BCOR 2204 - Finance Final Exam Questions and Answers, Exams of Banking and Finance

Download BCOR 2204 - Finance Final Exam Questions and Answers and more Exams Banking and Finance in PDF only on Docsity! 1 [Document title] BCOR 2204 - Finance Final Exam Question and Answers (76 terms) Bonds - Correct answer Debt issued by companies or state, local, and federal governments. Factors that Influence Equilibrium Interest Rate - Correct answer Inflation Risk Liquidity Preference R* - Correct answer Real Rate of Interest Real Rate of Interest - Correct answer the rate that creates equilibrium between the supply of savings and the demand for investment funds. Changes with changing economic conditions, tastes, and preferences. R_1 - Correct answer Nominal Rate of Interest Ruff + Rap Nominal Rate of Interest - Correct answer the actual rate of interest charged by the supplier of funds and paid by the demander. Ruff - Correct answer Risk-Free Rate of Return RP_1 - Correct answer Risk Premium Rate of Return Inflation Premium (IP) - Correct answer a premium equal to expected inflation that investors add to the risk-free rate of return. Term Structure of Interest Rates - Correct answer the relationship between the maturity and the rate of returns for bonds with similar levels of risk. Yield to Maturity (YTM) - Correct answer the compounded annual rate of return investors earn if they buy a bond at a specific price and hold it until maturity. Yield Curve - Correct answer a graph showing the relationship between bond yields and maturities. Inverted Yield Curve - Correct answer a downward sloping yield curve that indicates that short term interest rates are generally higher than long term interest rates. Flat Yield Curve - Correct answer a yield curve that indicates that interest rates do not vary much at different maturities. P a g e 1 | 5 2 [Document title] Normal Yield Curve - Correct answer an upward-sloping yield curve indicates that long- term interest rates are generally higher than short-term interest rates. Coupon Interest Rate - Correct answer the percentage of a bond's par value that will be paid annually. Par Value - Correct answer the amount owed to a bond holder on the maturity date. $1000. Conversion Feature - Correct answer Allows bondholders to change each bond into a stated number of shares of common stock. Call Feature - Correct answer Allows bondholders to repurchase bonds at a stated call price prior to maturity. YTM > Coupon - Correct answer Discount. Less than par. YTM < Coupon - Correct answer Premium. More than par. YTM = Coupon - Correct answer Par. $1000. Interest Rate Risk - Correct answer the chance that interest rates will change and thereby change the required return and bond value. Bond Value Behavior - Correct answer when interest rates change, the longer the maturity the larger impact on the price. Debt (Bonds) - Correct answer Includes borrowing incurred by a firm, including bonds, and is repaid according to a fixed schedule of payments. Equity (Stocks) - Correct answer Consists of funds provided by the firm's owners (investors or stockholders) that are repaid subject to the firm's performance. Voice in Management - Correct answer Bonds - Do not have general rights in the firm and rely on contractual obligations in the bonds. Stock - Owners of the firm and possess voting rights to express opinions on the directors/special issues. Maturity - Correct answer Bonds - Equity capital is a permanent form of capital Stock - Equity has no maturity date and never has to be repaid by the firm. Tax Treatment - Correct answer Bonds - Interest payments are treated as tax- deductible expenses. Stock - Dividend payments to stockholders are NOT tax-deductible. P a g e 2 | 5