FIN5215 MIDTERM

A __________ option gives the holder the right to purchase an asset for a specified price

Call

The arithmetic average of -11%, 15%, and 20% is ________.

8%

Assets that offer residual claims in a corporation. Represents an ownership share.

Equity Security

You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________. (Assume the stock pays no dividends, and ignore interest on the margin loan.) $26.55 $35.71 $28.95 $30.77

35.71

Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million, and $150 million, respectively. If you were to construct a price-weighted index of the three stocks, what would be the index value?

39

The geometric average of -12%, 20%, and 25% is _________.

9.7%

Which of the following are financial assets? I. Debt securities II. Equity securities III. Derivative securities

I, II, and III

You short-sell 200 shares of Tuckerton Trading Co., now selling for $56 per share. What is your maximum possible gain, ignoring transactions cost?

11,200

You short-sell 400 shares of Rock Creek Fly Fishing Co., now selling for $34 per share. If you want to limit your loss to $3,300, you should place a stop-buy order at ___. 31_2013_QC_38095 a) $25.75 b) $51.50 c) $34.00 d) $42.25

42.25

You purchased 1,000 shares of the New Fund at $20/share at the beginning of the year. You paid a front-end load of 4%. The fund increases in value by 12% during the year. The expense ratio is 1.2%. What is your rate of return on the fund if you sell your shares at the end of the year?

6.37 or .0637

You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you want to limit your loss to $2,500, you should place a stop-buy order at ____. $37.50 $62.50 $56.25 $59.75

62.50

Assets that pay a fixed stream of income for a specified period of time

Debt Securities

Assets whose payoff is contingent on the value of another asset.

Derivative Security

Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund. What is the expected return and standard deviation of your client's portfolio?

Expected return = 14.0% per year Standard deviation = 18.9% per year

Which asset class has short term debt instruments?

Money Market

Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $65 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $65 to $76.50, and the stock has paid a dividend of $9.80 per share. a. What is the remaining margin in the account? b-1. What is the margin on the short position? (Round your answer to 2 decimal places.) b-2. If the maintenance margin requirement is 30%, will Old Economy receive a margin call? c. What is the rate of return on the investment? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

a) $ 11,200 b-1) 14.64 % b-2) Yes c) -65.54%

Suppose you bought a share of Goldman Sachs (GS) at the opening price of $117.55 a share on October 20, 2011. You sold the stock on October 24, 2011 at the closing price of $100.40 a share. The company paid out $0.35 a share regular dividend on October 23, 2011. (a) Ignoring transaction costs, what was the five-day HPR of this investment? (b) What was the APR and EAR of this investment?

a) HPR = -14.292 b) APR = -1,043.3% EAR = -99.999%

Ownership of a put option entitles the owner to the __________ to ___________ a specific stock, on or before a specific date, at a specific price.

right; sell

__________ is (are) real assets. Bonds Production equipment Stocks Life insurance

Production equipment

Which asset class has long term debt instruments?

Bond Market/Fixed Income Capital Market

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.5%. The probability distributions of the risky funds are: Expected Return & Standard Deviation Stock fund (S) 15% 32% Bond fund (B) 9% 23% The correlation between the fund returns is .15. What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds?

Expected return 10.89 % Standard deviation 19.94 %

Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. A client prefers to invest in your portfolio a proportion (y) that maximizes the expected return on the overall portfolio subject to the constraint that the overall portfolio's standard deviation will not exceed 20%. a. What is the investment proportion, y? (Round your answer to 2 decimal places.) b. What is the expected rate of return on the overall portfolio? (Round your answer to 2 decimal places.)

Investment proportion y = 74.07 % Rate of return = 14.41 %

The composition of the Fingroup Fund portfolio is as follows: Stock Shares Price A 340,000 $ 35 B 440,000 40 C 540,000 20 D 740,000 25 The fund has not borrowed any funds, but its accrued management fee with the portfolio manager currently totals $50,000. There are 4 million shares outstanding. What is the net asset value of the fund?

Market value of assets - liabilities) / shares outstanding =Net asset value (((340,000 x 35) + (440,000 x 40) + (540,000 x 20) + (740,000 x 25)) - 50,000) / 4,000,000 =14.69

A __________ option gives the holder the right to sell an asset for a specified price.-

Put

An example of a derivative security is _________. a common share of General Motors a call option on Intel stock a Ford bond a U.S. Treasury bond

a call option on Intel stock

Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $34 per share. She borrows $4,400 from her broker to help pay for the purchase. The interest rate on the loan is 7%. a. What is the margin in Dée's account when she first purchases the stock? b-1. If the share price falls to $24 per share by the end of the year, what is the remaining margin in her account? (Round your answer to 2 decimal places.) b-2. If the maintenance margin requirement is 30%, will she receive a margin call? c. What is the rate of return on her investment?

a) 5,800 b-1) 34.61 b-2) no c) -57.03

Both a call and a put currently are traded on stock XYZ; both have strike prices of $45 and maturities of six months. What will be the profit/loss to an investor who buys the call for $4.65 in the following scenarios for stock prices in six months? a. $35 b. $40 c. $45 d. $50 e. $55

a. -4.65 b. -4.65 c. -4.65 d. .35 e. 5.35

top down approach is __________ analysis --> __________ analysis --> __________ analysis

economic analysis --> Industry Analysis --> Company Analysis

In a ___________ index, changes in the value of the stock with the greatest market value will move the index value the most, everything else equal.

value-weighted index