Maturity of the Bond - Answer-The number of years until the issuer returns the face value to the buyer
Face value - Answer-The principal of the bond, which has to be repaid at maturity
NPV Rule - Answer-The NPV rule says that you should accept a project if its NPV greater than 0 because it ad...
FIN 301 Exam 2 Questions and Answers
Maturity of the Bond - Answer-The number of years until the issuer returns the face
value to the buyer
Face value - Answer-The principal of the bond, which has to be repaid at maturity
NPV Rule - Answer-The NPV rule says that you should accept a project if its NPV
greater than 0 because it adds value to the firm equal to the NPV.
NPV is Measuring - Answer-Value creation
Return on Investment - Answer-IRR is Measuring
Par - Answer-sales price equals maturity values
Discount - Answer-Sales prices less than maturity values
Premium - Answer-Sales price greater than maturity values
When interest rates go up, bond prices go down, When bond priced go up, interest
rates go down - Answer-How bond prices vary with interest rates
short-term bonds - Answer-long-term bonds are more interest sensitive than
Stock prices goes up when discount goes down - Answer-How stock prices typically
vary with changes in the discount rate
Dividends will grow at a constant rate forever - Answer-Defining assumption of the
constant dividend growth model
Lower dividends lower stock price
Higher dividends higher stock price - Answer-How stock prices typically vary with
expected dividends
First obligation is to pay creditors then pay all owners/holders of preferred stock then (if
there's a residual) return to owners. - Answer-Preferred stock has priority over common
stock, but not debt. Know what that means.
capital budgeting - Answer-the process of planning and evaluating long-term investment
expenditures
IRR (internal rate of return) - Answer-The discount rate that would make NPV equal to
zero, may be more than one IRR, may rank competing investment projects incorrectly.
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