FIN 468 Final
Which of the following statement related to "Financial Derivatives" is FALSE?
Both Forward and Futures contracts are traded on an exhange.
Which of the following statements about "Investment Theory" is FALSE?
Consumption cannot be predicted easily. Earnings on the other hand can be predicted easily.
Which of the following statements related to a "Demand Shock" is TRUE?
Demand Shocks are events that affect the demand for goods and services in economy
Which of the following statements related to a "Fiscal Policy" is TRUE?
Fiscal Policy deals with the use of government spending and taxing to stabilize the economy
Which of the following statements about "Preferred Stock" is FALSE?
From an investor perspective, preferred stock is more risky than a common stock
Which of the following statement related to "Shorting (Long versus Short Positions)" is FALSE?
In a short position, loss is limited and profit is unlimited to the buyer
Which of the following statements related to the "US inflation rate and interest rates" are TRUE?
Inflation rate and interest rates move in tandem (together)
Which is the LARGEST sector in the S&P500 index by Market Cap?
Information Technology
What is one advantage of investment return over wages?
Investments produce a return 24x7 (even when the investor is sleeping)
In a capitalistic economy (such as the U.S.), what is the primary goal of a company's top management?
Maximize the company's stock price
Which of the following statements related to a "Monetary Policy" is TRUE?
Monetary Policy is implemented by the Federal Reserve by altering the money supply or interest rates
Which of the following statement related to "Shorting (Long versus Short Positions)" is FALSE?
Most investors are used to Short positions (i.e., buy a security such as a stock with expectation that price will increase)
Which of the following is NOT a top-three major US bond market segment?
Municipal Bonds
Which of the below statements on "Intermediaries" is FALSE?
NOT Intermediaries (middlemen) take a commission NOT Intermediaries connect borrowers and savers
Investors who believe that markets are inefficient do the following...
NOT do not time the market NOT engage in passive investment management
Which of the following statements about "Real and Financial Assets" is FALSE?
Net worth is the sum of financial assets
Which of the following is NOT a Major US stock index?
Nikkei 225
Which of the following statement related to "Financial Derivatives" is TRUE?
Options contract gives the buyer a right but not an obligation to buy or sell
Which of the following is NOT a valid "Multiple" used in stock valuation?
P/C (Price to Capital Expenditure)
Which of the following is NOT a valid "Multiple" used in stock valuation?
P/P (Price to Profit)
Which of the following statements regarding the "Basic Bond Valuation Equation" is FALSE?
PV of Bond Coupons is computed using the Growing Annuity formula
What is an investment strategy that entails shifting the portfolio into industry sectors that are expected to outperform others based on macroeconomic forecasts?
Sector rotation
Which of the following statements about Stocks is FALSE?
Stock investors receive coupon payments
Money Market Funds DO NOT invest in the following assets...
Stocks
Which of the following statements related to the "US unemployment rate" is NOT TRUE?
The US unemployment rate during the COVID-19 pandemic was lower than the 2000 dot-com bubble's US unemployment rate
Which of the following statement related to "Financial Derivatives" is FALSE?
There are two main uses of derivatives: day trading and long-term investing
Which of the following statements related to the "US Budget Deficit" is FALSE?
US did not have a budget surplus since the world war II
Which of the following statements regarding Ultra High Networth Individuals (UHNI) is MOSTLY TRUE?
USA has 80,000 Ultra High Net worth Investors (U-HNI), those who have more than $50 million to invest
Which of the following statements related to the US Dollar is TRUE, If the US Dollar Index goes up?
USD is strengthening
Which is the SMALLEST sector in the S&P500 index by Market Cap?
Utilities
At a high-level, there are two types of income. What are they?
Wages and Investment Returns
A big increase in government spending is an example of a...
positive demand shock
Many people face challenges in meeting financial goals because...
they have not developed a detailed financial plan to meet those goals
Which of the following are TRUE regarding "$100 invested in 1928"?
- $100 invested in stocks in 1928 (before the great depressoin) is worth approximately $500,000 in 2021 - $100 invested in bonds in 1928 (before the great depressoin) is worth approximately $10,000 in 2021 - Between 1928 and 2021, the correlation between annual returns of stocks and bonds is slightly negative (close to 0)
Approximately, how many people are in this world? How much wealth do they have collectively?
- 7 to 9 billion people - 300 to 400 trillion wealth
Which of the following are TRUE statements pertaining to "Yield to Maturity" and "Yield to Call"?
- A callable bond can be bought back by the bond issuer before the maturity period - An investor of a non-callable bond gets YTM (yield to maturity) as the return - An investor of a callable bond sometimes gets YTC (yield to call) as the return
According to "Warren Buffett", why Stock valuation is difficult compared to Bond valuation? Hint: Listen to his advice #7
- Bond cash flows and dates are known in advance; Stock cash flows and dates are not known in advance.
Which of the following are TRUE regarding "Stocks vs. Bonds"?
- Bond is a debt, Stock is an equity - A company can raise capital by either borrowing money (bonds) or by selling shares (equity)
Which of the following are the "Key Reasons why Bond prices change"?
- Bond prices and yields move in the opposite direction - Bond prices converge to PAR with passage of time - Interest rate changes impact longer maturity bond prices more (compared to shorter maturity bonds) - Interest rate changes impact low coupon bond prices more (compared to high coupon bonds)
Which of the following statements about "Bonds, Notes and Bills" are TRUE?
- Bonds have a maturity of more than 10 years - Notes have a maturity between 1 and 10 years - Bills have a maturity of less than 1 years - Bills do not have a coupon (interest) attached
Which of the following are TRUE regarding "Common Stocks"?
- Buyer of a Stock becomes a part owner of the company - If a company's stock is traded at a discount compared to its book value, it means investors do not think the company's future is good.
Which of the following currencies is NOT used to compute the "US Dollar Index"?
- Chinese Yuan (CNY), also called the Renminbi - Mexican Peso (MXN)
Which of the following are "Lagging Indicators"?
- Commercial and industrial loans outstanding - Change in consumer price index for services - Average duration of unemployment
Which of the following statements about the "Cyclical and Defensive Industries" are TRUE?
- Cyclical Industries have above-average sensitivity to state of economy - Defensive Industries have below-average sensitivity to state of economy - Defensive Industries do well in a recession - Cyclical Industries do well when the economy is expanding
Which of the following statements related to the "global wealth pyramid" are TRUE?
- Global wealth pyramid shows that less than one percent of the wealthiest population collectively own more than 40% of the wealth - Global wealth pyramid shows that more than 50 percent of the poorest population collectively own less than 2% of the wealth
Match GDP growth rate of the following three countries from the highest (1) to lowest (3)
- Highest ->China - Medium -> USA - Lowest -> Japan
Which of the following statements regarding "Sector Rotation" are TRUE?
- In business contraction cycle, defensive industries often perform better - In business expansion cycle, cyclical industries often perform better - Some industries to invest in a business contraction cycle: Health care, Consumer Staples, Utilities - Some industries to invest in a business expansion cycle: Consumer discretionary, Industrials, Materials
Which of the following statements related to the "global wealth pyramid" are TRUE?
- In the global wealth pyramid, the tip of the pyramid signifies less than one percent of the wealthiest population - In the global wealth pyramid, the bottom of the pyramid signifies more than 50 percent of the poorest population
What is the difference between "income" and"wealth"?
- Income is what one earns in a year (ex: salary, rent, dividends) - Wealth is what one currently owns (ex: cash, stocks, bonds, real estate)
Which of the following statements about "Bonds vesus Stocks" are TRUE?
- Investors purchase Zero coupon bonds at a discount (to PAR value) - Bond quotes are not easily available (on websites such as Yahoo Finance), where as stock quotes are available easily on many websites - A company's stockholders have no payment guarantees from the company
Which of the following are TRUE investment recommendations of "Warren Buffett"?
- Look for three things while hiring employees: Intelligence, Energy, and Integrity - Invest by Facts (numbers), not emotions - Buy wonderful businesses at fair price than a fair business at high price - Only buy stocks in businesses that you understand (or stay in circle of competance)
Which of the following are FALSE regarding "Stock Value and Price"?
- Market price of a stock is not observable in the markets. It has to computed. - Market price of an asset is always the same as the intrinsic value of an asset
At a high level, there are five types of asset classes. What are they?
- Money market - Alternative investments - Equity - Fixed income - Derivatives
Which of the following top-10 global investment firms are located in Los Angeles area?
- PIMCO - Capital Group
Which of the following terms related to "people-related investments" are used interchangeably (i.e., synonyms)?
- Personal investments - Financial Planning by Individuals - Personal Wealth Management
Which of the following statements related to the "Asset Classes" are TRUE?
- Professional call stock market as equity market - Professional call bond market as fixed-income market - The bond market is much bigger than the stock market
Lets assume the economy just came out of a recession and it is entering an expansion state. Rank the sectors to invest from the Best (1) to Worst (5).
- Rank # 1 (Best) -> Technology - Rank # 2 ->Materials - Rank # 3 -> Energy - Rank # 4 ->Consumer Staples - Rank # 5 (Worst)-> Utilities
Which of the following statements related to the "Asset Classes" are TRUE?
- Return on Options can be quite a lot compared to stocks and bonds on a given day - The futures market is very broad and includes agricultural commodities, energy, foreign exchange, metals, etc
Which of the following are TRUE regarding "Stock Valuation"?
- Stock value (intrinsic value) depends on the underlying business cash flows and the cost of capital - Stock price (market price) depends on the supply and demand of stock, investor sentiment, and other market factors. - If Stock Value > Stock Price, stock is undervalued, BUY. - If Stock Value < Stock Price, stock is overvalued, SELL.
Which of the following are "Asset Classes"?
- Stocks - Bonds - Money Market
Match each Asset Class to a City that is known for that asset class
- Stocks (Equity) ->New York - Bonds (Fixed Income) -> Los Angeles - Derivatives-> Chicago
Which of the following are the TOP investment choices of wealthy people?
- Stocks and Bonds - Real estate, Private Equity, and Venture Capital - Cash
Which of the following are TRUE regarding "$100 invested in 1928"?
- Stocks are risky (they go up and down a lot) compared to Bonds - Bonds produce smaller returns but those returns are more stable (they do not go up and down a lot) compared to Stocks
Which of the following are TRUE statements pertaining to "Treasury Securities"?
- Treasury bills have maturities of less than a year (i.e., 4, 13, and 26 weeks) - Treasury notes have maturities of 1-10 years (i.e., 2, 3, 5, and 10 years) - Treasury bonds have maturities of more than 10 years (i.e., 20 and 30 years)
Match the Institutional Investor Type with a Sample Firm
- Type: Pension Funds -> CalPERS - Type: Corporations -> Microsoft - Type: Sovereign Funds -> Abu Dhabi - Type: Endowments -> Harvard Univeristy
Which of the following are the "big-three" issuers of Bonds?
- US Treasuries - Mortgages (Mortgage Backed Securities) - Corporations
Which country has the largest number of millionaires in the world? Approximately, how many millionaires live in that country?
- USA - 20 to 30 Million
Which of the following are the wealthiest places in the world?
- USA - Western Europe - Australia - Japan
Which of the following are TRUE investment recommendations of "Warren Buffett"?
- When you see a great opportunity in your circle of competance, grab it - Don't sell a stock (unless the business fundamentally changes) - Always buy a stock at a price below the intrinsic value
Which of the following can be classified as "financial goals"?
- being a millionaire by 40-years old - Retire by 65-years - Have at least $50,000 yearly income after retirement - Donate $1 million to a cause that one really likes before one's 50th birthday
At a high level, there are two types of investments. What are they?
- people-related - institutional-related
One year ago, Carson Industries issued a 10-year, $1,000 PAR coupon bond at its PAR value.This Bond's annual coupon rate is 11%. Coupons are paid 2 times a year. The Bond is currently trading at $1350.However, this bond can be called in 6 years from today at a price of $1065. How much is the capital gains yield on this Bond for the coming year?Enter your answer in the following format: + or - 0.1234Hint: Answer is between -0.0198 and -0.0242
-0.0222
Consider two Bonds with a $1,000 face value: one with a 10-year and the other with a 30-year maturity. Both Bonds offer a 10% annual coupon, paid once a year. Assume that interest rates, hence YTM (Yield to Maturity) changed from 7% to 8%. How much will be the percentage change in the 30-year Bond price?Enter your answer in the following format: + or - 0.1234Hint: Answer is between -0.1065 and -0.1191
-0.1072
One year ago, Carson Industries issued a 10-year, $1,000 PAR coupon bond at its PAR value. This Bond's annual coupon rate is 11%. Coupons are paid 2 times a year. The Bond is currently trading at $1350. However, this bond can be called in 6 years from today at a price of $1065. How much is the YTC (Yield to Call) of this Bond? In other words, How much is the Bond investor's return if the Bond is called?Enter your answer in the following format: 0.1234Hint: Answer is between 0.0509 and 0.0671
0.051
Suppose the US government just issued a $1,000 PAR value coupon bond today. This bond will mature in 9 years from today. This Bond's annual coupon rate is 10%. Coupons are paid 2 time(s) in a year. The Bond is currently trading at $1178.13. How much is the Yield to Maturity (YTM) of this Bond?In other words, what is the return on investment for the bond investor?Enter your answer in the following format: 0.1234Hint: Answer is between 0.0654 and 0.0735
0.0727
Assets of a firm include Apple Shares of $220,000 and Computers worth $140,000.Those assets are financed with a Bank Loan of $80,000 and Shareholder's Equity of $280,000. How much is the ratio of Real to Total Assets?Enter your answer in the following format: 0.12; Hint: Answer is between 0.27 and 0.40
0.39
A treasury bill (money market) has the following characteristics:Currently trading at $8,935, Face value (or PAR) of $10,000, matures in 90 days. How much is the BDR (Bank Discount Rate)? Enter your answer in the following format: 0.1234Hint: Answer is between 0.4004 and 0.4729
0.426
A treasury bill (money market) has the following characteristics:Currently trading at $8,935, Face value (or PAR) of $10,000, matures in 90 days. How much is the BEY (Bond Equivalent Yield)? Enter your answer in the following format: 0.1234Hint: Answer is between 0.4447 and 0.5076
0.4834
Assets of a firm include Cash of $145,000 and Computers worth $155,000.Those assets are financed with a Bank Loan of $150,000 and Shareholder's Equity of $150,000. How much is the ratio of Real to Total Assets?Enter your answer in the following format: 0.12; Hint: Answer is between 0.44 and 0.59
0.52
A treasury bill (money market) has the following characteristics:Currently trading at $8,935, Face value (or PAR) of $10,000, matures in 90 days. How much is the EAY (Effective Annual Yield)? Enter your answer in the following format: 0.1234Hint: Answer is between 0.5731 and 0.6251
0.5788
Between 1950 and 2020 (i.e., in 70 years), how many recessions has the U.S. experienced?
10 to 15
Consider a 30-year Bond with $1,000 face value, 10% annual coupon, paid once a year.Assume that interest rates, hence YTM (Yield to Maturity) changed from 7% to 8%. How much is the duration of the Bond in years? Enter your answer in the following format: 12.34Hint1: Answer is between 9.43 and 11.9Hint2: Duration = (new bond price - old bond price) * (-100) / old bond price
10.72
Jackson bought a 10-year, $1,000 PAR coupon bond today. The annual coupon rate is 11%. Coupons are paid once a year. When he purchased, Jackson was hoping for a YTM of 10% on this Bond. Assume that Jackson's return expectations did not change and 3 years have passed. How much should be the value of this Bond in 3 years from today?Enter your answer in the following format: 1234.56Hint: Answer is between 1043.33 and 1143.07
1048.69
You are trying to create a stock index using three stocks. To recap, DJIA is a price-weighted index and S&P500 is a value-weighted index.Each stock's data at t=0 (begin of day) and t=1 (end of day) is provided below.Notice that Stock B is split 2 for 1. So, its price went down from $50 to $25, while the quantity went up from 80 to 160. If the Value-Weighted (VW) Index Value at t=0 is 100, How much is the VW value at t=1? Enter your answer in the following format: 123.45Hint: Answer is between 109.42 and 117.16
110.53
You are trying to create a stock index using three stocks. To recap, DJIA is a price-weighted index and S&P500 is a value-weighted index.Each stock's data at t=0 (begin of day) and t=1 (end of day) is provided below.Notice that Stock B is split 2 for 1. So, its price went down from $50 to $25, while the quantity went up from 80 to 160. If the Price-Weighted (PW) Index Value at t=0 is 100, How much is the PW value at t=1? Enter your answer in the following format: 123.45Hint: Answer is between 102.86 and 118.86
114.28
Stock valuation using the 2-stage dividend discount method: Relevant data is provided below. The Procter & Gamble Company Expected Annual DividendsYear$3.722023$3.922024$4.142025$4.362026 5.48%Stage1 dividend growth (g1)2.00%Stage2 dividend growth (g2)0.44Stock Beta (β)2.817%Risk-free Rate (Rf)6.00%Market Risk Premium (MRP)$152.61Current Stock Price How much is the value of this company's stock using the 2-stage dividend discount method? Enter your answer in the following format:123.45 Hint1: Refer to the video 'Stock Valuation: Dividend discount model' and the Excel template. Hint2: Compute R, CF1, CF2, CF3, and CF4 as shown in the video and then compute NPV; R=5.457%; CF4=$133.06 Answer is between 114.61 and 124.07 Note: There is no need to change any underlying Excel formulas.
118.18
You are trying to create a stock index using three stocks. To recap, DJIA is a price-weighted index and S&P500 is a value-weighted index.Each stock's data at t=0 (begin of day) and t=1 (end of day) is provided below.Notice that Stock B is split 2 for 1. So, its price went down from $50 to $25, while the quantity went up from 80 to 160. If the Equal-Weighted (EW) Index Value at t=0 is 100, How much is the EW value at t=1? Enter your answer in the following format: 123.45Hint: Answer is between 116.57 and 129.93
121.43
The question below is based on the Khan Academy's video on "What it means to buy a company stock" from Module 2. The following data is gathered for 'The Procter & Gamble Company '. Follow the same steps shown in the video. The Procter & Gamble Company 151,383Total Assets (in $ billions) 70,845Total Current Liabilities (in $ billions) 35,650Long term debt (less current maturities) (in $ billions) 2,400Total number of Shares Outstanding (in millions) How much is this company's stock value? Enter your answer in the following format: 12.34Hint: Answer is between 16.83 and 21.32
18.7
Suppose the US government is issuing a $1,000 PAR value coupon bond today. This bond will mature in 20 years from today. The annual coupon rate of this bond is 7.5% and the coupons will be paid 4 times a year. What will be the coupon payment each time it is paid? Enter your answer in the following format: 12.34 Hint: Answer is between 17.25 and 19.88
18.75
The latest financial information for The Procter & Gamble Company is provided below. The Procter & Gamble Company $5.74<- EPS (TTM), Earnings per share$144.95<- Latest Share price 2,360 <- Shares Outstanding (in millions)$7.71<- Price to Book Ratio How much is the Book Value Per Share of this company? Enter your answer in the following format: 12.34Hint: Answer is between 17.11 and 20.49
18.78
Suppose the US government is issuing a $1,000 PAR value coupon bond today. This bond will mature in 20 years from today.This Bond's annual coupon rate is 11%. Coupons are paid 2 times in a year. The investors expect 4% annual return on this bond. How much is the present value of this Bond?Enter your answer in the following format: 1234.56Hint: Answer is between 1722.55 and 2192.33
1957.44
You are trying to create a stock index using three stocks. To recap, DJIA is a price-weighted index and S&P500 is a value-weighted index.Each stock's data at t=0 (begin of day) and t=1 (end of day) is provided below.Notice that Stock B is split 2 for 1. So, its price went down from $50 to $25, while the quantity went up from 80 to 160. How much is the denominator used to compute the Price-Weighted index at t=1? Enter your answer in the following format: 1.23Hint: Answer is between 2.42 and 2.78
2.62
Suppose the US government is issuing a $1,000 PAR value coupon bond today. This bond will mature 20 years from today.The annual coupon rate of this bond is 8% and the coupons will be paid 4 times a year. How much will be the coupon payment each time it is paid?Enter your answer in the following format: 12.34Hint: Answer is between 18.41 and 22.22
20
Stock valuation using the multiple (comps) method: Below, P/E ratio for The Procter & Gamble Company and four similar firms (comps) are provided.The annual earnings per share (EPS) of The Procter & Gamble Company is $7.71.Currently, the stock of The Procter & Gamble Company is trading in the market at $144.948. Stock Valuation using the Four Comps Method 22.78<-- P/E of The Procter & Gamble Company 15.48<-- 1) P/E of Target Corporation 71.94<-- 2) P/E of Amazon.com, Inc. 5.95<-- 3) P/E of Macy's, Inc. 34.60<-- 4) P/E of Costco Wholesale Corporation $7.71<-- EPS of The Procter & Gamble Company How much is the stock value of this company using the "Comps" method? Enter your answer in the following format: 123.45Hint: Answer is between 241.73 and 256.53
246.66
The latest financial information for The Procter & Gamble Company is provided below. The Procter & Gamble Company $5.74<- EPS (TTM), Earnings per share$144.95<- Latest Share price 2,360 <- Shares Outstanding (in millions)$7.71<- Price to Book Ratio How much is the P/E ratio of this company for the trailing twelve months? Enter your answer in the following format: 12.34Hint: Answer is between 23.43 and 28.32
25.25
Suppose the US government is issuing a $1,000 PAR value coupon bond today. This bond will mature in 3 years from today.This Bond's annual coupon rate is 11%. Coupons are paid once in a year. The investors expect 4% annual return on this bond. How much is the present value of all coupon payments for this Bond?Enter your answer in the following format: 123.45Hint: Answer is between 274.73 and 341.89
305.25
The latest financial information for The Procter & Gamble Company is provided below. The Procter & Gamble Company $5.74<- EPS (TTM), Earnings per share$144.95<- Latest Share price 2,360 <- Shares Outstanding (in millions)$7.71<- Price to Book Ratio How much is the market capitalization of this company in BILLIONS of USD? Enter your answer in the following format as an integer: 123Hint: Answer is between 300 and 368
342
Suppose the US government is issuing a $1,000 PAR value coupon bond today. This bond will mature in 20 years from today. The annual coupon rate of this bond is 8% and the coupons will be paid 2 times a year. What will be the coupon payment each time it is paid? Enter your answer in the following format: 12.34 Hint: Answer is between 35.2 and 46
40
Jackson bought a 5-year, $1,000 PAR coupon bond today. Annual coupon rate is 10%. Coupons are paid once a year.Jackson was hoping for a yield to maturity (YTM) of 10% on this Bond. A few hours after purchasing this bond, a very bad economic event occurred, and all interest rates went down by 2%. How much is Jackson's profit today? Enter your answer in the following format: 12.34Hint: Compute the Bond PV before and after interest rate change, and take the difference. Answer is between 71.87 and 88.64
79.85
Suppose a company is paying a $5.25 preferred dividend to its investors.Those who Invest in this preferred stock are expecting a return of 5.30% on their investment. How much is the Value of this Preferred Stock? Enter your answer in the following format: 12.34Hint: Answer is between 92.12 and 99.99
99.06
