FINANCIAL MANAGEMENT

2. The International Monetary Fund

A. holds a pool of currencies.

B. developed to help the Federal Reserve control U.S. investments abroad.

C. can lend a country currencies to meet a surplus in its merchandise trade balance. D. buys foreign securities.

3. Teresa buys 100 shares of XYZ stock on margin at $20 per share. If the margin requirement is 45 percent, the interest rate is 10 percent, and she holds the security for 1 year, how much interest must she pay?

A. $90

B. $2,000

C. $110 D.

$200

4. Which of these statements best describes the function of a preliminary prospectus?

A. A preliminary prospectus announces to the SEC and the investing public the terms of a new public issue, including the issuer's planned use of the proceeds of the sale and the proposed price of the issue.

B. A preliminary prospectus informs the investing public about many of the terms of a proposed new security offering.

C. A preliminary prospectus is the document that registers a new security issue with the Securities and Exchange Commission

(SEC) and on which the SEC bases its approval or disapproval of the issue for the general investing public.

D. A preliminary prospectus, or "red herring," serves to provide both valid information about the proposed issue and conflicting information designed to confuse potential purchasers of the issue.

5. The Securities and Exchange Commission regulates

A. trading in publicly held securities.

B. the margin requirement.

C. the amount a stock's price may change.

D. trading in privately held securities.

6. If a nation exports fewer goods than it imports, it experiences

A. an outflow of currency.

B. an inflow of currency.

C. no change to currency.

D. a surplus in current account.

7. The term structure of interest rates involves the relationship between

A. term and yields.

B. yields and bond ratings.

C. stock and bond yields.

D. risk and yields.

8. If a company defaults on its bonds,

A. interest continues to accrue but may not be paid.

B. subordinate debt is redeemed before senior debt.

C. Debentures have a superior position to other bonds.

D. equipment trust certificates have an inferior position to income bonds.

9. Which of the following preferred stock properties would provide the best argument favoring purchase of preferred stock by an investor?

A. Preferred stockholders receive preferential treatment over lower-class, common stockholders when the corporation earns sufficient profit to pay creditors and shareholders.

B. The yield differential between preferred stock and bonds is smaller than would be expected on the basis of risk differentials.

C. When long-term bond yields decline, the value of preferred stock can potentially rise.

D. Because preferred stock trading volume is lower than common stock trading volume, preferred stock prices are less volatile than common stock prices.

10. Dividends are paid on the

A. date of record.

B. declaration date.

C. ex dividend date.

D. distribution date.

11. The yield to maturity on a bond is the

A. bond's coupon divided by the principal amount.

B. interest plus price appreciation (or loss) achieved by holding the bond to maturity.

C. price appreciation earned by the bond.

D. interest paid divided by the price of the bond.

12. If interest rates rise, which of the following is false?

A. The market price of a zero coupon bond falls.

B. Existing bonds may be called.

C. The yield to maturity rises more than the current yield.

D. Prices of existing bonds fall.

13. Investment in investment companies reduce _______ risk.

A. market

B. unsystematic

C. systematic

D. interest rate

14. What is the value of a $100 par preferred stock that must be retired after 10 years if it pays a dividend of $5 annually and the investor requires a 6 percent rate of return?

A. $110

B. $92

C. $122

D. $100