Finance Examen

Multiple Choice Questions

Use the table for the question(s) below.

Consider the following probability distribution of returns for Alpha Corporation:

Current Stock Price ($) | Stock Price in One Year ($) | Return R | Probability PR |

| $35 | 40% | 25% |

$25 | $25 | 0% | 50% |

| $20 | -20% | 25% |

1)

The variance of the return on Alpha Corporation is closest to:

A)

5.00%

B)

4.75%

C)

3.625%

D)

3.75%

2)

The standard deviation of the return on Alpha Corporation is closest to:

A)

22.4%

B)

19.0%

C)

21.8%

D)

19.4%

3)

Which of the following statements is false?

A)

Bonds are a securities sold by governments and corporations to raise money from investors today in exchange for promised future payments.

B)

By convention the coupon rate is expressed as an effective annual rate.

C)

Bonds typically make two types of payments to their holders.

D)

The time remaining until the repayment date is known as the term of the bond.

4)

Which of the following statements is false?

A)

The principal or face value of a bond is the notional amount we use to compute the interest payments.

B)

Payments are made on bonds until a final repayment date, called the term date of the bond.

C)

The coupon rate of a bond is set by the issuer and stated on the bond certificate.

D)

The promised interest payments of a bond are called coupons.

5)

Which of the following statements is false?

A)

The bond certificate typically specifies that the coupons will be paid periodically until the maturity date of the bond.

B)

The bond certificate indicates the amounts and dates of all payments to be made.

C)

The only cash payments the investor will receive from a zero coupon bond are the interest payments that are paid up until the maturity date.

D)

Usually the face value of a bond is repaid at...