Quiz fin

If the intrinsic value of a stock is greater than its market value, which of the following is a reasonable

conclusion?

• The stock has a low level of risk.

• The stock offers a high dividend payout ratio.

• The market is undervaluing the stock.

• The market is overvaluing the stock.

When the market's required rate of return for a particular bond is much less than its coupon rate, the

bond is selling at:

• a premium.

• a discount.

• cannot be determined without more information.

• face value.

If an investor may have to sell a bond prior to maturity and interest rates have risen since the bond was

purchased, the investor is exposed to

• the coupon effect.

• interest rate risk.

• a perpetuity.

• an indefinite maturity.

Interest rates and bond prices

• move in the same direction.

• move in opposite directions.

• sometimes move in the same direction, sometimes in opposite directions.

• have no relationship with each other (i.e., they are independent).

A company can improve (lower) its debt-to-total assets ratio by doing which of the following?

• - Borrow more.

• Shift short-term to long-term debt.

• Shift long-term to short-term debt.

• Sell common stock.

Which of the following is NOT a cash outflow for the firm?

• depreciation.

• dividends.

• interest payments.

• taxes.

This type of risk can be avoided by diversifying properly.

• systematic risk

• unsystematic risk

• portfolio risk

• total risk

A statistical measure of how closely two variables especially in stock returns move together

• variation coefficient

• certainty equivalent

• variance

• covariance

To compute the required rate of return for equity in a company using the CAPM, it is necessary to know

all of the following EXCEPT:

• the risk-free rate.

• the beta for the firm.

• the earnings for the next time period.

• the market return expected for the time period.