Fin 5320 Final

You like to short and use margin investing. You have the following information: You decide to sell 100 shares of Dell short when it is selling at $32.25. Your broker tells you your margin requirement is 55%. The commission on the short sale is $55. While you are short, Dell pays a $0.75 dividend. At the end of one year, you buy Dell back at $28.38 and are charged a commission of $45. What is the dollar return on your investment?

$212.00

An investor does two transactions. He buys 400 shares of Pepsi at $55 per share using his margin account. He sells short 100 shares of IBM at $70. The initial margin is 60%. The call money rate is 8%. The maintenance margin is 35%. At what price will the investor receive a margin call on Pepsi?

$33.85

You purchase 200 shares at $34.15. Then you buy 150 shares at $40.19. Finally, you buy 210 shares at $37.00. What is your cost basis?

$36.84

Sally buys a stock for $67. It pays a dividend of $1.34 per year. What is Sally's annualized holding period return if she sells the stock after three years for $65?

1%

You invest $1000 in Ford and earn 10%. You invest $2000 in AT&T and earn 9%. You invest $2200 in Microsoft and earn 12%. What is your HPR? Assume one year.

10.46%

An investor does two transactions. He buys 400 shares of Pepsi at $55 per share using his margin account. He sells short 100 shares of IBM at $70. The initial margin is 60%. The call money rate is 8%. The maintenance margin is 35%. What is the return to the investor after one year if he sells Pepsi at $65?

24.9%

If you are 35 years old, what is the common and conservative rule of thumb about your asset allocation?

35% in bonds and 65% in stock

If you have 4 to 6 years before you need the funds, what is a recommended asset allocation?

50% in stock, 40% in bonds, and 10% in cash

What is the annual holding period return for an investor that buys a stock at $67, earns dividends of $3, $3.10, and $3.15 and sells the stock for $72 after the three years?

6.6%

You like to short and use margin investing. You have the following information: You decide to sell 100 shares of Dell short when it is selling at $32.25. Your broker tells you your margin requirement is 55%. The commission on the short sale is $55. While you are short, Dell pays a $0.75 dividend. At the end of one year, you buy Dell back at $28.38 and are charged a commission of $45. What is the percentage return on your investment?

7.47%

Which of the following is FALSE about a longer time period's effect on risk?

A longer time horizon increases an investor's sensitivity to a loss

For the past year, disposable personal income has fallen steadily. Which of the following is most likely to be affected? Automotive Defense

Automotive

Which component is the largest part of GDP?

Consumption

The Federal Reserve will ___ interest rates when the economy is in a recession.

Decrease

Choosing between Coke and Pepsi is called

Diversification

Which grouping are DJIA stocks?

Exxon, Microsoft, Merck, and Wal-Mart

A stock that trades on the NASDAQ has only one market maker.

False

The NYSE has more stocks listed than the NASDAQ has.

False

The bid ask spread decreases the cost of trading (True or False

False

Buffaloland is a multinational firm with most of its sales outside the U.S. A weak dollar should _____ its earnings and ____ its stock price.

Increase and increase

Firm S is the supplier to firm R, the retailer, who sells to customer C. The industry is prescription drugs where pharmaceutical manufacturers (S) sell to pharmacies (R) that sell to patients (C). Which of the following is TRUE?

Patents increase the profitability of the manufacturers

Referring to the Ibbotson rates of return, which of the following is TRUE?

Stocks earn about 3%-4% more than T-bonds on average since 1960

In which of the following situations would you be more willing to buy the stock of ABC Corporation? The chain is wholesaler to retailer to final consumer.

Ten firms are wholesalers to 5 firms who are retailers to 2 final customers. ABC is a final customer.

The money supply increases and GDP is rising. We know that

The economy is expanding

Under which of the following circumstances will the industry do well in a recession?

The industry has low financial leverage and low operating leverage

Cyclical government deficits are positive for stock markets and negative for bond markets (True or False)

True

The NASDAQ is a series of computer terminals linked together in real time.

True

the DJIA and S&P 500 move together (high positive correlation) (True or False)

True

the ask price is larger than the bid price (True or False)

True

Which index is considered to be the broadest index?

Wilshire 5000

As the time between investing and needing the money increases (you don't need the money for a long time), the asset allocation becomes more ____ and the total risk of the portfolio ______.

aggressive; increases

Current new plant and equipment orders are lower. This is consistent with

an economy that will contract

A market order is executed ____?

at the current price

Which market is generally most efficient?

auction

Which is the best measure of risk for a diversified portfolio?

beta

If an average investor has a strong aversion to risk and wants steady income, which of the following investments is the better choice?

bonds

The problem of base

causes returns to be higher for lower priced stocks

An investor requires 10% from a stock that he bought when he thought it will earn 12%. Which of the following is TRUE?

for the investor to gain in wealth, his HPR must be higher than 10%

Which of the following types of stocks is the most volatile?

growth

The New York Stock Exchange has all of the following market characteristics EXCEPT

illiquid

If housing starts increase we would expect stock prices to ____.

increase

Risk in the market just increased. As a result, the required rate of return _____ and the current price of a security _____.

increases; decreases

When the ISM releases a number of 45, we know

indicates a shrinkage

Which of the following indicates an upcoming contraction in the economy or a recession? duration of unemployment falls inventories fall inventories rise industrial production falls

industrial production falls

Firm A is the supplier to Firm B. Firm B has more power if Firm A has ____ information, ____ volume in purchases, and ____ ability to forward integrate.

less, less, less

Higher current consumption can lead to

lower future consumption if income doesn't increase

Which of the following is a good way to get started investing for the average American?

make investing automatic so you don't miss the income

The yield curve graphically shows

maturity risk

Pepsi increased its debt level from 35% to 45%. The economy is growing slower. The first condition is _____ risk while the second condition is _____ risk.

negative financial risk; negative business cycle risk

If one is going to use debt, which characteristic should one try to have for the payment plan?

pay over the shortest time period possible to keep total interest paid low

Paul owns some shares of InfoSoft, which he purchased when the stock was selling for $3.50. The stock price rose to $9.50 a share and Paul wanted to protect his profit in case the stock price dropped. He entered a stop loss sell order at $8.88. The next day, the stock rose to $9.65, then dropped to $8.75 and ended at $9.10. Paul ended up

selling his shares at $8.88 because the price dropped to $8.88 and lower

If a firm has a lot of fixed production costs, the firm

should balance the fixed costs with a smaller amount of debt

The individual responsible for the orderly trading of a stock is the

specialist/market maker

This industry type consists of well-known firms with moderate growth rates in non-cyclical industries.

stalwarts

Inflation risk is more important for

stocks bonds

An investor does two transactions. He buys 400 shares of Pepsi at $55 per share using his margin account. He sells short 100 shares of IBM at $70. The initial margin is 60%. The call money rate is 8%. The maintenance margin is 35%. What order should the investor place to limit his loss on the short of IBM to 15%?

stop buy at $82.35

In which of the following situations will the supplier have more power in setting the price? (The price is sticky.)

switching costs are high

If an industry is undergoing a wave of mergers, stock investors should focus on buying stock in

targets

If the duration of unemployment increases, we know

the economy has been contracting

As the percent of income spent on an industry's products/services increases,

the industry is more sensitive to the business cycle

If a stock pays a dividend while an investor is short in the stock, what happens?

the investor must pay the dividend to the owner of the stock from whom he borrowed the stock

This type of portfolio management style looks at the macro economy and which industries should do well in the stage of the business cycle and then chooses stocks from those industries.

top-down