Types of Investments

Ted buys a 4% coupon paying bond for $5,500. The bond will mature in 10 years with a face value of $5,000. What is Ted's current yield?

3.64%

3.40%

4.00%

4.40%

All of the following organizations are issuing new 5 year bonds. Which bond issuer would offer the lowest coupon rate?

Government of Canada (credit rating AAA)

Province of Manitoba (credit rating AA)

Royal Bank of Canada (credit rating AA-)

Magna Corporation (credit rating B+)

What rights do owners of common shares possess?

the right to determine when dividends will be issued

the right to vote at shareholders' meetings or vote by proxy

The right to receive a fixed proportion of the corporation's profits in cash

The right to receive dividends before preferred shareholders

What statement is generally TRUE with respect to the coupon rate on outstanding bonds?

As interest rates go up, coupon rates go down.

As interest rates go up, coupon rates go up.

Coupon rates are fixed over the life of a bond.

Coupon rates decrease as the bond reaches maturity.

Which of the following types of shares offers investors the greatest guarantee relating to the payment of dividends?

Cumulative preferred shares

Retractable preferred shares

Common shares

Convertible preferred shares

What does it mean if preferred shares are redeemable or callable?

The investor can retract the shares on a specific date.

The investor can demand the company buy back the shares on or after a specific date.

The issuing company reserves the right to force the investor to sell the shares back to the company at a pre-determined price.

The issuing company is required to purchase a certain amount of the shares in the marketplace each year.

In general, what type of benefit do preferred shareholders enjoy over common shareholders?

Preferred shareholders are automatically granted voting privileges.

The board of directors guarantees dividend payments to their preferred shareholders.

Preferred shareholders have a preference as to assets in the event of a company's bankruptcy.

Preferred shareholders have a right to share in the profits of the company beyond their fixed dividend.

Karl is a wheat farmer. He is nervous about the price of wheat this year and decides to enter into a futures contract to set the price for his wheat. Which of the following statements is correct?

Karl has hedged his risk by setting the price now for his wheat. When the futures contract comes due, he has to sell his wheat at the pre-determined price.

When the futures contract expires, Karl will have the option to decide whether he wants to sell his wheat for the price of the contract or on the open market if he can get a higher price.

By entering into a futures contract, Karl is speculating on the price of wheat.

With a futures contract, the buyer has the option of whether he wants to buy Karl's wheat at the pre-determined price.

What is a benefit of purchasing treasury bills (T-bills)?

The principal is insured with the MFDA Investor Protection Corporation (IPC).

The secondary market provides investors with the ability to sell their T-bills.

T-bill yields are comparable to those of long-term bonds.

T-bills are not subject to inflation risk.

Why would a yield curve be inverted?

Long-term lending rates have risen but short term rates have not.

Fewer long-term bond issuers are available than short-term issuers.

Short-term lending rates are higher than long-term rates.

More short-term bond issuers are available than long-term issuers.

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Types of Investments

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