Which of the following events would make it more likely that a company would choose to call its outstanding callable bonds?
a reduction in market interest rates
current tax laws have which of the following effects?
favor capital gains because the tax does not have to be paid until the stock is sold
B & O Railroad's convertible debentures were issued at their $1000 par value in 2008. At any time prior to maturity on Feb. 1, 2028, a debenture holder can exchange a bond for 25 shares of common stock. What is the conversion price?
$40
conversion price = bond par/number of shares
the major asset of saving and loans is
residential mortgages
every investment, financial and real is worth:
The present value of expected cash flows
eurodebt is the term used to designate
debt that is demoninated in a currency that is different than the currency of the country in which it is sold
which of the following statements is correct?
a "prospectus" is a document which describes a company and the securities it plans to offer, and the prospectus generally must be approved by the SEC before a public offering of new securities can be made
______ efficiency states that all private and publicly available information is reflected in the current market prices
strong form
global gum company has decided to issue 150 million in common stock to raise funds to finance future growth. GGC's stock currently sells 25 per share. how many shares does GGC plan to issue?
6 million
Through its open market operations, the Federal Reserve recently increased deposits at financial institutions by 90 billion. if the reserve requirement for all deposits is 8 percent, what is the maximum effect that the feds action can have on total deposi
1035 or 1125 billion
you have just purchased shares in the HI-tech long-term bond fund, a mutual fund that invests in long term corporate bonds. your purchase constitutes
an indirect transfer through a financial intermediary
as a corporate investor paying a marginal tax rate of 34%, if 70% of dividends are excludable, what would be your after-tax dividend ueild on preferred stock with a 16% before-tax dividend yeild
14.37%
16%- .34 x (1 - 0.7) x 16%
The Zocco corporation has 2010 taxable income of 365000 from operations after all operating costs, but before interest charges of 50000, dividends received of 15000 and dividends paid of 25000 what is Zoccos taxable income
319500
365,000 - 365 - 50 + .3 x 15 = 319.5
which of the following types of debt protect a bondholder against an increase in interest rates?
floating rate debt, bonds that are redeemable at par at the bondholders option
The Angell Company has earned $150,000 before taxes during each of the past 15 years, and it expects to earn $150,000 per year before taxes in the future. In 2011, however, the firm incurred a loss of $650,000. It will claim a tax credit at the time it fi
90000
Suppose you own a put option that gives you the right to sell 200 shares of MMM company to another investor for $25 per share any time during the next 6 months. MMM's stock currently sells for $26. What will be your gain (or loss) if the stock's price dec
1000
____ efficiency states that all price history information is reflected in current market prices.
weak-form
Assume that the reserve requirement is 15 percent for transaction deposits and 4 percent for nontransaction deposits. Compute the reserve requirement for a bank that has $340 billion deposited in transaction accounts and $120 billion in nontransaction acc
55.8 billion
which of the following statements is correct?
Partnerships have difficulties attracting capital in part because of the other disadvantages of the partnership form of business, including impermanence of the organization.
which of the following statements is correct?
Income bonds pay interest only when the amount of the interest is actually earned by the company. Thus, these securities cannot bankrupt a company and this makes them riskier to investors than regular bonds.
A firm plans to sell $100 million of 20-year bonds to raise capital for expansion. Which of the following provisions, if it were included in the bond's indenture, would tend to raise the coupon interest rate over what it would be if the provision were not
A call provision under which the firm may call the bonds for redemption after 5 years.
The primary responsibility of the Federal Open Market Committee (FOMC) is to
establish a level and growth of the money supply through open market operations to produce a stable economic environment.
A small state bank currently has reserves equal to $300,000. If the state reserve requirement is 20%, but the bank currently maintains a 30% reserve, what amount of reserves would the bank need if it met the reserve requirements exactly?
200,000
Jane Doe, who has substantial personal wealth and income, is considering the possibility of opening a new business in the chemical waste management field. She will be the sole owner. The business will have a relatively high degree of risk, and it is expec
S corporation, to enjoy tax advantages and gain limited liability
Weston Corporation has some money to invest, and its treasurer is choosing between General Motors bonds and State of Illinois bonds. Both have the same maturity, and they are equally risky and liquid. If the Illinois bonds, which are tax-exempt, yield 6 p
10 %
Assume that the reserve requirement is 15 percent for transaction deposits and 4 percent for nontransaction deposits. Compute the reserve requirement for a bank that has $340 billion deposited in transaction accounts and $450 billion in nontransaction acc
69 billion
every investment, financial and real is worth?
the present value of expected cash flows
Most American investors who are interested in investing in companies listed on foreign exchanges do so by purchasing ____
American Depository Receipts (ADRs) or mutual funds that hold international stocks.
An investor purchased a call option that allows her to purchase 100 shares of Dell Computer common stock for $45 per share any time during the next six months. The current market price of Dell's stock is $42.50. If the price of Dell increases to $50 and t
$500 gain
profit is number of calls (100) times the difference between the market (%50 or 52.50 minus the strike price (45)).
which of the following factors does not influence a firms long-term financing decisions?
all of them influence long term financing decisions:
-its target capital structure
-maturity matching considerations
-comparative costs of financing alternatives
-availability of collateral
Large, well-known public companies can reduce the time required to register and issue securities by using a(n)
shelf registration
which of the following is not an asset of a bank?
business deposits
_____ efficiency states that all publicity available information is reflected in current market prices
semistrong-form
which of the following is statements is correct?
Shareholder agency costs include the opportunity costs associated with constraining managerial freedom but do not include managerial salaries.
which of the following statement is correct?
a good example of an agency relationship is the one between stockholders and managers
all else equal, a decrease in reserve requirements will cause?
excess reserves to increase
which of the following is not true about life insurance companies?
they invest heavily in short-term highly marketable securities
a goldsmith who operated under strict 100 percent reserve requirements?
served only a safekeeping function in the economy
An option which gives the holder the right to sell a stock at a specified price at some time in the future is called a(n)
for right to sell it is PUT OPTION
right to buy is CALL OPTION
money markets are markets for
short-term debt securities
which of the following assists are traded in the derivative markets?
options, futures, and swaps
which of the following statements is correct?
Agency problems exist between stockholders and managers, and between stockholders and creditors.
all else equal, the money supply should decrease when?
the fed sells securities on the open market
federal deposit insurance has
prevented bank depositor panics, but not bank failures
When a firm makes an earnings announcement that is different than what the analysts expected the market price of the firm's stock adjusts immediately. This is evidence consistent with markets being ____ efficient but not ____ efficient
semi-strong, strong
Financial markets are important because they
all of the following:
-allow individuals to transfer purchasing power over time
-provide for the efficient transfer funds to business
-facilitate exchanges between the providers and users of capital
Of the following provisions that might be found in a bond indenture, which would tend to reduce the coupon interest rate on the bond in question?
a convertible feature
Suppose the reserve requirement for transaction deposits is 10% and it is 5% for nontransaction deposits. What is the total reserve requirement for a bank with total deposits equal to $800 million, if $600 million of these deposits are classified as trans
($70 million) for $600 transactions deposits - 600 x .1 + 200 x .05 = 70.
Joey Kinkaid will be paid $50,000 in 2011. Using the tax table projected on the screen and the facts that personal exemptions are $3,700 and the standard deduction applicable Joey is $5,800, what is Joey's tax liability?
($50,000 - $9,500 = $40,500. Tax = $4,750 + .25 x 6,000 = $6,250)
Which of the following statements about purchasing power parity is true?
PPP helps explain long run exchange rate movements reasonably well
value maximization requires?
sustainability
taking poison pills and offering greenmail are?
two actions managers might take to ward off hostile takeovers
which of the following is not a limitation of the proprietorship form of business?
double taxation
other things held constant, if a bond indenture contains a call provision, the yield to maturity that would exist without such a call provision will generally be ______ the YTM with it
lower than
your aunt Agatha purchased a call option a few months ago. today is the expiration date, so she must decide whether to exercise the option. which of the following statements is correct? do not consider brokers commissions in your answer
aunt agatha should exercise the option if the price of the stock is greater than the exercise, or strike, price
companies A and B recently established a new jointly owned subsidiary, ABBA corporation. ABBA now requires 100 million of capital. A and b will supply 40 million of common equity, 20 million each. the remaining 60 million will be raised by using some comb
all of the above
an american depository receipt represents
certificates representing ownership in stocks of foreign companies that are held in trust by a bank located in the country the stock is traded
what is the maximum change in total deposits at financial institutions if the Fed sells 120 billion of government securities to dealers, and the reserve requirement applicable to all deposits 10%?
1.08 trillion increase
the major asset of savings and loans is
residential mortgages
rollincoast inc. issued BBB bonds two years ago that provided a yield to maturity of 11.5 percent. long term risk free government bonds were yielding at 8.7 percent at that time. the current risk premium on BBB bonds versus government bonds is half what i
9.2
an increase in depository institutions reserves will cause
depository institutions to lend more freely
suppose the federal reserve increases deposits at financial institutions by 50 billion through its open market operations. if the reserve requirements for all deposits is 8%, what is the maximum impact the fed actions can have on total deposits
575 billion increase
which of the following types of debt protect a bondholder against an increase in interest rates
floating rate debt, bonds that are redeemable at par at the bondholders option
which of the following statements is correct?
income bonds pay interest only when the amount of the interest is actually earned by the company. thus, these securities cannot bankrupt a company and this makes them riskier to investors than regular bonds
with of the following is NOT one of the things that causes a corporation to have a significant advantage over a partnership or a proprietorship?
elimination of double taxation
which of the following is an example of an area of business where use of questionable ethics is considered necessary
none of the above
a fractional reserve banking system might be in trouble if
all deposit customers wanted to withdraw their money
which of the above provisions, each viewed alone, would tend to reduce the yield to maturity investors would otherwise require on a newly issued bond?
1,3,4,6
a small state bank currently has reserves equal to 300000. if the state reserve requirement is 20% but the bank currently maintains a 30% reserve, how much are the excess reserves the bank currently has?
100,000
when a firm makes an earnings announcement that is different than what the analysts expected the market price of the firms stock adjusts immediately. this is evidence consistent with markets being _____ efficient but not ___ efficient
semistrong-form, strong-form
an example of a firms financing decisions would be
the issuance of ten year versus twenty year bonds
unlimited liability is faced by the owners of
sole proprietorships and partnerhsips
when corporations need to raise funds through stock issues, they rely upon the
primary market
which of the following items should not be included in a list of current assets?
accounts payable
according to GAAP, assets and liabilities are typically recorded on the balance sheet at:
historical cost less depreciation
ABC balance sheet shows their long term debt to be 20 million. the debt was issues with a 10% interest rate, and the current interest is 7% based on this information, the market value of this debt would be:
more than 20 million
the preemptive right is important to shareholders because it
protects the current shareholders against dilution of ownership interests
which of the following statements concerning preferred stock is correct?
from the issuer's point of view, preferred stock is less risky than bonds
which of the following assets are traded in the derivative markets
options, futures, and swaps
which of the following would not be considered a real asset
corporate bond
which of the following statements generally cannot be correct for an investor who faces unlimited liability on an investor who faces unlimited liability on an investment
the investor is subject to double taxation
a primary market would be utilized when
securities are initially used
what happens to a firms net worth as it uses cash to repay accounts payable?
new worth remains constant
which of the following is correct for a fully depreciated asset?
the relationship between market and book values is indeterminable
if market interest rates have increased since a company last borrowed long term funds, the market value of these long term funds will likely be
less then their book value
which of the following statements best distinguishes the difference between real and financial assets?
financial assets represent claims to income that is generated by real assets
when a corporation fail, the maximum that can lost by an investor protected by limited liability is
the amount of the initial investment
financing for public corporations flow through
financial intermediaries
a balance sheet portrays the value of a firms assists and liabilities
at any stated point in time
a balcne sheet may be considered backward looking, from the perspective that
it records historic, not current values
which of the following is not a financing decision
should the firm shut down an unprofitable factory?
of the following provisions that might be found in a bond indenture, which would tend to reduce the coupon interest rate on the bond in question
a convertible feature
which of the following statements is correct
zero coupon bonds are bought primarily by pension funds and other tax exempt investors because they avoid the tax that non-tax exempt investors must pay on the accrued value each year