Finn Module 2 Exam Which of the following statements is correct? Group of answer choices Liquidity risk is the risk that a security may be difficult to sell on short notice for its true value. Real interest rates are generally lower than nominal interes

Which of the following will only be executed if the order's price conditions are met?

limit order

Which of these is the interest rate that is actually observed in financial markets?

nominal interest rates

At your full-service brokerage firm, it costs $110 per stock trade. How much money do you receive after selling 100 shares of Time Warner, Inc. (TMX), which trades at $22.62?

$2,152.00

You would like to sell 100 shares of Pfizer, Inc. (PFE). The current bid and ask quotes are $27.22 and $27.25, respectively. You place a limit sell-order at $27.24. If the trade executes, how much money do you receive from the buyer?

$2,724.00

Determine the interest payment for the following three bonds: 4 percent coupon corporate bond (paid semiannually), 4.75 percent coupon Treasury note, and a corporate zero-coupon bond maturing in 15 years. (Assume a $1,000 par value.)

$20.00, $23.75, $0, respectively

At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 200 shares of General Electric (GE), which trades at $45.19?

$9,047.95

TechNo stock was $25 per share at the end of last year. Since then, it paid a $1.50 per share dividend last year. The stock price is currently $23. If you owned 300 shares of TechNo, what was your percent return?

-2 percent

A corporation's 10-year bonds are currently yielding a return of 7.75 percent. The expected inflation premium is 3.0 percent annually and the real interest rate is expected to be 3.00 percent annually over the next 10 years. The liquidity risk premium on the corporation's bonds is 0.50 percent. The maturity risk premium is 0.25 percent on two-year securities and increases by 0.10 percent for each additional year to maturity. What is the default risk premium on the corporation's 10-year bonds?

.20 percent

The past five monthly returns for PG&E are 12.14 percent, −11.37 percent, 3.77 percent, 6.47 percent, and 3.58 percent. What is the average monthly return?

2.92 percent

A 6.5 percent coupon bond with 12 years left to maturity can be called in four years. The call premium is one year of coupon payments. It is offered for sale at $1,190.25. What is the yield to call of the bond? (Assume interest payments are paid semiannually and par value is $1,000.)

2.96 percent

The Buckle (BKE) recently paid a $0.90 dividend. The dividend is expected to grow at a 19 percent rate. At the current stock price of $43.17, what is the return shareholders are expecting?

21.48 percent

The standard deviation of the past five monthly returns for PG Company are 2.75 percent, −0.75 percent, 4.15 percent, 6.29 percent, and 3.84 percent. What is the standard deviation?

3.25%

One-year Treasury bills currently earn 3.15 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.65 percent and that two years from now, one-year Treasury bill rates will increase to 4.05 percent. If the unbiased expectations theory is correct, what should the current rate be on three-year Treasury securities?

3.62 percent

Financial analysts forecast Target Corp. (TGT) growth for the future to be 11 percent. Their recent dividend was $0.52. What is the value of their stock when the required rate of return is 11.89 percent?

64.85

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?

7.38 percent

The Wall Street Journal reports that the rate on four-year Treasury securities is 7.50 percent and the rate on five-year Treasury securities is 9.15 percent. According to the unbiased expectations hypothesis, what does the market expect the one-year Treasury rate to be four years from today, E(5r1)?

=((1+9.15%)^5/(1+7.50%)^4)-1 =16.01%

Which of the following statements is correct? Group of answer choices A low standard deviation means that the investment is less likely to achieve high returns, which means that it is more risky. It is not necessarily true that when an investment achieves a high return that it is risky. A dominant portfolio has the best risk-return relationship as compared to other portfolios. None of these choices are correct.

A dominant portfolio has he best risk-return relationship as compared to the other portfolios

If you own 600 shares of Alaska Corporation at $23.25, 450 shares of Best Company at $34.50, and 150 shares of Motor Company at $6.95, what are the portfolio weights of each stock?

Alaska =0.6000, Best =0.4500, Motor =0.1500 b.

Which of the following statements is correct? Group of answer choices Liquidity risk is the risk that a security may be difficult to sell on short notice for its true value. Real interest rates are generally lower than nominal interest rates. A flat yield curve occurs when the yield-to-maturity is virtually unaffected by the term-to-maturity. All of these choices are correct.

All of these are correct

Which of the following statements is correct? Group of answer choices Bonds with large coupon payments will have very little interest rate risk. Bonds with higher credit ratings will have very little interest rate risk. Bonds with short-term maturities will have very little interest rate risk. All of these choices are correct.

All of these choices are correct

Which of the following statements is incorrect? Central governments can intervene in foreign exchange markets directly and value their currency at high rates relative to another currency. Governments affect foreign exchange rates indirectly by altering prevailing interest rates within their own countries. Foreign currency exchange rates vary with the day-to-day demand and supply of the two foreign currencies. All of these choices are correct.

All of these choices are correct

Consider a 3.25 percent TIPS with an issue CPI reference of 186.7. At the beginning of this year, the CPI was 197.5 and was at 202.4 at the end of the year. What was the capital gain of the TIPS in dollars? (Assume semi-annual interest payments and $1,000 par value.)

Capital gain = end of year value - beginning of year value End of years value= end of year CPI/ CPI reference × par value End of year value=202.4/186.7× (1000)= 1084.10 Beginning of year value= beginning of year CPI / CPI reference × (1000) Beginning of Year value= 197.5/186.7×(1000)= 1057.85 Capital gain= 1084.10 - 1057.85= 26.25

Possible shapes for the yield include all of the following EXCEPT

Flat , downward-sloping, and humped

Which of these is the expected or "implied" rate on a short-term security that will originate at some point in the future?

Forward rate

Which of the following is most correct

In an efficient market, investors will sell overvalued stock which will drive its price down.

How is the shadow banking system the same as the traditional banking system?

It intermediates the flow of funds between net savers and net borrowers.

Why is the ask price higher than the bid price?

It represents the gain a market maker achieves.

Value stocks usually have

Low P/E ratios and high growth rates

Interest rates, inflation, and economic growth are economic factors that are examples of

Market risk

Which of the following statements is correct? Group of answer choices We can typically add many stocks together to fully eliminate the market risk in a portfolio. Uncorrelated assets have a correlation of −1.0. Most common stocks are positively correlated with each other because they are impacted by the economic factors. None of these choices are correct.

Most common stock are positively correlated with each other because they are impacted by the economic factors

Which of the following statements is correct? Group of answer choices Stocks, long-term Treasury bonds, and Treasury bills are all highly correlated. Stocks and long-term Treasury bonds are highly positively correlated. Stocks and Treasury bills are highly positively correlated.

None of these choices are correct

An 8 percent coupon bond with 15 years to maturity is priced to offer a 9 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.5 percent. What is the change in price the bond will experience in dollars? (Assume annual interest payments and par value is $1,000.)

Present Value of the annuity of $80 (1000 x 8%) at 9% for 15 Years = 8.06069 Present Value of annuity = 644.86 Present Value of maturity amount receiveable after 15 Years = 0.2745 x 1000 = 274.50 Total = 919.36 That is the present value of bond. After one year: Present Value of the annuity of $80 (1000 x 8%) at 6.5% for 14 Years = 721.11 Present Value of maturity amount receiveable after 14 Years = 414.10 Total = 1,135.21 Change in Price = 1,135.21 - 919.36 = 215.85

Which of the following indices best reflects the ten sectors of the economy?

Standard and Poor's 500

The constant growth model assumes which of the following?

That the stock is efficiently priced.

Which of the following statements is incorrect regarding how beta is calculated?

The market portfolio return is the dependent variable. The company return is the independent variable. Using the oldest data possible will yield the most accurate results.

Which of the following is an important advantage to the issuer of a bond with a call provision?

They allow for refinancing opportunities.

Which of the following is incorrect with respect to limit orders? Group of answer choices The advantage of the limit order is that the investor makes the trade at the desired price. The disadvantage of the limit order is that the trade might not be executed at all. They can be used only to buy stock. If the current quote does not meet the price cited in the limit order, the trade is

They can be used only to buy stock

U.S. Bancorp holds a press conference to announce a positive news event that was unexpected to the market. As soon as the announcement is made, the stock price increases $8 per share but then over the next hour the price falls resulting in a net increase of only $4. Given this information which of the following statements is correct?

This is an example of a market overreaction.

U.S. Bancorp holds a press conference to announce a positive news event that was unexpected to the market. As soon as the announcement is made, the stock price increases $8 per share but then over the next hour the price continues to increase resulting in a total increase of $11. Given this information which of the following statements is correct?

This is an example of a market underreaction.

The Wall Street Journal reports that the rate on three-year Treasury securities is 7.00 percent, and the six-year Treasury rate is 7.25 percent. From discussions with your broker, you have determined that the expected inflation premium will be 1.75 percent next year, 2.25 percent in year 2, and 2.40 percent in year 3 and beyond. Further, you expect that real interest rates will be 3.75 percent annually for the foreseeable future. What is the maturity risk premium on the six-year Treasury security?

Treasury security is given as below = Six-yearTreasury rate - (Expected Inflation Premium + Expected Real Interest Rates ) = 7.25% - (2.4%+3.75%) = 1.10 %

Which of these statements is true? Group of answer choices Many people purchase stocks as they find comfort in the certainty for this safe form of investing. When people purchase a stock, they do not know what their return is going to be—either short term or in the long run. When people purchase a stock, they know the short-term return, but not the long-term return. When people purchase a stock, they know exactly what their dollar and percent return are going to be.

When people purchase a stock, they know the short term return, but not the long term return

Which of the following statements is correct? Group of answer choices All else the same, an investor will require more return to invest in a callable bond than one that is not callable. The call feature does not impact the return that investors demand. All else the same, an investor will require less return to invest in a callable bond than one that is not callable. We would need to know the current level of interest rates to answer this question.

all else the same, an investor will require more return to invest in a callable bond than one that is not callable

Which of the following are backed only by the reputation and financial stability of the corporation?

debentures & unsecured bonds