a normal yield curve is
upward sloping
a basis point is equal to
one-hundredth of one percent
a life insurance company purchases $1 billion of corporate bonds from premiums collected on its life insurance policies. therefore
the corporate bonds are direct securities and the life insurance policies are indirect securities
advantages of the corporate form of business organization include
easier transfer of ownership
all of the following are benefits of organized stock exchanges EXCEPT
increased stock price volatility
all of the following business organizations provide limited liability to their owners EXCEPT
general partnership
all of the following securities are sold in money markets EXCEPT
common stock
an example of a secondary market transaction involving a capital market security is
the transfer of previously-issued facebook common stock
As of today, the most severe economic crisis to afflict the United States economy is considered to be
the great depression of the 1930s
capital budgeting is concerned with
what long-term investments a firm should undertake
capital market transactions include which of the following
common stock of a public corporation
determining the appropriate source of capital to fund a firm's long-term investments is called
the capital structure decision
in finance, we assume that investors are generally
risk averse
investment firms, such as goldman sachs, assist the transfer of capital by
facilitating indirect transfers from savers (investing public) to borrowers (corporations needing capital)
investors want a return that satisfies the following expectations(s):
an additional return for taking risk
a return for delaying consumption
money-market transactions include which of the following?
securities that have a maturity of less than one year
prices of securities that are traded on the organized exchanges are determined by
a continuous auction process reflecting the sentiments of buyers and sellers
shareholder wealth maximization means
maximizing the price of existing common stock
suppose XYZ corporation is traded on the new york stock exchange. XYZ's closing price on monday is $20 per share. after the market closes on monday, XYZ makes a surprise announcement that it has obtained a major new customer. if capital markets are effici
open above $20 because the positive news will result in a higher valuation even though the stock has not yet traded
the investment banker performs what three basic functions
underwriting, distributing, and advising
the primary goal of a publicly owned corporation is to
maximize shareholder wealth
the principle of risk-return trade-off means that
a rational investor will only take on higher risk if he expects a higher return
the real rate of return is the return earned above the
inflation risk premium
The Sarbanes-Oxley Act of 2002 holds all of the following groups strictly accountable in a legal sense for any instances of misconduct EXCEPT
investors purchasing the firm's common stock
The Securities and Exchange Commission (SEC)
regulates both primary and secondary security markets.
The three basic types of issues addressed by the study of finance are
capital budgeting, capital structure decisions, and working capital management
the true owners of the corporation are the
common stockholders
Three ways that savings can be transferred through the financial markets include all of the following EXCEPT
indirect transfer using the venture capital firm.
To measure value, the concept of time value of money is used
to bring the future benefits and costs of a project, measured by its cash flows, back to the present.
What is the term for a graphical representation of the relationship between interest rates and the differing maturities of debt securities?
yield curve
When an investment banking firm "underwrites" an issue of securities, the firm is performing which of the following?
ffering to purchase the securities from the firm, thereby assuming the risk of resale to investors
Which of the following categories of owners enjoy limited liability?
common shareholders of a corporation
Which of the following is an example of both a capital market and a primary market transaction?
Tesla sells a secondary issue of common stock to raise funds through a public offering.
Which of the following is NOT a valid theory that attempts to explain the shape of the term structure of interest rates?
the Fisher Effect theory
Which of the following premiums is NOT factored into the price of a long-term Treasury bond?
a default-risk premium
Which of the following represents the correct ordering of returns over the period 1926 to 2014 (from lowest to highest return)?
Treasury bills, long-term government bonds, long-term corporate bonds, common stocks
Which of the following securities will likely have the highest default risk premium?
Bbb-rated corporate bond maturing in 2020 actively traded on a major exchange
Which of the following securities will likely have the highest maturity risk premium?
U.S. Treasury Bond maturing in 2027
Which of the following would NOT normally be considered a "flotation cost"?
dividends