Nico invested an amount a year ago and calculated his return on investment. He found that his purchasing power had increased by 15 percent as a result of
... [Show More] his investment. If inflation during the year was 4 percent, then Nico's ________. - ✔✔ Nominal return on investment is more than 15
The riskiness of publicly traded bond issues is rated by independent agencies. According to Moody's rating system, an Aaa bond and a Caa bond are ________ and ________ respectively. - ✔✔ Prime quality; speculative
In the basic valuation model, risk is generally incorporated into the ________. - ✔✔ discount rate
A bond will sell ________ when the stated rate of interest exceeds the required rate of return, ________ when the stated rate of interest is less than the required return, and ________ when the stated rate of interest is equal to the required return. - ✔✔ At a premium; at a discount; equal to the par value
Less certain a cash flow, the ________ the risk, and ________ the present value of the cash flow. - ✔✔ higher, lower
The current yield on a bond is measured by ________. - ✔✔ The annual interest payment divided by the current price
A downward - sloping yield curve that indicates generally cheaper long-term borrowing costs than short-term
borrowing costs is called ________. - ✔✔ Inverted yield curve
To compensate for the uncertainty of future interest rates and the fact that the longer the term of a loan the higher the probability that the borrower will default, the lender typically ________. - ✔✔ charges a higher interest rate on long - term loans
a debenture is ________________. - ✔✔ an unsecured bond that only creditworthy firms can issue
The value of a bond is the present value of the ________. - ✔✔ Interest payments and maturity value
The return expected from an asset is fully defined by its ________. - ✔✔ cash flow and timing
A(n) ________ is a paid individual, corporation, or a commercial bank trust department that acts as a third party to a bond indenture. - ✔✔ trustee
The purpose of the debt covenant that requires maintaining a minimum level of net working capital is to ________. - ✔✔ ensure a cash shortage doe not cause an inability to meet the current obligations
A $1,000, 8% bond sells for 980. $1,000 is called the ________. - ✔✔ par value
The legal contract setting forth the terms and provisions of a corporate bond is a(n) ________. - ✔✔ indenture
Nominal rate of interest is equal to ________. - ✔✔ the risk - free rate plus a risk premium
________ rate of interest creates equilibrium between the supply of savings and the demand for investment funds. - ✔✔ Real
Generally, an increase in risk will result in ________. - ✔✔ a higher required return or interest rate
Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. In addition, Tangshan China's most recent dividend was $5.50. If the expected risk free rate of return is 3 percent, the expected market return is 8 percent, and Tangshan has a beta of 1.2, Tangshan's stock would be ________. - ✔✔ overvalued because the market price is higher than the resulting share value
Rational buyers and sellers use their assessment of an asset's risk and return to determine its value. Relative to this concept, which of the following is true? - ✔✔ To a buyer the asset's value represents the maximum price that he or she would pay to acquire it. [Show Less]