BFIN 300 MIDTERM QUESTIONS WITH COMPLETE SOLUTIONS GRADED A+
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Course
BFIN 300
Institution
BFIN 300
BFIN 300 MIDTERM QUESTIONS WITH COMPLETE SOLUTIONS GRADED A+
pure discount loan - Answer-borrower receives money today, repays single lump sum in the future (treasury bill)
interest only loan - Answer-borrower pays interest each period, repays entire principal in the future (corporate bond)
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BFIN 300 MIDTERM QUESTIONS
WITH COMPLETE SOLUTIONS
GRADED A+
pure discount loan - Answer-borrower receives money today, repays single lump sum in
the future (treasury bill)
interest only loan - Answer-borrower pays interest each period, repays entire principal in
the future (corporate bond)
amortizing loan - Answer-lender requires borrower to repay a portion of the loan over
time plus interest each period (mortgage)
common stock - Answer-ownership in the business
debt security - Answer-periodic payments of interest and repayment of principal on
predetermined date
market clearing price - Answer-current price might be heavily influenced by temporary
supply and demand imbalance
who is the primary regulator of the securities market - Answer-securities exchange
commission
what does the SEC do - Answer-license securities professionals, collect public
disclosure info, enforce various securities laws
investment bank - Answer-works with issuers to distribute new securities. they take on
firm risk
stock brokerage firms - Answer-act as agents- buying and selling stocks on behalf of
clients
exchanges - Answer-formal organizations regulated by the SEC, typically physical
trading center location
money markets - Answer-transfer funds from market participants that have a short term
excess funds with people who have a short term need for funding
derivatives - Answer-security whose value is predicated on the value of another security
what is a financial security - Answer-contract between those that provide funds and
those that use funds - supplies all conditions
sukuk - Answer-debt security in islam, paying out interest is forbidden, debt market in
Malaysia. very illiquid, not widely accepted
, are debt or equity securities more uniform across corporations? - Answer-equity - they
are holders of business and have a say in operating decisions
preferred stock - Answer-cash flows are made after payments to debt holders- no
maturity
features of a bond - Answer-coupon, face value, coupon rate, maturity
coupon - Answer-stated interest payment on bond
face value/par value/par - Answer-amount repaid on a bond's maturity date
coupon rate - Answer-interest rate on a bond
maturity - Answer-# of years until the face value of a bond is repaid
annual coupon formula - Answer-interest / face value
if interest rates increase, does the PV of a bond's cash flows increase or decrease -
Answer-decrease
yield to maturity formula - Answer-coupon / bond's market price
interest rate risk - Answer-how sensitive a bond's price is to interest rate changes
(longer maturity = higher interest rate risk)
nominal interest rate - Answer-not adjusted for inflation
if there is more short term than long term interest rates, the yield curve is - Answer-
downward sloping
inflation - Answer-erodes value of money to be returned
bonds usually have a maturity of - Answer-30 years
bond indenture - Answer-written agreement between corporation and lender
call provisions - Answer-allows company to buy back the bond
protective covenants - Answer-prevents the borrower from using their funds for certain
things
debt rating agency - Answer-assessment of credit worthiness of the bond, likelihood to
default
AAA debt rating - Answer-high grade security
BBB or lower debt rating - Answer-JUNK, below investment grade
government bonds - Answer-issues are exempt from state income tax, no default risk
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