Exam 2 True False - FINA 3332 Exam 2: True/False Questions...

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FINA 3332 Exam 2: True/False Questions Spring 2011 1. The more frequent the compounding, the higher the effective rate of interest will be. 2. Efficient portfolios lie on the efficient frontier and offer investors the highest possible expected rates of return for any given level of risk. 3. The term structure of interest rates shows the relationship between yields for securities that are alike in every way and their term to maturity. 4. The market segmentation theory of the yield curve states that required returns on long-term securities tend to be greater the longer the term to maturity. 5. Investors face a greater degree of interest rate risk on short-term bonds than on long-term bonds, ceteris paribus . 6. The value of a 10% coupon $100 perpetual bond which has a yield to maturity of 10% is $100. 7. A firm’s financial risk is determined mostly by the degree of risk due to the line of business that the firm is in. 8. A firm’s beta can be determined by its characteristic line. 9. Shelf registration refers to practice of canceling a new common stock issue before it is placed by the investment banking firm. 10. Common stockholders can receive their required returns from either dividend cash flows that the firm pays out or from appreciation in the value of the stock. 11. Common stock is more difficult to value than other securities of a firm because it is a residual claim and therefore more difficult to accurately estimate its expected cash flows. 12. The capital market line expresses the relationship between individual assets’ required returns and systematic risk. 13. Investors face a greater degree of interest rate risk on long-term bonds than on short-term bonds, ceteris paribus . 14. The financial risk of a firm increases as the firm uses more debt and/or preferred stock in its capital structure. 15. Bond refunding occurs when a firm retires a bond issue and replaces it with a common stock issue. 16. The market segmentation theory of the yield curve states that yields on securities are determined in different markets by supply and demand for securities of different maturities. 17. The value of a 10% coupon $100 perpetual bond which has a yield to maturity of 10% is $1000. 18. The term structure of interest rates shows the relationship between yields for different securities over time. 19. The market portfolio is the optimal, efficient portfolio that would be chosen by investors who are very risk averse, but who desire an expected return that is higher than the risk-free rate of interest. 20. The more frequent the compounding, the lower the effective rate of interest will be. 1
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[Type text] [Type text] [Type text] 21. The business risk of a firm decreases as the firm uses more debt and/or preferred stock in its capital structure. 22.
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This note was uploaded on 09/28/2011 for the course FINA 3332 taught by Professor Darlachisholm during the Spring '08 term at University of Houston.

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Exam 2 True False - FINA 3332 Exam 2: True/False Questions...

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