1) John owns a corporate bond with a coupon rate of 10% that matures in 10 years. If interest rates go down to 8%, then:
a)the value of John's bond will decrease
b) the value of John’s bond will increase.
c) the value of John's bond will remain the same
d) It is not possible to value this bond
2) Assume that a firm had such serious financial problems that it was about to be liquidated after a bankruptcy. All of the firm's assets are about to be sold in order to pay the following claims against the firm: bondholders, preferred stockholders, common stockholders, and federal income taxes. Of the claims mentioned, what priority would common stockholders have?
A) First
B) Second
C) Third
D) Fourth
3) The PDQ Company's common stock is expected to pay a $3.00 dividend in the coming year. If investors require a 16% return and the growth rate in dividends is expected to be 8%, what will the market price of the stock be?
A) $11.76
B) $37.50
C) $23.11
D) $22.22
4) Common Stock investors receive their return in two ways: the opportunity to participate in price appreciation and the potential to receive cash dividends.
True
False
5) Preferred stock is a hybrid security that has characteristics of both long-term debt and common stock.
A) True
B) False
6) The more difficult it is to estimate a firm's cash flow needs, the greater the need to carry higher precautionary balances of cash.
A) True
B) False
7) The financial manager is concerned with
A) striking a balance between holding too much and too little cash.
B) maintaining high levels of profitability.
C) minimizing the chance of insolvency.
D) all of the above.
8) If a company accepts only projects that meet or exceed its weighted average cost of capital, that company will consistently be creating shareholder value.
True
False
9) When a company is “highly leveraged”, this means:
A) the company has excess cash balances
B) the only source of long-term funding that the company uses is common stock
C) the company has a high percentage of Long-Term Debt on its Balance Sheet
D) the company pays a high level of cash dividends to shareholders