FINC 322 - Exam #2 Tips Practice Problems

FINC 322 - Exam #2 Tips Practice Problems - FINC 322...

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FINC 322 Practice problems for Exam 3 (Bond and Stock Valuation) 1 True/False Questions 1. The valuation of a financial asset is based on the concept of determining the present value of future cash flows. Answer: True Difficulty: Easy Type: Conceptual 2. The prices of financial assets are based on the expected value of future cash flows, discount rate, and past dividends. Answer: False Difficulty: Easy Type: Conceptual 3. In estimating the market value of a bond, the coupon rate should be used as the discount rate. Answer: False Difficulty: Easy Type: Conceptual 4. Most bonds promise both a periodic return and a lump-sum payment. Answer: True Difficulty: Easy Type: Conceptual 5. The price of a bond is equal to the present value of all future interest payments added to the present value of the principal. Answer: True Difficulty: Easy Type: Memorization 6. When the interest rate on a bond and its yield to maturity are equal, the bond will trade at par value. Answer: True Difficulty: Medium Type: Conceptual 7. An increase in yield to maturity would be associated with an increase in the price of a bond. Answer: False Difficulty: Medium Type: Conceptual 8. You hold a long-term bond yielding ten percent. If interest rates fall shortly before you sell the bond, you will sell at a higher price than if interest rates had been constant. Answer: True Difficulty: Medium Type: Conceptual 9. The yield to maturity is always equal to the interest payment of a bond. Answer: False Difficulty: Easy Type: Memorization 10. The appropriate discount rate for bonds is called the yield to maturity. Answer: True Difficulty: Easy Type: Memorization
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FINC 322 Practice problems for Exam 3 (Bond and Stock Valuation) 2 11. High-risk corporate bonds are as risky as junk bonds. Answer: True Difficulty: Hard Type: Memorization 12. There is a negative correlation between risk and the return the investors demand. Answer: False Difficulty: Easy Type: Conceptual 13. The higher the yield to maturity on a bond, the closer to par the bond will trade. Answer: False Difficulty: Easy Type: Conceptual 14. The longer the maturity of a bond, the greater the impact on price to changes in market interest rates. Answer: True
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This note was uploaded on 12/13/2011 for the course FINC 322 taught by Professor Nazar during the Fall '11 term at Ferris State.

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FINC 322 - Exam #2 Tips Practice Problems - FINC 322...

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