FIN 210 FIN210 Week 3 QUIZ Answers (Indiana)

FIN 210 FIN210 Week 3 QUIZ Answers (Indiana)

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FIN 210 Week 3 QUIZ (Indiana)

Question 1. 1. American Depositary Shares (ADS’s) are foreign-denominated receipts for the stocks of U.S. financial institutions held by foreign companies overseas. (Points : 2.5) 

Question 2. 2. The capital asset pricing model (CAPM) describes the relationship between the required return and the nondiversifiable risk of the firm as measured by the beta coefficient. (Points : 2.5) 

Question 3. 3. Noncumulative preferred stock is preferred stock for which passed (unpaid) dividends do not accumulate. (Points : 2.5) 

Question 4. 4. The expectations theory is a theory that the yield curve reflects investor expectations about future interest rates. (Points : 2.5) 

Question 5. 5. Outstanding shares are the number of shares of common stock that a firm’s corporate charter allows it to issue. (Points : 2.5) 

Question 6. 6. Subordination is the stipulation in a bond indenture that subsequent creditors agree to wait until all claims of the senior debt are satisfied. (Points : 2.5) 

Question 7. 7. The nominal rate of interest is the actual rate of interest charged by the supplier of funds and paid by the demander. (Points : 2.5) 

Question 8. 8. Publicly owned stock is the common stock of a firm that is owned by private investors and is not publicly traded. (Points : 2.5) 

Question 9. 9. Underwriting refers to the role of the investment banker in bearing the risk of reselling, at a profit, the securities purchased from an issuing corporation at an agreed-on price. (Points : 2.5) 

Question 10. 10. Weighted average cost of capital reflects the expected average future cost of capital over the long run. (Points : 2.5) 

Question 11. 11. Underpriced stock is stock sold at a price above its current market price. (Points : 2.5) 

Question 12. 12. The cost of capital represents the firm’s cost of financing and is the minimum rate of return that a project must earn to increase firm value. (Points : 2.5) 

Question 13. 13. A preemptive right allows common stockholders to maintain their proportionate ownership in the corporation when new shares are issued. (Points : 2.5) 

Question 14. 14. A Eurobond is a bond sold in Europe. (Points : 2.5) 

Question 15. 15. The real rate of interest creates equilibrium between the supply of savings and the demand for funds. (Points : 2.5) 

Question 16. 16. A conversion feature is a feature of convertible bonds that allows bondholders to change shares of their common stock into a stated number of corporate bonds. (Points : 2.5) 

Question 17. 17. The coupon interest rate is the percentage of a bond’s par value that will be paid annually, typically in two equal semiannual payments, as interest. (Points : 2.5) 

Question 18. 18. The cost of new common stock is normally greater than any other long-term financing cost. (Points : 2.5) 

Question 19. 19. Liquidity preference refers to the general tendency for investors to prefer long-term securities. (Points : 2.5) 

Question 20. 20. A red herring is a preliminary prospectus made available to prospective investors during the waiting period between the registration statement’s filing with the SEC and its approval. (Points : 2.5) 


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