Multiple choice

1. Which of the following statements is true?

A. A security is a claim issued by a firm that pays owners interest, not dividends. 

B. A call option analyzes conflicts of interest and behavior in a principal-agent relationship. 

C. An agent-manager can never make bad decisions. 

D. The difference between the value of one action and the value of the best alternative is called an opportunity cost. 

2) Book value, or net book value, refers to

A. the statement of a firm’s financial position at one point in time, including its assets and the claims on those assets by creditors and owners 

B. the price for which something could be bought or sold in a reasonable length of time, where reasonable length of time is defined in terms of the item’s liquidity 

C. an agent-manager never making bad decisions 

D. the net of assets less liabilities shown in the accounting statements 

3) Assume that the par value of a bond is $1,000. Consider a bond where the coupon rate is 9% and the current yield is 10%. Which of the following statements is true?

A. The current yield was less than 9% when the bond was first issued. 

B. The current yield was greater than 9% when the bond was first issued. 

C. The market value of the bond is more than $1,000. 

D. The market value of the bond is less than $1,000. 

4) If the yield to maturity for a bond is less than the bond's coupon rate, the market value of the bond is __________.

A. greater than the par value 

B. less than the par value 

C. equal to the par value 

D. cannot tell