Fin 305 HW Qs and Quiz Questions PDF

Preview

Summary

Finance questions and answers. Investing, bonds, stocks, derivatives explained...

Description

Homework questions and answers Chapters 1,2,3,4 1. Which of the following is not a money market security?

a. Common stock 2. Real assets in the economy include all but which one of the following? a. Common stock 3. Market signals will help to allocate capital efficiently only if investors are acting _____ . a. On accurate information 4. The success of common stock investments depends on the success of _________. a. The firm and its real assets 5. ____ is not a derivative security. a. A share of common stock 6. Venture capital is _________. a. Supplied by venture capital funds and individuals to start-up companies 7. A stock quote indicates a stock price of $78 and a dividend yield of 2%. The latest quarterly dividend received by stock investors must have been ______ per share. a. $78 x .02 = $1.56 / 4 = $0.39 8. What is the tax exempt equivalent yield on a 12% bond yield given a marginal tax rate of 28%? a. 8.64% 9. The Chompers Index is a price weighted stock index based on the 3 largest fast food chains. The stock prices for the three stocks are $74, $33, and $64. What is the price weighted index value of the Chompers Index? a. Add up three numbers / by 3 = $57.00 10. A T-bill quote sheet has 120-day T-bill quotes with a 5.67 ask and a 5.61 bid. If the bill has a $10,000 face value, an investor could sell this bill for _____. a. $9813

11. A bond issued by the state of Alabama is priced to yield 6.40%. If you are in the 30% tax bracket, this bond would provide you with an equivalent taxable yield of _________. a. 9.14% 12. An investor buys a T-bill at a bank discount quote of 6.30 with 120 days to maturity for 9,790.00. The bill has a face value of $10,000. The investor's bond equivalent yield on this investment is _____. a. 6.53% 13. A benchmark market value index is comprised of three stocks. Yesterday the three stocks were priced at $12, $20, and $60. The number of outstanding shares for each is 600,000 shares, 500,000 shares, and 200,000 shares, respectively. If the stock prices changed to $16, $18, and $62 today respectively, what is the 1-day rate of return on the index a. 6.16% 14. The Dow Jones Industrial Average is _________. a. Price -weighted average 15. Barnegat Light sold 170,000 shares in an initial public offering. The underwriter's explicit fees were $64,000. The offering price for the shares was $34, but immediately upon issue, the share price jumped to $45. What is the best estimate of the total cost to Barnegat Light of the equity issue? a. $1,934,000 16. You short-sell 600 shares of Rock Creek Fly Fishing Co., now selling for $26 per share. If you want to limit your loss to $2,805, you should place a stop-buy order at ___. a. 30.68 17. What was the result of high-frequency traders' leaving the market during the flash crash of 2010? a. Market liquidity decreased

18. The type of mutual fund that primarily engages in market timing is called _______. a. An asset allocation fund 19. The average maturity of fund investments in a money market mutual fund is _______. a. Slightly more than one month 20. Which type of fund is often priced at a significant discount to net asset value? a. Closed-end fund

Quiz 1 1. Suppose an investor is considering one of two investments that are identical in all respects except for risk. If the investor anticipates a fair return for the risk of the security he invests in, he can expect to _____ . a. Pay less for the security that has higher risk 2. __________ is (are) real assets. a. Production equipment (NOT - bonds, stocks, life insurance) 3. Suppose that short-term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Which gives you the higher after-tax yield if your combined tax bracket is: a. Look at notebook (taxable, taxable, neither, municipal bond) 4. A stock quote indicates a stock price of $58 and a dividend yield of 2%. The latest quarterly dividend received by stock investors must have been ______ per share. a. $.29 5. On a given day a stock dealer maintains a bid price of $1,001.00 for a bond and an ask price of $1,004.00. The dealer made 8 trades that totaled 400 bonds traded that day. What was the dealer's gross trading profit for this security? a. $1200

6. Assume you purchased 800 shares of XYZ common stock on margin at $85 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is _________. a. 27,200 7. Consider a no-load mutual fund with $270 million in assets and 15 million shares at the start of the year and with $320 million in assets and 16 million shares at the end of the year. During the year investors have received income distributions of $3 per share and capital gain distributions of $0.30 per share. Assuming that the fund carries no debt, and that the total expense ratio is 2%, what is the rate of return on the fund? a. 27.22% 8. Disadvantages of ETFs include all of the following except a. Prices are only quoted once each day 9. Restrictions on trading involving insider information apply to: Corporate officers and directors, Major stockholders, Relatives of corporate directors and officers a. All three 10. In ________ markets, participants post bid and ask prices at which they are willing to trade, but orders are not automatically executed by computer. ____________ execute trades for people other than themselves, and in _______________ markets a computer matches orders with an existing limit order book and executes the trades automatically. a. Dealers, brokers, electronic

Investments Real assets vs financial assets: -

Property, plants and equipment, product capacity vs claims on real estate or real asset income

-

On aggregate balance sheet, only real assets remain (financial assets and liabilities must balance out on either side - issue of the claim vs owner of the claim)

-

Domestic net worth is real assets added

-

Common stock: ownership stake in entity, residual cash flow -

Asset classes -

Derivative securities: contract, value derived from underlying market condition

-

Fixed-income securities: money market instruments, bonds, preferred stock

-

Financial markets and the Economy -

Stock vs bond -

Stock: higher risk but payout is dependent on how company does

-

Bond: fixed payment back, less reward and risk

Let Ps be some unknown future stock price, and Ex be the exercise price or strike price: 1. Profit Equation: Buying Long: PS -Purchase Price 2. Profit Equation: Selling Short: Selling Price –PS 3. Profit Equation: Buying a Call: Max{0, PS-Ex}–Premium 4. Profit Equation: Writing a Call: Min{0, Ex -PS} + Premium 5. Profit Equation: Buying a Put: Max{0, Ex -PS} –Premium 6. Profit Equation: Writing a Put: Min{0, PS-Ex} + Premium...