The current yield on a bond is the interest (coupon) paid by the bond divided by the
market price of the bond.
A grower of corn enters a contract to make future delivery of corn to reduce the risk of
loss from price fluctuations.
The time premium tends to reduce the potential leverage an option offers.
The use of financial leverage may permit the firm to increase the return on equity.
The net present value assumes that cash inflows are reinvested at the net present value.
A firm borrows $1,000,000 for a year from a commercial bank. The terms of the loan
are 5% annual interest plus a 5% originating fee paid when the loan is granted. What is
the annual interest rate? How much does the firm borrow to be certain that it has
$1,000,000 to use?
You bought a stock for $20 and sold it for $59.72 after six years. What was the annual
rate of return?
Treasury bills do not pay a set rate of interest but are sold at a discount.
An increase in the debt ratio may be associated with an increase in risk.
The yield to maturity may differ from the realized yield since coupon payments may be
reinvested at a different rate.
Stocks not traded on an organized exchange are traded over-the-counter (e.g., the
Nasdaq stock market).
If a firm must issue subordinated debentures instead of equipment trust certificates, the
marginal cost of capital may rise even though the optimal capital structure is
maintained.
The American Stock Exchange is an example of a secondary market.
An exchange-traded fund’s shares are bought and sold in the secondary markets such as
the NYSE.
Convertible bonds tend to pay more interest than comparable non-convertible bonds.
The intrinsic value of a call option rises as the price of the underlying stock falls.
If liabilities are decreased or assets increased, that generates a cash inflow.
A purchase of 50 shares is an example of an even lot.