A hybrid form of financing used to raise large sums of money from a diverse group of lenders.

The answer is C) understate retained earnings and overstate the financing needed. Using past cost and expense ratios in the percent-of-sales method of preparing pro forma financial statements may lead to underestimating retained earnings, as well as overestimating the additional financing that is needed to support the rising sales.

The answer is A) nominal rate of interest is typically the required rate of return on a three-month U.S. Treasury bill.

The answer is C) is greater than. The cost of long-term debt is generally greater than that of short-term debt.

The answer is C) par value. Par value is the face value or principal of a bond, which is typically $1,000.

The answer is B) Junk bonds. Junk bonds became a popular vehicle used to finance mergers and takeovers during the 1980s. They are bonds that are rated below investment grade and are considered to be high risk.

The answer is A) stock purchase warrants. A stock purchase warrant gives its holders the right to purchase a certain number of shares of the firm’s common stock at a specified price over a certain period of time.

The answer is D) callable; non-callable; non-convertible; convertible. A callable bond generally has an interest rate that is higher than a similar risk non-callable bond. A convertible bond generally has an interest rate that is lower than a similar risk non-convertible bond.

The answer is C) long-term debt instruments. Bonds are long-term debt instruments that are used to raise large sums of money from a diverse group of lenders.

The answer is B) residual owner of the firm. Common shareholders are sometimes referred to as residual owners of the firm, as they are entitled to receive any residual profits (i.e. profits left over after all other obligations, such as debt and preferred stock dividends, have been satisfied).

The answer is D) Investment Banker. An investment banker is hired by a firm to find prospective buyers for its new stock or bond issue.

Source of financing which places minimum constraints on the firm. – CS

Used often in mergers. – PS

Potential dilution of earnings and voting power. – CS

Fixed financial obligation. – PS

Increases the firm’s borrowing power. – CS

May have cumulative and participating features. – PS

May be convertible into another type of security. – PS

Last to receive earnings or distribution of assets in the event of bankruptcy. – CS

Frequently includes a call feature. – PS

The answer is D) present value of a constant, growing dividend stream

The answer is B) sell the asset, which will drive the price down and cause the expected return to reach the level of the required return.

The answer is C) Risk

The answer is A) increase in return, for a given decrease in risk. Risk aversion is the behavior exhibited by managers who require an increase in return for a given decrease in risk.

The answer is C) probability

The answer is D) standard deviation

The answer is D) minimize risk for a given level of return. The goal of an efficient portfolio is to minimize risk while still achieving a desired level of return.