Finance Test 2 Set Four

Front 1

To many investors, an issue's ----------- is just as important in defining the characteristics of a bond as are its coupon, maturity, and call features.

Back 1

agency rating

Front 2

Agency rating indicate the amount of ------ embedded in a bond, and widely used by which type of investors?

Back 2

credit risk, fixed income investors

Front 3

higher ratings are associated with more profitable companies that rely less on ------------ as a form of financing, are more --------, have stronger ------------ and have no trouble servicing their --------- in a prompt and timely fashion

Back 3

debt, liquid, stronger cash flows, debt

Front 4

Bond ratings are intended to measure only an issue's --------- risk, which has no bearing whatsoever on an issue's exposure to ------ risk

Back 4

default, market

Front 5

Investment grade ratings are received by

Back 5

financially strong companies

Front 6

are received by companies making payments, but default risk is high

Back 6

junk bond ratings

Front 7

occur when a bond issue is given different ratings by major rating agencies

Back 7

split ratings

Front 8

have less default risk and pay lower interest rates

Back 8

higher rated bonds

Front 9

has a market value that is above par value
Occur when market interest rates are below bond’s coupon rate

Back 9

premium bond

Front 10

has a market value that is below par value
Occur when market interest rates are above bond’s coupon rate

Back 10

discount bond

Front 11

Price of a bond is a function of its --------- rate, its ----------, and market movements in ------------.

Back 11

coupon rate, its maturity, and market movements in interest rates

Front 12

if you expect a decline in interest rates, you should seek --------- coupons and ------- maturities

Back 12

lower coupons, longer maturities

Front 13

when interest rates move up, you should seek ---------- coupons with --------- maturities

Back 13

higher coupons, shorter maturities

Front 14

-Liabilities, or “publicly traded IOUs”
-Also called “fixed income securities” since payments are fixed amounts
-Borrower agrees to repay a fixed amount of principal at a predetermined maturity date
-Borrower agrees to pay a fixed amount of interest over a specified period of time

Back 14

Bonds

Front 15

A stock's size is based on its market value or, more commonly, its ----------------------

Back 15

market capitalization

Front 16

How is market value (market capitalization) calculated?

Back 16

market price of the stock times the number of shares outstanding

Front 17

is the amount of capital that must be repaid at maturity

Back 17

principal (par value)

Front 18

The 10% Par value bond trades at a ----------------- when market rates are at 8%, but are traded at a -------------- when rates are at 12%

Back 18

premium, discount

Front 19

when interest rates rise bond prices -----------, and when interest rates fall bond prices ---------

Back 19

fall, rise

Front 20

-allow investors to tailor investments to meet individual needs and preferences
-may provide a steady stream of current income through dividends
-may increase in value over time through capital gains

Back 20

stocks

Front 21

evidence of ownership position in a firm, in the form of shares of common stock. This is why stocks are sometimes called “equities”

Back 21

equity capital