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Multiple Choice
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1

In valuing a financial asset, you use these variables:
A)present value of future cash flows
B)discount rate
C)required rate of return
D)all of the above
2

The principal amount of a bond at issue is called:
A)par value
B)coupon value
C)present value of an annuity
D)present value of a lump sum
3

If a bond's value rises above its par value during its life, interest rates have:
A)gone up
B)gone down
C)stayed the same
D)there is no correlation with interest rates
4

The basic "rent" that you are charged when you borrow money is called:
A)inflation premium
B)risk premium
C)real rate of return
D)none of the above
5

As time to maturity draws near, a bond's value approaches:
A)zero
B)par
C)the coupon payment
D)none of the above
6

One characteristic of preferred stock is that:
A)it has no maturity date
B)it is a hybrid security with characteristics of both common stock and debt
C)it pays a fixed dividend payment
D)all of the above
7

Common stock that has no growth in dividends is valued as if it were:
A)preferred stock
B)a bond
C)an option
D)none of the above
8

A high price/earnings ratio usually indicates that a firm is a:
A)value stock
B)growth stock
C)convertible security
D)constant security
9

A low price/earnings ratio usually means that a firm:
A)is a growth stock
B)has positive expectations for the future
C)is a mature firm
D)is doomed in the marketplace.
10

The premium to compensate an investor for the eroding effect of rising prices is called the:
A)risk premium
B)inflation premium
C)real rate of return
D)none of the above





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