Question 1

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...

Question 2

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

Retained earnings are profits that a company keeps and reinvests into the business. If investors believe that these retained earnings will lead to future profits, they will be more likely to purchase the company's stock, which will increase demand and, in turn, drive up the stock price. A higher stock price will create a capital gain for stockholders if they sell their shares.

Question 3

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 loaning money to the corporation. The face value of the bond is the amount the investor will receive when the bond matures. It is not a measure of ownership (A), coupon rate (C), or dividend payment (D).

Question 4

All of the following are characteristics of a bond except

Accepted Answer

Bonds do not generally pay dividends each year, they pay periodic interest payments known as coupon payments. Dividends are typically associated with stocks.

Question 5

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

A coupon payment of 6 percent on a face value of $3,000 would be $180 per year. As it is a 30-year bond, the payment would be received for 30 years. In addition to the coupon payment, Google would also pay the face value of $3,000 at the end of the 30th year. Therefore, the total payment would be $180 per year for 30 years plus $3,000 at the end of the 30th year.

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 involves obtaining funds directly from investors, such as issuing new shares of stock. In this case, Giorgio is obtaining funds directly from investors by issuing new shares of stock to finance his building project.

Question 7

Which of the following statements is true?

Accepted Answer

Stocks do not have a fixed number of payments and can potentially pay dividends forever. Bonds, on the other hand, have a fixed number of payments and a set maturity date.

Question 8

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

Kendrick is obtaining funds from a financial intermediary (the bank), which is an example of indirect finance. Direct finance involves obtaining funds directly from the financial markets, without the use of a financial intermediary. A primary market transaction involves the issuance of new securities, while a secondary market transaction involves the buying and selling of existing securities.

Question 9

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

If the coupon payments on newly-issued bonds rise to $22 per year, investors may be more attracted to those bonds because they offer a higher return than your bond. This will decrease the demand for your bond, causing its price to decrease.

Question 10

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 raise funds for her expansion plans. This is an example of direct finance, where the funds are raised directly from investors rather than through intermediaries like banks or financial institutions. Indirect finance involves raising funds through intermediaries, and coupon payments refer to the interest payments made to bondholders. Retained earnings refer to profits that are retained by the company for reinvestment rather than being distributed as dividends or used to pay off debt.

Question 11

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 coupon payment of 3% on a face value of $1,000 per year is $30. Therefore, the bondholder will receive $30 every year for 30 years, and at the end of the 30th year, American Airlines will pay back the $1,000 face value. Thus, option C is the correct answer.

Question 12

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

Accepted Answer

Owners of a corporation, who are also shareholders, earn profits through dividend payments on shares of the firm's stock. Retaining earnings (option A) means keeping the profits within the firm instead of distributing them to shareholders. Issuing bonds for the firm (option B) is a form of fundraising that involves borrowing money from investors rather than sharing profits with shareholders. Indirectly financing the firm (option D) is a broad term that could refer to a variety of methods, but it does not specifically relate to earning profits through dividend payments on shares.

Question 13

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

Accepted Answer

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

Question 14

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 profits that are kept within the business instead of distributing them as dividends or using them for other purposes. In this scenario, Sylvia is using her profits to expand her business, which is an example of retained earnings. Direct finance involves raising funds directly from investors or lenders, while indirect finance involves using intermediaries such as banks or venture capitalists. Dividends are a distribution of profits to shareholders, which is not applicable in this scenario.

Question 15

Article Summary
In an effort to raise funds to cut debt,Fiat Chrysler is selling a stake in Ferrari through an initial public offering (IPO)to be valued at as much as $9.8 billion.17.2 million shares of stock in the company are to be sold,and the stock will be traded on the New York Stock Exchange under the symbol RACE.One analyst speculates that requests for shares in Ferrari may be ten times less than the number available.Including debt,Ferrari will have a value of about $12 billion,and chairman Piero Ferrari will keep a 10 percent stake in the new company and receive about €280 million in cash.Before taxes and interest,Ferrari's 2014 earnings were €389 million,with revenue of €2.8 billion.
-When Ferrari sells stock to the public in its IPO,it will do so through the New York Stock Exchange.People who buy the shares will

Accepted Answer

People who buy shares in Ferrari's IPO will own part of the company. Option A is incorrect as buying shares in an IPO does not guarantee repayment of investment plus interest, while option B is incorrect as IPOs are a form of direct finance rather than indirect finance.

Question 16

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

Accepted Answer

Current yield is calculated by dividing the annual coupon payment by the current market price of the bond. Therefore, the coupon payment is divided by the bond's current price, which is answer B.

Question 17

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 ($8,000) multiplied by the interest rate (4 percent or 0.04), which equals $320.

Question 18

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

Accepted Answer

Coupon rate is the annual interest rate that a bond pays to its bondholders. In this case, the bond has a face value of $1,000 and pays yearly coupon payments of $40.

To find the coupon rate, we need to divide the yearly coupon payments by the face value of the bond and then multiply by 100.

Coupon rate = (Yearly coupon payments / Face value of bond) * 100
Coupon rate = (40 / 1000) * 100
Coupon rate = 4%

Therefore, the coupon rate is 4%, which is Option B.

Question 19

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

Accepted Answer

The Dow Jones Industrial Average (DJIA) is one of the most widely followed stock indexes in the United States. It tracks the performance of 30 large, publicly owned companies based in the US. The other options listed are not stock indexes, but rather a futures exchange (B), a list of the largest US companies by revenue (C), and a government agency responsible for regulating the securities industry (D).

Question 20

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 issues stock to the public for the first time, it is called an initial public offering (IPO), which takes place in the primary market. Therefore, the first part of the statement refers to the primary market. However, when these newly issued shares are resold to other buyers, it takes place in the secondary market. Therefore, the second part of the statement refers to the secondary market. Thus, the best choice is B, primary for the first part and secondary for the second part.

Quiz 8: Firms,the Stock Market,and Corporate Governance

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

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.