COB 300 Finance- Final Exam Questions
and Answers
Preemptive right - Answers -a provision in the corporate charter or bylaws that gives
common stockholders the right to purchase on a pro rata basis new issues of common
stock
Market Price - Answers -the price at which a stock sells in the market
Growth Rate - Answers -the expected rate of growth in dividends per share
Required Rate of Return - Answers -the minimum rate of return on a common stock that
a stockholder considers acceptable
Expected Rate of Return - Answers -the rate of return on a common stock that a
stockholder expects to receive in the future
Dividend Yield - Answers -the expected dividend divided by the current price of a share
of stock
Horizon Date - Answers -the date when the growth rate becomes constant
Horizon Value - Answers -the value at the horizon date of all dividends expected
thereafter
Bond - Answers -a long-term debt instrument
Treasury Bonds - Answers -bonds issued by the federal government, sometimes
referred to as government bonds
Corporate Bonds - Answers -bonds issued by corporations
Municipal Bonds - Answers -bonds issued by state and local governments
Par Value - Answers -the face value of a bond
Coupon Payment - Answers -the specified number of dollars of interest paid each year
Coupon Interest Rate - Answers -the stated annual interest rate on a bond
, Call Provision - Answers -a provision in a bond contract that gives the issuer the right to
redeem the bonds under specified terms prior to the normal maturity date
Sinking Fund Provision - Answers -a provision in a bond contract that requires the
issuer to retire a portion of the bond issue each year
Discount Bond - Answers -a bond that sells below its par value
Premium Bond - Answers -a bond that sells above its par value
Yield to Maturity - Answers -the rate of return earned on a bond if it is held to maturity
Yield to Call - Answers -the rate of return earned on a bond when it is called before its
maturity
Target Capital Structure - Answers -the mix of debt, preferred stock, and common
equity the firm plans to raise to fund its future projects
Capital Components - Answers -one of the types of capital used by firms to raise funds
WACC - Answers -a weighted average of the component costs of debt, preferred stock
and common equity
Flotation Cost - Answers -the percentage cost of issuing common stock
Capital - Answers -investors-supplied funds such as long- and short- term loans from
individuals and institutions, preferred stock, common stock, and retained earnings
Optimal Capital Structure - Answers -the capital structure that maximizes a stock's
intrinsic value
Business Risk - Answers -the riskiness inherent in the firm's operations if it uses no debt
Operating Leverage - Answers -the extent to which fixed costs are used in a firms
operations
Operating Breakeven - Answers -the output quantity at which EBIT= 0
Financial Risk - Answers -an increase in stockholders risk, over and above the firms
basic business risk, resulting from the use of financial leverage
Financial Leverage - Answers -the extent to which fixed-income securities are used in a
firm's capital structure
Unlevered Beta - Answers -the firms beta coefficient if it has no debt
and Answers
Preemptive right - Answers -a provision in the corporate charter or bylaws that gives
common stockholders the right to purchase on a pro rata basis new issues of common
stock
Market Price - Answers -the price at which a stock sells in the market
Growth Rate - Answers -the expected rate of growth in dividends per share
Required Rate of Return - Answers -the minimum rate of return on a common stock that
a stockholder considers acceptable
Expected Rate of Return - Answers -the rate of return on a common stock that a
stockholder expects to receive in the future
Dividend Yield - Answers -the expected dividend divided by the current price of a share
of stock
Horizon Date - Answers -the date when the growth rate becomes constant
Horizon Value - Answers -the value at the horizon date of all dividends expected
thereafter
Bond - Answers -a long-term debt instrument
Treasury Bonds - Answers -bonds issued by the federal government, sometimes
referred to as government bonds
Corporate Bonds - Answers -bonds issued by corporations
Municipal Bonds - Answers -bonds issued by state and local governments
Par Value - Answers -the face value of a bond
Coupon Payment - Answers -the specified number of dollars of interest paid each year
Coupon Interest Rate - Answers -the stated annual interest rate on a bond
, Call Provision - Answers -a provision in a bond contract that gives the issuer the right to
redeem the bonds under specified terms prior to the normal maturity date
Sinking Fund Provision - Answers -a provision in a bond contract that requires the
issuer to retire a portion of the bond issue each year
Discount Bond - Answers -a bond that sells below its par value
Premium Bond - Answers -a bond that sells above its par value
Yield to Maturity - Answers -the rate of return earned on a bond if it is held to maturity
Yield to Call - Answers -the rate of return earned on a bond when it is called before its
maturity
Target Capital Structure - Answers -the mix of debt, preferred stock, and common
equity the firm plans to raise to fund its future projects
Capital Components - Answers -one of the types of capital used by firms to raise funds
WACC - Answers -a weighted average of the component costs of debt, preferred stock
and common equity
Flotation Cost - Answers -the percentage cost of issuing common stock
Capital - Answers -investors-supplied funds such as long- and short- term loans from
individuals and institutions, preferred stock, common stock, and retained earnings
Optimal Capital Structure - Answers -the capital structure that maximizes a stock's
intrinsic value
Business Risk - Answers -the riskiness inherent in the firm's operations if it uses no debt
Operating Leverage - Answers -the extent to which fixed costs are used in a firms
operations
Operating Breakeven - Answers -the output quantity at which EBIT= 0
Financial Risk - Answers -an increase in stockholders risk, over and above the firms
basic business risk, resulting from the use of financial leverage
Financial Leverage - Answers -the extent to which fixed-income securities are used in a
firm's capital structure
Unlevered Beta - Answers -the firms beta coefficient if it has no debt
