Investments Analysis Chapter 2Flashcards Quizlet PDF

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18/03/2021

Investments Exam 2 Flashcards | Quizlet

Investments Exam 2 Terms in this set (34) Is actually a form of equity. Preferred Stock:

Pays dividends not fully taxable to U.S. corporations. Is normally considered a fixed-income security.

LIBOR stands for:

Which of the following BEST

London Interbank Offer Rate

A bond issued in the US by a foreign company

describes a foreign bond?

The term "strike price" refers

The price you can buy/sell a specified asset at

to:

when you buy an option

Why do call options exercise

Because people believe that the stock price will

prices higher than the price of

exceed the exercise price before the option

the underlying stock sell for

expires.

positive prices?

One of the primary

A put option conveys the right to sell the

differences between a put

underlying asset at the exercise price. A short

option and a short position in

position in a futures contract carries an obligation

a futures contract is:

to sell the underlying asset at the future price.

Would you expect a typical

The mutual fund will have higher expenses

open-end fixed-income

because the unit trust is unmanaged and the

mutual fund to have higher or

mutual fund is managed

lower operating expenses than a fixed-income unit investment trust?

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Holder (purchaser) has the

Investments Exam 2 Flashcards | Quizlet

Call Option

RIGHT to BUY a specified asset at a specified price (premium, exercise or strike price) for a specified period of time.

Holder (purchaser) has the

Put Option

RIGHT to SELL a specified asset at a specified price for a specified period of time.

Must (obligated to) sell

Option Seller

specified asset at the specified price to the call option buyers on request. Must also buy specified asset at the specified price form the put option buyers on request. Gets the premium from the option buyer.

Which security would sell at a

The put option on the stock sell at $50

greater price: a put option on a stock selling at $50 or a put option on another stock selling at $60 (all other relevant features of the stocks and options are assumed to be identical).

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Two call options on the same

Investments Exam 2 Flashcards | Quizlet

The call option with an exercise price of $40

stock are identical in all ways except one has an exercise price of $40 and the other has an exercise price of $50. Which call option would sell for the higher price (premium)?

A call option on stock XYZ

-$4 ... 45-50=-5 but the most you can lose is what

has a strike price of $50 and

you buy it for.

matures in 6 months. What will the profit be (at maturity, excluding commissions) to an investor that buys the option for $4 now if the stock price is $45 in 6 months?

An investor is in a 30%

5.6% ...30% of 8= 2.4, 8-2.4= 5.6%

combined federal plus state tax bracket. If corporate bonds offer 8% yields, what must municipals offer for the investor to be indifferent to corporate bonds?

Find the after tax return to a

9.25% ...70% is not taxable, So; $4(1-.70)=$1.20~>

domestic corporation that

1.20 x .25= $0.30~> (4-$0.30)/$40= .0925

buys a share of preferred stock at $40, sells it at yearend at $40, and received a $4 year-end dividend. The firm is in the 25% tax bracket.

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Investments Exam 2 Flashcards | Quizlet

A 15% coupon bond with a

7.9567 .......... PV= Current Price, FV= Face Value, N=

$1,000 face value has 30 years

Years to Maturity x 2(for semi-annual), Pmt= (%Cpn

to maturity and is currently

x FV)/2(for semi-annual)... SO; PV=-$1800,

priced at $1,800. If the bond

FV=$1000, N=30 x 2, PMT= (.15 x 1000)/2, ........... I%=

pays semi-annual coupons,

3.9783 x 2(for semi-annual)

what is its yield to maturity?

A 6% coupon bond with a

6.5855 ... N=(20 x 12), PV=-935, PMT=(.06 x 1000)(12)

$1000 face value has 20 years

FV=1000 ~>I%=.5488 x 12 for monthly payments=

to maturity and is currently

6.5855

priced at $935. If the bond pays monthly coupons, what is its yield to maturity?

You borrow $15,000 on

$30.77 ... 60% of $15,000= $9,000 ~>Borrow

margin to buy XYZ shares,

remainder= $6,000. ($15,000/$50 per share=300

which is now selling at $50

shares). SO, (300p-$6,000)/300p=.35 ...[300p*.35]

per share. The initial margin is

~> 300p-$6,000=105p~> ...p=$30.77

60%. The maintenance margin is 35%. At what price will you receive a margin call?

You are bearish on stock ABC

$61.54 ... $5,000 x .6= $3,000---> ($5,000+$3,000-

and decide to sell short 100

100p)/100p=.30~> $8,000-100p=30p~>

shares at the current market

$8,000=130p~> $61.54

price of $50.00 per share. If the initial margin requirement is 60% and the maintenance margin is 30%, at what price do you receive a margin call?

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Investments Exam 2 Flashcards | Quizlet

You are bullish on stock ABC

$38.46 ... I borrow $5,000 of the total $10,000.~>

which is currently selling at

(200p-$5,000)/200p=.35~> 2oop-$5,000=70~>

$50 per share. You decide to

130p=$5,000~> p=$38.46

buy 200 shares on margin by investing $5,000 of your own money and borrowing the remainder. If the maintenance margin is 35%, at what price would you receive a margin call?

Suppose ABC is currently

$28.57 ... $10,000 of my own money=I borrow

selling for $40 per share. You

$10,000 more.~> (500p-10,000)/500p=.3 ~>

buy 500 shares using $10,000

500p-$10,000=150p~> 350p=$10,000~> p=$28.57

of your own money and borrow the remainder from your broker. If the maintenance margin is 30%, how far can the stock fall before you get a margin call?

You are bearish on Stock ABC

$3,000 ...100 shares x $50 per share=$5,000~>

and decide to sell short 100

$5,000 x .6= 3,000.... So, I need to put in $3,000! I

shares at the current market

borrow the other $2,000.

price of $50.00 per share. How much cash or securities must you put into your brokerage account if the initial margin requirement is 60%?

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Investments Exam 2 Flashcards | Quizlet

You are bullish on stock ABC

$2,000 ... 100 shares x $50=$5,000~> $5,000 x

and decide to buy 100 shares

.6=3,000... So, borrow remainder= $5,000-$3,000=

on margin at the current

$2,000

market price $50.00 per share. If the initial margin requirement is 60% how much money do you borrow from your broker?

The ABC fund sells Class A

$1,410.33 ... N=4, I%=(10-0.75)=9.25, PV=$1,000,

shares with a front-end load

PMT=0~> SO, FV=$1,424.58~> $1424.58-1%=

of 7% but no 12b-1 fees, and

$1,410.33

Class B shares with 12b-1 fees of 0.75% annually as well as back-end load fees that start at 5% and fall by 1% for each full year the investor holds the portfolio (until the fifth year). Assume the portfolio rate of return after deducting operating expenses is 10% annually. If you plan to invest $1,000 and sell the fund after 4 years what is the projected value of the Class B shares?

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Investments Exam 2 Flashcards | Quizlet

The ABC fund sells Class A

$3,769.83 ... N=15, I%=(10-0.75)=9.25, PV=$1,000,

shares with a front-end load

PMT=0~> SO, FV=$3,769.83

of 7% but no 12b-1 fees, and Class B shares with 12b-1 fees of 0.75% annually as well as back-end load fees that start at 5% and fall by 1% for each full year the investor holds the portfolio (until the fifth year). Assume the portfolio rate of return after deducting operating expenses is 10% annually. If you plan to invest $1,000 and sell the fund after 15 years what is the projected value of the Class B shares?

An open-end fund has a net

$13.158 ... 12.5/(1-.05)= $13.158

asset value of $12.50 per share. It is sold with a frontend load of 5%. What is the offering price?

If the offering price of an

$11.56 ... 12.30 x .06= .738~> 12.3-.738= $11.56

open-end fund is $12.30 per share and the fund is sold with a front-end load of 6%, what is the Net Asset Value?

The ABC fund is a closed-end

$29.40... NAV=($300 mil-$6 mil)/10 mil shares=

investment company with a

$29.40

portfolio currently worth $300 million. It has liabilities of $6 million and 10 million shares outstanding. What is the NAV of the fund?

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Investments Exam 2 Flashcards | Quizlet

The ABC fund is a closed-end

11.56% discount... ($300 million-$6 million)/10

fund investment company

million shares= $29.40~> ($26-29.4)/29.4= -.1156=

with a portfolio currently

-11.56%== 11.56% discount

worth $300 million. It has liabilities of $6 million and 10 million shares outstanding. If the fund sells for $26 per share, what is its premium of discount as a percent of NAV?

ABC fund started the year

15.7% ... HPR= (NAV1-NAV0+Income+Capital

with a net asset value of

Gains)/NAV0~> (12.50-12.10+1.50)/12.10=

$12.10. By year-end, its NAV

.1570==15.7%

was $12.50. The fund paid year-end distributions of income and capital gains of $1.50. What was the rate of return to an investor in the fund?

Suppose you sell short 500

-10.00% ... 500 shares x $40= 20,000~> 500 shares x

shares of ABC, currently

$44= 22,000 ~~> (22,000-20,000)/20,000= 10... since

selling for $40 per share, and

you sold them and price increased, its a loss of

you give your broker $15,000

10%.

to establish your account. ABC does not pay dividends. If the share price increases to $44 over the next year, what is your rate of return.

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Investments Exam 2 Flashcards | Quizlet

You are bullish on stock ABC

14% ... Buy 200 shares for $10,000, shares increase

which is currently selling at

10% or $1,000. You pay interest on borrowed

$50 per share and does not

money of .06 x 5,000= $300... RR= (1,000-

pay dividends. You decide to

300)/5,000= .14 == 14%

buy 200 shares on margin by investing $5,000 of your own money and borrowing the remainder. If you pay 6% on the borrowed money and the stock increases 10% over the next year, what is your rate of return?

You purchase 1,000 shares of

6.1% ... 1000 x $25= $25,000/(1-.04)= 26,041.67~>

ABC fund at a price of $25

Shares increase from $25,000 to...

per share at the beginning of

$25,000(1.12-.015)= $27,625~> Rate of Return=

the year. You paid a front-end

(27,625-26,041.67)/26,041.67= .0607== 6.1%

load of 4%. The securities in which the fund invests increase in value by 12% during the year. The fund's expense ratio is 1.5%. What is your rate of return on the fund if you sell your shares at the end of the year?

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Investments Exam 2 Flashcards | Quizlet

Consider a mutual fund with

7% ... Start NAV= (200-0)/10= $20~> End NAV= [N=1,

$200 million in net assets

I/Y=(6-.5), PV=-20], SO~ FV= 21.10~> Rate of Return=

(after deducting liabilities) at

[21.10-20+($3/10 shares)]/20= .07== 7%

the start of the year and with 10 million shares outstanding. The fund invests in a portfolio of stocks that provides dividend income at the end of the year of $3 million. The stocks included in the fund's portfolio increase by 6% but no securities are sold and there no capital gains distributions. The fund charges 12b-1 fees of 0.5%. What is the rate of return for an investor in the fund?

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