of direct finance. Direct finance refers to a situation in which funds are obtained from lenders or investors who are willing to invest directly in the borrower's projects or activities. In this case, Yolanda is issuing corporate bonds to investors, who will provide the funds she needs to buy out her competitor.

Question 3

When Electronic Arts,the company behind the games Zuma and Plants vs.Zombies,sold stock to the public for the first time in September 1989,funds were being raised in a ________ market,and when those newly issued shares are resold to other buyers,the sales take place in a ________ market.

Accepted Answer

When a company sells its stock to the public for the first time, it does so in a primary market, where funds are raised directly from investors. When those same shares are resold to other buyers, the sales take place in a secondary market.

Question 4

A bond's coupon payment divided by the bond's ________ is equal to the bond's current yield.

Accepted Answer

The current yield of a bond is calculated by taking the annual coupon payment and dividing it by the current market price of the bond. Therefore, the coupon payment is divided by the bond's current price, which is answer choice B.

Question 5

Despite a shaky start, online used car seller Carvana sold all 15 million stock shares in its IPO and raised about $225 million. Initially priced at $15 per share, the stock closed at $11.10 per share at the end of the first trading day. The Phoenix-based company, known for its automated car vending machines, offers free next-day delivery to residents in 24 markets across the United States. Carvana, founded in 2012, has seen large revenue growth but has never reported a profit., losing about $93 million in 2016. The company also said in its S-1 IPO filing that it expects losses to continue in the near future.
Source: Kirsten Korosec, "Used Car Vending Machine IPO Sputters In First Day of Trading," Fortune, April 28, 2017.
-When Carvana sold stock to the public in its IPO,it did so through the New York Stock Exchange.People who bought the shares

Accepted Answer

People who bought shares in Carvana's IPO own part of the company. They do not receive a promise of repayment of their investment plus interest, which would be characteristic of a bond or other debt security. The IPO is a form of direct finance, meaning the funds flow directly from the investors to the company. Indirect finance involves a financial intermediary such as a bank or mutual fund.

Question 6

Giorgio wants to build a new distribution warehouse for his sporting goods business and is going to issue new shares of stock to do so.This is an example of using ________ for his building project.

Accepted Answer

Direct finance refers to raising funds directly from investors by issuing securities such as stocks or bonds. In this case, Giorgio is issuing new shares of stock to raise funds for his building project, which is an example of direct finance. Indirect finance would refer to borrowing funds through an intermediary such as a bank or financial institution, which is not the case here. Retained earnings and dividends refer to distributing profits to shareholders, which is not relevant to this question.

Question 7

Kendrick wants to start a tax preparation company and is going to his bank to borrow $50,000.This is an example of

Accepted Answer

Since Kendrick is borrowing money from a bank, it is an example of indirect finance where funds flow from savers (depositors at the bank) to borrowers (such as Kendrick). Direct finance refers to borrowing or lending where funds flow directly between the saver and the borrower without any intermediary, such as issuing stocks or bonds. Primary and secondary markets refer to the buying and selling of securities, which is not the case here.

Question 8

If you purchased a newly issued 30-year bond from American Airlines with a face value of $1,000 and a coupon payment of 3 percent,American Airlines would pay you

Accepted Answer

The question states that the bond has a 3 percent coupon payment and a face value of $1,000. This means that American Airlines will pay $30 ($1,000 x 0.03) per year for 30 years as the coupon payment. At the end of the 30th year, American Airlines will also pay back the face value of the bond, which is $1,000. Therefore, the total payment received by the bondholder is $30 x 30 years + $1,000 = $1,900. Choice C is the only one that matches this payment structure.

Question 9

Which of the following is one of the most widely followed stock indexes in the United States?

Accepted Answer

The Dow Jones Industrial Average is one of the most widely followed stock indexes in the United States, tracking the performance of 30 large publicly owned companies, providing a snapshot of how the overall stock market is performing.

Question 10

If you purchased a newly issued 30-year bond from Google with a face value of $3,000 and a coupon payment of 6 percent,Google would pay you

Accepted Answer

The coupon payment of 6 percent on a face value of $3,000 means you will receive $180 per year for 30 years. At the end of the 30th year, Google will also pay you back the face value of $3,000. Therefore, the total amount you will receive over the 30-year period is $180 x 30 years + $3,000 = $9,600.

Question 11

If a corporate bond with a face value of $1,000 pays yearly coupon payments of $40,what is the coupon rate?

Accepted Answer

The coupon rate is the annual interest rate that a bond pays on its face value. In this case, the bond has a face value of $1,000 and pays yearly coupon payments of $40. To calculate the coupon rate, we can divide the yearly coupon payment by the face value and multiply by 100:
Coupon rate = ($40/$1,000) x 100% = 4%
Therefore, the answer is choice B.

Question 12

Securities dealers that trade stocks and bonds ________ comprise the over-the-counter market.

Accepted Answer

The over-the-counter (OTC) market refers to securities that are traded outside of formal exchanges such as the New York Stock Exchange or Nasdaq. OTC trading is often facilitated by securities dealers who buy and sell stocks and bonds directly with each other, rather than through an electronic platform. The value of the securities traded in the OTC market can vary widely, and there is no specific price threshold.

Question 13

When an investor buys a corporate bond,the face value of the bond is

Accepted Answer

When an investor buys a corporate bond, they are essentially loaning money to the corporation. The face value of the bond represents the amount of money that the corporation has borrowed and promises to pay back to the investor at maturity. Therefore, option B is the correct answer.

Question 14

If a corporate bond with face value of $8,000 has an interest rate of 4 percent paid once a year for a term of 30 years,what is the size of the coupon payment?

Accepted Answer

The coupon payment is calculated as the face value of the bond multiplied by the annual interest rate, which gives us $320 ($8,000 x 0.04).

Question 15

You have a bond that pays $18 per year in coupon payments.Which of the following would result in a decrease in the price of your bond?

Accepted Answer

As the coupon payments on newly-issued bonds rise to $22 per year, investors will demand a higher yield on bonds with lower coupon payments to compensate for their lower cash flows. This will decrease the price of an existing bond with a lower coupon payment.

Question 16

Owners of a corporation ________ through dividend payments on shares of that firm's stock.

Accepted Answer

Owners of a corporation, who are the shareholders, share in the profits of the firm through dividend payments on their shares of stock. They do not necessarily retain earnings or issue bonds for the firm, although these actions may be taken by the corporation as a separate entity. Indirect financing may also occur, but it is not directly related to dividend payments to shareholders.

Question 17

Sylvia wants to expand her taxidermy business and is going to use profits from the business to do so.This is an example of using ________ for her expansion.

Accepted Answer

Retained earnings refer to the portion of profits that a company decides to keep rather than distribute as dividends, and use for future investment and expansion. In this scenario, Sylvia is using profits from her taxidermy business for expansion, which falls under the category of using retained earnings.

Question 18

If a corporation's retained earnings are expected to create future profits,the market price of the firm's stock will ________ and create a ________ for stockholders if the stock is sold.

Accepted Answer

If a corporation's retained earnings are expected to create future profits, this indicates that the company is reinvesting in its own growth and increasing its potential for future earnings. This makes the company more valuable, which in turn increases the market price of the firm's stock. If the stock is sold, the stockholder would realize a capital gain from the increase in the stock price.

Question 19

Which of the following statements is true?

Accepted Answer

Stocks do not have a fixed number of payments, while bonds do. Stocks can potentially pay dividends indefinitely, while bonds will have a specific maturity date and number of coupon payments before they expire.

Question 20

When the coupon rate on newly issued bonds ________ relative to older,outstanding bonds,the market price of the older bond ________.

Accepted Answer

The answer of When the coupon rate on newly issued...

Quiz 6: Firms, The Stock Market, and Corporate Governance