Investments - HW 1 Questions

C) 3.37% BEY = (365*0.033)/(360-86*0.033)=0.0337

A T-bill with face value $10,000 and 86 days to maturity is selling at a bank discount ask yield of 3.3%. What is its bond equivalent yield? (Use 365 days a year. Do not round intermediate calculations. Round your answer to 2 decimal places). A) 3.21% B) 4.26% C) 3.37% D) 2.08%

A) $9,921.17 Price = 10000 * (1-0.033*(86/360))=9921.17

A T-bill with face value $10,000 and 86 days to maturity is selling at a bank discount ask yield of 3.3%. What is the price of the bill? (Use 360 days a year. Do not round intermediate calculations. Round your answer to 2 decimal places). A) $9,921.17 B) $10,000.00 C) $9,877.55 D) $9,850.23

C) $0.45 Dividend yield = Annual dividend/Price, Annual Dividend = 0.03*60 = 1.8 Quarterly dividend = 1.8/4=0.45

A stock quote indicates a stock price of $60 and annual dividend yield of 3%. The latest quarterly dividend received by stock investors must have been _________ per share. A) $0.55 B) $1.80 C) $0.45 D) $1.25

B) security analysis

After much investigation, an investor finds that Intel stock is currently underpriced. This is an example of _____________. A) asset allocation B) security analysis C) top-down portfolio management D) passive management

B) the allocation of the investment portfolio across broad asset classes

Asset allocation refers to _________. A) the analysis of the value of securities B) the allocation of the investment portfolio across broad asset classes C) the choice of specific assets within each asset class D) none of the options

B) federal funds

Deposits of commercial banks at the Federal Reserve are called _____. A) bankers' acceptances B) federal funds C) certificates of deposit D) time deposits

D) allow most participants to routinely earn high returns with low risk

Financial markets allow for all but which one of the following? A) shift consumption through time from higher-income periods to lower-income periods B) price securities according to their riskiness C) channel funds from lenders of funds to borrowers of funds D) allow most participants to routinely earn high returns with low risk

B) Trade will not be executed.

Here is some price information on Company A stock. Suppose first that Company A trades in a dealer market. Bid: $55.25; Ask: $55.50 What will happen suppose you have submitted a limit order to sell at $55.62? A) Trade will be executed. B) Trade will not be executed.

B) 55.50

Here is some price information on Company A stock. Suppose first that Company A trades in a dealer market. Bid: $55.25; Ask: $55.50 Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed? (Round your answer to 2 decimal places.) A) 55.25 B) 55.50

A) $54.23 Total assets are $7,050 ($4,700 from the sale of the stock and $2,350 put up for margin). Liabilities are 100P. Therefore, your short position margin ratio is equity/value of stock = ($7,050 - 100P)/100P = 0.30, we get P=$54.23

How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? (Round your answer to 2 decimal places.) A) $54.23 B) $63.20 C) $71.54 D) $45.62

C) stop-loss; stop-buy

If an investor places a _________ order, the stock will be sold if its price falls to the stipulated level. If an investor places a __________ order, the stock will be bought if its price rises above the stipulated level. A) stop-buy; stop-loss B) market; limit C) stop-loss; stop-buy D) limit; market

D) they are safe and marketable

Money market securities are sometimes referred to as cash equivalents because _____. A) they are not liquid B) they are high-risk C) they are low-denomination D) they are safe and marketable

A) a new financial asset was created

Stone Harbor Products takes out a bank loan. It receives $100,000 and signs a promissory note to pay back the loan over 5 years. In this transaction, _________ . A) a new financial asset was created B) a financial asset was traded for a real asset C) a financial asset was destroyed D) a real asset was created

A) $20,000 Decline in price = $50 - $30 = $20 Profit = Number of shorted shares * Decline in price = 1000*$20 = $20,000

Suppose that you expect that BubbleCom stock price is going to decline. So you decide to ask your broker to short sell 1000 shares. The current market price is $50. The proceeds from the short sale $50,000 is credited into your account. A few days later the market price of the stock declines to $30 per share. What is your profit from this transaction? A) $20,000 B) $30,000 C) $15,000 D) $50,000

A) bid

The _________ price is the price at which a dealer is willing to purchase a security. A) bid B) ask C) clearing D) settlement

D) 34.41% If the share price is $44, then the value of the stock is $4,400. The amount of the loan owed to is: Principal × (1 + Interest rate) = $2,600 × (1 + 0.11) = $2,886. The value of the stock falls to: $44 × 100 shares = $4,400. The margin in the investor's account: ($4,400 - $2,886)/$4,400 = 0.3441 = 34.41%

The investor opens a brokerage account and purchases 100 shares of Internet Dreams at $44 per share. He borrows $2,600 from his broker to help pay for the purchase. The interest rate on the loan is 11%. What is the margin in his account? (Round your answer to 2 decimal places.) A) 37.16% B) 20.25% C) 45.89% D) 34.41%

B) book building

The process of polling potential investors regarding their interest in a forthcoming initial public offering (IPO) is called ___________. A) interest building B) book building C) market analysis D) customer identification

D) underwriter

Under firm-commitment underwriting, the___________assumes the full risk that the shares cannot be sold to the public at the stipulated offering price. A) red herring B) issuing company C) initial stockholder D) underwriter

C) the principal and interest that are paid by the homeowner, minus a servicing fee

When a pass-through mortgage security is issued, what does the issuing agency expect to receive? A) the amount of the original loan plus a servicing fee B) the principal and interest that are paid by the homeowner C) the principal and interest that are paid by the homeowner, minus a servicing fee D) the interest paid by the homeowner, plus a servicing fee

B) I or II only

Which is a characteristic of a debt security? I. A fixed stream of income II. A principal III. Unlimited life span A) I only B) I or II only C) I and III only D) II or III only

A) an equally weighted index

Which of the following does not approximate the performance of a buy-and-hold portfolio strategy? A) an equally weighted index B) a price-weighted index C) a value-weighted index D) all of these options (Weights are not a factor in this situation.)

C) U.S. Treasury Bond

Which of the following is not a money market security? A) U.S. Treasury Bill B) 1-month maturity certificate of deposit C) U.S. Treasury Bond D) All of the options

B) A maintenance margin is the minimum amount the margin account can decline to without an investor having to take any action.

Which of the following is true? A) A maintenance margin is the maximum amount the margin account can decline to without an investor having to take any action. B) A maintenance margin is the minimum amount the margin account can decline to without an investor having to take any action. C) A maintenance margin is the amount that the margin account must be kept at all times.

D) Both A and C

Which of the following statements is true about limit orders? A) A limit order controls the price but does not guarantee that the order will be filled. B) Limit orders are executed at the best price available. C) A limit order is recorded in the limit order book until it can be executed. D) Both A and C

B) It is a price-weighted average of 30 large industrial stocks.

Which one of the following is a true statement regarding the Dow Jones Industrial Average? A) It is a value-weighted average of 30 large industrial stocks. B) It is a price-weighted average of 30 large industrial stocks. C) It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange. D) It is a value-weighted average of all stocks traded on the New York Stock Exchange.

C) IPOs generally provide superior long-term performance as compared to other stocks.

Which one of the following statements about IPOs is not true? A) IPOs generally have been poor long-term investments. B) IPOs often provide very good initial returns to investors. C) IPOs generally provide superior long-term performance as compared to other stocks. D) Shares in IPOs are often primarily allocated to institutional investors.

C) $2,350 Initial margin is 50% of $4,700, which is $2,350.

You are bearish on Telecom and decide to sell short 100 shares at the current market price of $47 per share. How much in cash or securities must you put into your brokerage account if the broker's initial margin requirement is 50% of the value of the short position? A) $10,000 B) $4,700 C) $2,350 D) $5,000

A) $42.86 The value of the 400 shares is 400P. Equity is (400P - $12,000), and the required margin is 30%. Solving (400P-$12,000)/400P = 0.30 we get P = $42.86

You are bullish on ABC stock. The current market price is $60 per share, and you have $12,000 of your own to invest. You borrow an additional $12,000 from your broker at an interest rate of 5.8% per year and invest $24,000 in the stock. How far does the price of ABC stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately. (Round your answer to 2 decimal places). Stock price falls below: A) $42.86 B) $54.25 C) $47.16 D) $44.35

C) 10.20% The shares increase in value by 8%: $24,000 × 0.08 = $1,920. You pay interest of = $12,000 × 0.058 = $696. The rate of return will be: ($1920 - $696)/$12,000 = 0.102 or 10.2%

You are bullish on ABC stock. The current market price is $60 per share, and you have $12,000 of your own to invest. You borrow an additional $12,000 from your broker at an interest rate of 5.8% per year and invest $24,000 in the stock. What will be your rate of return if the price of ABC stock goes up by 8% during the next year? (Ignore the expected dividend.) (Round your answer to 2 decimal places.) A) 12.63% B) 15.87% C) 10.20% D) 25.70%

B) $62.50 Amount received from short sale = 200 * 50 = 10000 Loss = $2500 = 200P-10000, so P=62.50

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: A) $37.50 B) $62.50 C) $56.25 D) $59.75

B) Production equipment

__________ is (are) real assets. A) Bonds B) Production equipment C) Stocks D) Life insurance

C) Bottom-up

__________ portfolio construction starts with selecting attractively priced securities. A) Top-down B) Upside-down C) Bottom-up D) Side-to-side

Index math look at hw

index math look at hw

index math look at hw

index math look at hw