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107 Cards in this Set
- Front
- Back
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The net present value is best defined as the difference between an investment’s:
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market value and its cost.
=market value - Cost |
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The process of valuing an investment by discounting its future cash flows is called:
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discounted cash flow valuation.
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The period of time it takes an investment to generate sufficient cash flows to recover its initial cost is called the:
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payback period.
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Which one of the following correctly defines the average accounting return?
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average net income divided by average book value
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The internal rate of return is the:
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discount rate that causes the net present value of a project to equal zero.
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The net present value profile is a graphical relationship of an investment’s:
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discount rate and its net present value.
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The possibility that more than one discount rate can cause the net present value of a project to equal zero is referred to as:
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multiple rates of return.
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A mutually exclusive investment decision is defined as a situation where:
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an investment in project A prohibits you from investing in project B.
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The present value of an investment’s cash inflows divided by the investment’s initial cost is called the:
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profitability index.
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The stated interest payment made on a bond is called the:
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coupon.
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The principal amount of a bond that is repaid at the end of term is called the par value or the:
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face value.
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The coupon rate is best defined as the:
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annual coupon divided by the face value of a bond.
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The date on which the principal amount of a bond is paid is referred to as the:
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maturity
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The rate required in the market on a bond is called the:
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yield to maturity.
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A premium bond is a bond that:
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has a market price which exceeds the face value
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A bond which sells for less than the face value is called a:
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d. discount bond.
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The current yield is defined as the:
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annual coupon divided by the market price.
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The written agreement between the corporation and its creditors is called the bond:
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indenture.
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When interest payments on a bond are made directly to the owner of record, the bond is said to be in _____ form.
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registered
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When interest payments are made to whoever holds the bond, the bond is said to be in _____ form.
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bearer
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A debenture is a(n):
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unsecured debt which generally matures in ten years or more.
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An unsecured debt which generally matures in less than ten years is called a:
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note.
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A sinking fund is an account managed by the bond trustee for the purpose of:
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redeeming bonds early.
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The right of the bond issuer to repurchase the bond at a predetermined price prior to maturity is referred to as the:
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call provision.
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The call premium is the amount by which the:
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call price exceeds the par value.
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The provision which prohibits a bond issuer from repurchasing a bond for a period of time after issue is called the _____ provision.
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deferred call
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A bond which an issuer is currently restricted from redeeming is referred to as a:
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call protected bond.
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The stipulations in a bond indenture agreement which limit the actions a firm can take while the bond issue is outstanding are called:
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protective covenants.
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The nickname for a bond issued by a state is:
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muni.
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A deep discount bond that pays no regular interest payments is called a(n) _____ bond.
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zero coupon
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The price at which you can sell a bond and at which the dealer will purchase it is
called the _____ price. |
bid
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The price a dealer is willing to take for a security is called the _____ price.
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asked
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The profit that a dealer earns on the purchase and subsequent resale of a bond is called the:
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spread
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An interest rate that has been adjusted for inflation is called a _____ rate.
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real
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The rate of return you earn on an investment before adjusting for inflation is called the _____ rate.
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nominal
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The clean price of a bond is the price:
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excluding any accrued interest.
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The dirty price of a bond is the price:
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including any accrued interest to date.
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The Fisher effect addresses the relationship between:
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inflation, real, and nominal rates.
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The pure time value of money, as illustrated by the nominal interest rates on default-free, pure discount bonds, is called the:
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term structure of interest rates.
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The compensation investors require to offset expected future increases in prices is called the:
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inflation premium.
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The interest rate risk premium is the compensation investors require for their assumption of the risk related to:
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changes in interest rates.
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When the yields of Treasury notes and bonds are plotted on a graph in relation to their
respective times to maturity, the resulting curve is called the Treasury _____ curve. |
yield
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The portion of a bond’s yield that compensates investors for the possibility that the bond’s interest or principal might not be paid is called the:
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default risk premium.
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The extra compensation investors demand for a corporate bond over that of a comparable municipal bond is called the:
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taxability premium.
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The liquidity premium is the portion of a nominal interest rate that represents compensation for the:
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lack of the ability to sell the bond at its fair value in a timely manner.
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The stock valuation process which determines the price of a stock by dividing the next
period’s dividend by the discount rate less the dividend growth rate is called the: |
dividend growth model.
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A stock which pays a constant dollar dividend over an extended period of time is
referred to as a _____ stock. |
zero growth stock
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The Bigelow Co. increases their annual dividend by 3 percent each and every year.
This stock is referred to as a(n) _____ stock. |
constant growth
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The dividends paid by the Jon Stone Co. over the past 4 years were $.40, $1.00,
$1.10, and $1.13, respectively. The name given to this type of stock is: |
nonconstant growth.
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Next year’s expected annual dividend divided by today’s stock price is called the
stock’s: |
dividend yield
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The rate at which the value of an investment grows is called the:
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capital gains yield
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The type of security which represents ownership in a firm without priority for dividends or priority in a bankruptcy is called _____ stock.
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common
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Cumulative voting refers to the process in which a shareholder:
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may cast all votes for one member of the board of directors.
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Straight voting is defined as the process where the directors are elected:
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one at a time.
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The authority granted by a shareholder that permits another individual to vote that shareholder’s shares is called a:
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proxy
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Payments to shareholders by a corporation that represent a return on capital are called:
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dividends
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Stock which generally pays a fixed dividend and receives priority in the payment of dividends and the distribution of corporate assets is called _____ stock.
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preferred
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The market in which new securities are originally sold to investors is called the _____ market.
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primary
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The market where one shareholder sells shares to another shareholder is called the _____ market.
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secondary
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A dealer is an agent who:
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buys and sells securities from inventory.
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An agent who arranges security transactions among investors is a called a:
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broker
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An owner of a seat on the NYSE is called a:
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member
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The persons who execute customer buy and sell orders on the floor of the NYSE are
called: |
commision brokers
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The market maker who deals in a small number of securities on the exchange floor is called the:
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specialist
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Members who execute orders on a fee basis for commission brokers are referred to as:
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floor brokers.
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The electronic system that transmits orders directly to a specialist on the floor of the NYSE is called the:
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SuperDot System
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An independent individual who trades for his or her own account by buying and selling
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floor trader
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Order flow can be defined as the:
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stream of customer orders to buy and sell securities.
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The location on the floor of an exchange where an individual security is traded is called the:
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specialist post
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Inside quotes are defined as the:
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lowest ask quotes and the highest bid quotes for a security.
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The electronic system that transmits orders directly to a specialist on the floor of the NYSE is called the:
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SuperDot System
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An independent individual who trades for his or her own account by buying and selling
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floor trader
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Order flow can be defined as the:
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stream of customer orders to buy and sell securities.
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The location on the floor of an exchange where an individual security is traded is called the:
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specialist post
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Inside quotes are defined as the:
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lowest ask quotes and the highest bid quotes for a security.
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A Web site that enables an investor to trade directly with another investor is called a(n):
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ELECTRONIC COMMUNICATIONS NETWORKS (ECNs)
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The incremental cash flows of a project can best be defined as the difference between a firm’s _____ with and without the project.
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future cash flows
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The stand-alone principle is the assumption that the evaluation of a project may be based on the project’s:
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incremental cash flows
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A cost that has already been incurred and cannot be recouped is referred to as a(n) _____ cost.
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sunk
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An opportunity cost is defined as:
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the most valuable alternative that is given up if a particular investment is undertaken.
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A reduction in the sales of a current product whenever a new product is introduced by a firm is called:
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erosion
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A pro forma financial statement is a financial statement which:
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projects future years’ operations.
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The depreciation tax shield is defined as:
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(Sales − Costs) × (1 − T) − (D × T).
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A U.S. depreciation system which allows for more rapid depreciation under various
classifications is called the _____ system. |
accelerated depreciation system
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Forecasting risk can be defined as the possibility that _____ will lead to incorrect decisions.
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errors in projected cash flows
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The analysis of the effects that what-if questions have on a project is referred to as _____ analysis.
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scenario
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The analysis of the effect that a single variable has on the net present value of a project is called _____ analysis.
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sensitivity analysis
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The opportunities to change the way a product is priced, manufactured, or advertised
in the future are referred to as: |
managerial options.
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Contingency planning is the consideration of the:
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managerial options implicit in a project.
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The options that a company has to expand their business into related products are
referred to as _____ options. |
strategic
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The situation a firm faces when it has positive net present value projects but cannot obtain financing for those projects is referred to as:
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capital rationing
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Soft rationing is best defined as the situation that exists when:
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the units within a business are allotted a fixed amount of money for their annual capital
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When a firm cannot raise financing for a project under any circumstances, the firm is
facing a situation known as: |
hard rationing.
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The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called:
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homemade leverage.
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The theory that the value of a firm is independent of its capital structure is referred to as:
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M&M Proposition I.
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The theory that a firm’s cost of equity capital is a positive linear function of its capital structure is referred to as:
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M&M Proposition II
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Business risk is defined as the:
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equity risk that comes from the nature of a firm’s operating activities.
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Financial risk is defined as the:
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equity risk that comes from the capital structure of a firm.
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The tax savings attained by a firm because of the tax deductibility of the interest
expense is called the: |
interest tax shield
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The legal and administrative costs of bankruptcy are called _____ bankruptcy costs.
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direct
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The costs incurred by a firm in an effort to avoid bankruptcy are called _____ bankruptcy costs.
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indirect
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The direct and indirect costs of bankruptcy are also called _____ costs.
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financial distress call
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The argument that a firm borrows up to the point where the tax benefit of an extra
dollar of debt is exactly offset by the increased probability of financial distress is called: |
the static theory of capital structure.
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Bankruptcy is best defined as:
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a legal proceeding for liquidating or reorganizing a business.
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The term which best describes the termination of a firm as a going concern is:
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liquidation
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The financial restructuring of a firm in an attempt to create a situation in which the firm can continue its operations as a going concern is best described as a(n):
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reorganization
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The list which establishes the order of claims in a liquidation is referred to as:
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the absolute priority rule
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