Question

9. If a corporation declares dividends, preferred stockholders must receive them before:

a.Bondholders are paid interest

b. The government is paid taxes

c.Common stockholders are paid dividends

10. An example of an annuity is which of the following:

a.Receiving a commission payment that changes each pay period

b. Receiving the same interest payment on a bond each year for ten years

c.Receiving a one-time-only payment from selling a truck

11. A measure of the cost of raising equity capital from the firm's shareholders and the cost of

borrowing from the firm's creditors is the:

a.Weighted Average Cost of Capital (WACC)

b. Profit margin

c.Return on assets

12. The ways common stockholders invest to get a return on their investment include:

a.Dividends

b. Stock price increasing after it’s purchased

c.Coupon payments

d. Answers A and B above

13. Capital investment involves putting money into projects that have a timeframe of:

a.Less than one year

b. Longer than one year

c.Ten years only

14. Hayward-Lodge Corporation issued a bond with a par amount of $1,300,000 and a coupon rate

of 3% per annum paid annually to finance the building of its new headquarters building.

Investors weren’t satisfied with the coupon rate and bought the bonds at a discount making the

proceeds from the bond sale $1,010,000. When the bond matures in 20 years, how much

principal will the Hayward-Lodge Corporation have to pay investors? (No principal payments will

be made before maturity.)

a.$500,000.

b. $1,300,000

c.$2,000,000

15. If a bond has a high risk of default by the issuer, the yield offered to investors in the bond should

be:

a.Low.

b. High.

c.Zero

Answer 1

9. If a corporation declares dividends, preferred stockholders must receive them before:

Answer : c.Common stockholders are paid dividends

10. An example of an annuity is which of the following:

Answer : b. Receiving the same interest payment on a bond each year for ten years

11. A measure of the cost of raising equity capital from the firm's shareholders and the cost of

borrowing from the firm's creditors is the:

Answer : a.Weighted Average Cost of Capital (WACC)

12. The ways common stockholders invest to get a return on their investment include:

Answer : d. Answers A and B above