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FIN 400 Final Exam Questions And Answers Latest Update
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FIN 400 Final Exam Questions And Answers Latest Update
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2024/2025FIN 400/ Final Exam Questions
And Answers Latest Update
Why consider bonds? ANS✔✔ 1. Reduce risk through diversification
2. Produce steady income
3. Can be a safe investment if held to maturity
4. Interest rates decrease= bond prices increase
Why to NOT consider bonds? ANS✔✔ 1. Interest rates increase= bond prices decrease
2. Issuer have financial problems; bondholder's may pay
3. Callable: Interest rates decrease= bond is called
4. May have a problem selling bonds early, unreasonable prices
5. Difficult to find an investment outlet for interest received.
Indenture ANS✔✔ A legal document that provides specific terms of the loan
Indenture includes: ANS✔✔ 1. Bond description
2. Bondholder's rights
3. Issuing firms rights
4. Bond trustee's responsibilities
Treasury & agency bonds are: ANS✔✔ 1. Risk-free
2. Not callable
3. Lower interest rate
4. Interest payment exempt from state and local taxes
Treasury Inflation-Protected Securities (TIPS) ANS✔✔ Par value of bond increases with consumer
price index to guarantee investor a real rate of return
, 2024/2025
Muni's (municipal bonds) ANS✔✔ Issued by states, counties, cities, public agencies e.g. school
districts.
Zero Coupon Bonds ANS✔✔ Don't pay interest and are sold at a deep discount from their par
value
Junk Bonds ANS✔✔ High-yield bonds, very risky, low-rated BB or below
Current Yield ANS✔✔ Ratio of annual interest payment to the bond's market price
Yield to Maturity (YTM) ANS✔✔ True yield or return that the bondholder receives if a bond is
held to maturity- measures of expected return
Valuation Principle 3 ANS✔✔ Time value of money
Valuation Principle 8 ANS✔✔ Risk and return go hand-in-hand
Bond Valuation ANS✔✔ Present value of the interest payments plus the present value of the
repayment of the bond's par value at maturity.
Invoice Price ANS✔✔ sum of the quoted or stated price of a bond and the bond's accrued interest-
price of bond on secondary market
Value of Preferred Stock ANS✔✔ = Annual preferred stock dividend/ Required rate of return
Preferred Stock ANS✔✔ A security with no fixed maturity date and with dividends that are
generally set in amount and don't fluctuate.
Ginnie Mae ANS✔✔ Pass-through certificates issued by the Government National Mortgage
Association, a.k.a:
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